Research and Statistics

House again weighs Credit Cardholders’ Bill of Rights


Federal legislative would codify pro-consumer card regulations; opponents say it would go into effect so fast it would wreck the system.

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A bill that would write into federal law pro-consumer protections for credit cardholders ran into headwinds in its first Congressional hearing of 2009, as bankers, federal banking regulators and Republican legislators protested that its sweeping changes would go into effect too quickly to be obeyed.

The House Subcommittee on Financial Institutions and Consumer Credit met Thursday on the Credit Cardholders’ Bill of Rights of 2009. The bill sailed easily through the House of Representatives last year but died in the Senate.

The bill would codify protections similar to those that federal banking regulators passed in December. Those regulations, however, won’t go into effect in July 2010.

Bill’s provisions sweeping
The far-reaching changes in the bill include:

  • Preventing retroactive rate increases to cardholders who pay on time.
  • Establishing rules for issuers in setting credit card payment due dates. Consumers complain that arbitrary due date changes often trigger late fees.
  • Shielding cardholders from misleading terms through greater disclosure.
  • Allowing cardholders to set their own credit limits.
  • Where balances have multiple rates, requiring card issuers to allocate payments so that at least some money goes toward the highest rate.
  • Regulating “fee harvesting” subprime credit cards where the account’s balance is immediately swallowed up by fees.

“For too long the playing field has been tilted against the consumer,” said Rep. Carolyn Maloney. The New York City Democrat is the chief sponsor of the bill, as she was for the 2008 version.

Her new bill, however, would go into effect 90 days after enactment.

Banking regulators and industry representatives testified that such swift enactment would make compliance impossible. Because of the broad nature of the changes, industry officials and regulators said, every piece of marketing paper and every offer would have to be changed. Massive computer program rewrites would have to be written and tested. Hundreds of thousands of staffers would need to be retrained.

Linda Echard, president and CEO of ICBA Bancard, represented the Independent Community Bankers of America at the hearing. Asked how many of the group’s 5,000 member banks could comply in 90 days, she said, “Not a single one. While it’s not the Y2K enactment, it’s similar in scale … It’s going to take a huge effort to get this done.”

“I see no way that could be done in 90 days,” said Sandra Braunstein, the Federal Reserve Board’s director of consumer and community affairs.

Longtime banking industry attorney Oliver I. Ireland said if the card issuers were required in only three months, they would have only two choices: “Raise rates and fees, or reduce the risk in their portfolios” by cutting off consumers’ credit cards.

Republican opposition with a thud
Republican representatives joined in condemning the enactment as too swift. “Three months is not enough time to do this,” said Rep. Michael N. Castle of Delaware. “Sometimes when we rush legislation, we end up with situations like AIG,” he said, referring to the insurance giant and its controversial bonuses.

With a thud, Rep. Spencer Bachus of Alabama dropped on his desk the existing regulations, contained in three binders a total of nine inches thick. “I’m not sure I could even read these in the time alloted,” he said. Braunstein chimed in, “I’m glad I didn’t have to carry those up here.”

Supporters: The sooner the better
Maloney and consumer advocates testifying at the hearing said that the regulations are needed right away because the credit card industry had gotten away with too much for too long.

“Card issuers share a great deal of responsibility for putting so many Americans in such a vulnerable position,” said Travis Plunkett, legislative director for the Consumer Federation of America. “We’re now hearing that this bill is going to lead to scarcity of credit, lead to interest rate increases, and harm consumers. We seem to have missed the main lesson of the current economic crisis — that the lack of regulation can harm consumers.”

The bad outcomes the industry representatives are predicting are already happening, he said — rates are already rising. Credit is already tightening. “They can’t blame this on regulation. This is the result of a market that has been unregulated for 20 years.”

Maloney noted that the process had been “consultative” and was not really so sudden, since card issuers have already had three months to prepare for the similar federal regulations, the passage of the bill would take several months, and only then would the 90-day clock start.

President Barack Obama, both on the 2008 campaign trail and after, supported credit card reform, though not this specific proposal. “I generally support a credit card bill of rights,” Obama said March 18 at a town hall meeting in Costa Mesa, Calif. “Having some consumer protection around credit cards is important.”

Overdraft protection
At the hearing, legislators also heard testimony on a bill that would regulate overdraft protection, another controversial banking practice. That bill would require notice to customers when an ATM transaction is about to trigger an overdraft. Consumers would then have a choice to accept or reject the overdraft service and the associated fee. At present, consumers must usually opt out of overdraft programs.

The credit cards bill is H.R. 627; the Consumer Overdraft Protection Fair Practices Act of 2009 is H.R. 1456.

See related: Regulators finalize sweeping credit card rules changes

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