Research and Statistics

Cardholders’ Bill of Rights to go before House today


The full U.S. House of Representatives is expected to consider the Credit Cardholders’ Bill of Rights bill today.

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Editor’s note: See newer story, House passes Credit Cardholders’ Bill of Rights.

The Credit Cardholders’ Bill of Rights is expected to be voted on this morning by the full U.S. House of Representatives.

A spokesman for Rep. Carolyn Maloney, the bill’s chief sponsor, said late Monday that the bill, HR 5244, will go to the floor today.

The bill, which passed by a 39-27 margin in the House Financial Services Committee July 31, would add consumer protections to credit card industry practices. Among the provisions: banning surprise interest rate hikes, giving consumers 45 days’  notice before changes in terms of credit card agreements take effect and prohibiting issuance of credit cards to anyone under the age of 18.

On Friday, House Speaker Nancy Pelosi (D-Calif.) and House Banking Committee Chairman Barney Frank (D-Mass.) joined a large number of pro-consumer groups in signing a letter in support of the measure. The “tricks and traps” of current credit card rules “have always been unfair, but they produce devastating financial repercussions in times of economic difficulty,” the letter said.

On Monday, President Bush’s administration took the side of the banking industry, which opposes the measure. “…(I)t would broadly constrain the ability of financial institutions to price risk, likely resulting in less access to credit and in higher interest rates for consumers,” the administration said in a prepared statement. “For the credit market to operate efficiently, creditors must have the flexibility to react to changes in customer risk and market conditions.”

Many of the provisions of the proposed bill are also included in proposed rule changes under consideration by the three agencies regulating credit card issuers: the Federal Reserve, the Office of Thrift Supervision and the National Credit Union Administration. Officials from the Fed have said they hope to complete final approval of the rules by the end of 2008. Those rules would ban alleged “unfair or deceptive” practices in the credit card industry and generated more public comments than any other Fed proposal in history.

Consumer advocates say both the federal rules and the Credit Cardholders’ Bill of Rights will help level the playing field for consumers drowning in credit card debt but unable to understand and follow complex credit card rules. A coalition of 22 consumer, civil rights and advocacy groups lead by Consumers Union have sent letters to Congress urging passage of the bill.

Banking and credit card industry representatives have said the proposals will lead to unintended consequences for all consumers, namely, higher interest rates and fewer people granted credit privileges. On Monday, the American Bankers Association, a leading industry trade group, launched, a new website with credit card industry policies and facts and information about the impact of the proposed rules and legislation on the banking industry.

Financial impact
A Sept. 8 Congressional Budget Office review of the financial impact of the proposed bill estimated the legislation would have minimal impact on federal agencies, none on state and local governments but millions in lost revenues and additional costs to credit card issuers.

By law, the CBO must point out whenever legislation would impose “unfunded mandates” on  private industries more than a threshold amount. In 2008, that amount is $136 million, and the CBO concludes that this legislation would exceed it.

According to the CBO report, the aggregate cost of those requirements imposed on the industry would likely exceed the annual threshold “in at least one of the first five years the mandates are in effect.”

In addition: “According to the Federal Reserve and industry representatives, creditors would need to develop and implement new software programs and systems to compile the required data. Based on information from the Federal Reserve and industry sources, the mandate would affect a large number of creditors and the cost to set up those systems could be significant.”

“We hope and expect that it will pass, but obviously floor action is unpredictable,” said Jon Houston, Maloney’s press secretary.

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See related: Key congressional committee passes Credit Cardholders’ Bill of Rights, Fed backs rules to curb deceptive credit card practices, Proposed rules draw massive response

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