Research and Statistics

Credit Cardholders’ Bill of Rights survives key vote


The House Financial Services Committee voted along party lines to pass a bill to rein in the credit card industry.

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A pro-consumer bill that would abolish unpopular credit card industry practices passed a key U.S. House committee test late Thursday, moving it toward a vote by the full House.

Largely along party lines, members of the House Financial Services Committee voted 39-27 in favor of the Credit Cardholders’ Bill of Rights, which would limit interest rate hikes, fees, and billing and payment practices cited most often by consumers and credit card industry critics. Committee Democrats all voted for it; they were joined by just two Republicans.

The bill targets credit card companies and seeks to ban practices such as retroactive interest rate increases, except under certain conditions, and limits “double-cycle” billing, which increases the ability of card issuers to impose interest charges.

Under the proposed legislation, consumers would get a minimum of 45 days’ notice of any interest rate increases and have at least 25 days between the date of the monthly statement and the due date to pay their bills. Last-minute amendments to the bill added provisions to block credit cards issued to people under 18 years of age and ban over-the-limit fees caused by “holds” placed on the credit card account.

Rep. Carolyn B. Maloney, the New York City Democrat who is the bill’s sponsor, called the vote “a historic victory for American consumers and the free market.”

“This landmark legislation will help level the playing field between cardholders and card companies, and give consumers the tools they need to responsibly manage their own credit,” she said in a statement released after the vote.

Opponents of the bill said Congress should leave credit card reform in the hands of the Federal Reserve Board, which is considering proposed rules that, if given final approval, would become the most sweeping changes in credit card practices in decades.

Regulators also active
In May, the Fed proposed a series of regulations designed to curb credit card practices cited most often by industry critics — some of the same practices covered by the House legislation. Under the Federal Trade Commission Act, the Fed, along with the Office of Thrift Supervision and the National Credit Union Administration have the authority to ban unfair and deceptive credit card practices.

If approved, the new regulations would ban “surprise” interest rate hikes, limit fees and give consumers a reasonable time to make their monthly payments. Payments in excess of the minimum required each month would be allocated to higher interest rate items first and fee harvesting credit cards (which charge upfront fees to consumers with bad credit) would be banned if the fees eat up the majority of available credit on an account.

As of Thursday, July 31, the Fed had received more than 41,000 public comments on the proposed rules, the second highest number of comments ever filed regarding a Fed proposal. Consumer advocates say the large volume of comments may be a reflection of just how frustrated consumers are about recent industry practices. The deadline for filing comments is Monday (Aug. 4). At the current pace, the credit card rules could surpass the 45,000 comments submitted in December 2000 regarding a rule to allow financial holding companies to act as real estate brokers.

To add your own comments with the agencies, go to the website of the Federal Reserve. The deadline to submit comments is Aug. 4.

After the comment period ends, Fed staff members will review the submissions and draft final wording, which must be approved by the board. A Fed spokeswoman has said the board is likely to take final action on the proposals by year’s end.

Regulation, not legislation, is the poison the credit card industry would rather swallow.

Card industry’s reaction
“We have some real concerns about the bill,” Ken Clayton, card policy director for the American Bankers Association, the nation’s leading bank industry trade group, said in a telephone interview prior to the hearing. “We hope that Congress defers judgment on the matter and looks to the Federal Reserve. Congress can benefit from the deliberative process that the Fed has set and we hope they don’t pre-empt that.”

After the vote, the American Bankers Association expressed its disappointment.

“Things that appear attractive on the surface often come with too high a price tag,” said ABA President and CEO Edward L. Yingling. “In its current form this bill seeks to lock into law restrictions on fundamental risk management activities, the way interest is calculated, and other responsible business practices. The result will be higher costs for consumers, reduced access to credit for those with an imperfect or limited credit history, and less access to low credit options.”

High hurdles
Maloney’s bill faces high hurdles for final approval. Banking industry observers, financial services committee members and consumer credit counselors have all said it is unlikely the legislation will make it through the House, the U.S. Senate and be signed by the president this year. Given that political reality, Rep. Michael Castle, a Delaware Republican, called Maloney’s bill “empty legislation” and offered a compromise resolution that would support the Fed’s efforts to reform industry practices. That measure failed by a 39-28 vote.

“The likelihood of this passing in the Senate and becoming law this year are remote,” Castle said. “The key is pushing the Fed to finish this very important and timely issue. It’s a better process than trying to pass something now.”

Maloney said by waiting to see what the Fed does, Congress would be “punting” its responsiblities. In response to Castle’s compromise, Maloney noted that his resolution was “shifting it off in a resolution that has no impact.” Unlike laws passed by Congress, resolutions are advisory, often symbolic and lack authority.

In her opening remarks at Thursday’s hearing, the last step for the bill before it can be voted on by the entire House, Maloney told her colleagues: “Congress is in the constitution and the Federal Reserve is not. We should not abdicate our responsibilities to others.”

Rep. Maxine Waters, a California Democrat, noted that regulators had to apologize for their inability to protect consumers from subprime mortgage lending schemes. She and Maloney drew parallels between the subprime fiasco and credit card lending.

What’s next for the bill?
  • H.R. 5244, the Credit Cardholders’ Bill of Rights, will be scheduled for a vote before the full U.S. House of Representatives. There is no indication when that vote will be scheduled.
  • If the House passes the legislation, it will go to the U.S. Senate for a vote or merge with a companion Senate bill.
  • The final bill must be signed by the president before it becomes law.

Consumer advocates cheer bill
Consumer advocacy groups went on record opposing any amendments that would weaken the Credit Cardholders’ Bill of Rights proposal. Tamara Draut, director of the economic opportunity program for Demos, the New York-based nonprofit public policy research group, urged financial services committee members to “reject any further amendments that would weaken the bill.”

Draut wrote that the bill “would level the playing field between borrower and lender by putting an end to some of the most arbitrary, abusive and unfair credit card lending practices that trap consumers — particularly disadvantaged and minority borrowers — in an unending cycle of costly debt.”

Maloney released a report Wednesday citing the consequences of not ramping up regulation of credit cards. Failure to curb abuses by issuers, according to Maloney, would “push more families into bankruptcy, dampen consumer spending in the downturn, and create broader financial market risks from securitization of the debt.”

She added: “Another financial crisis supported by inadequate regulation is looming as families using their credit cards to make ends meet struggle to cope with high interest rates and hidden fees. Families with credit card debt will spend more of their paychecks servicing their debt, instead of making new purchases to boost the sagging economy. If unfair practices by credit card companies are allowed to go unchecked as subprime mortgages were, it will have far reaching effects for families and the economy.”

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See related: Fed backs rules to curb deceptive credit card practices, House introduces ‘Credit Cardholders’ Bill of Rights’, Proposed credit card rule changes draw massive response

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