Research and Statistics

House committee: Move up credit card law


A key U.S. House committee voted to move up implementation of interest rate restrictions in the Credit CARD Act by nearly three months to Dec. 1, 2009, to fast-track consumer protections.

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Consumers could be protected from credit card interest rate hikes a little sooner under a measure approved by a key U.S. House committee Thursday.

Members of the House Financial Services Committee passed a bill to speed up implementation of the Credit CARD Act of 2009 by nearly three months, to Dec. 1, 2009. Portions of the law, which restrict interest rate hikes on existing credit card balances and limit fees, are currently scheduled to take effect Feb. 22, 2010. But lawmakers said recent APR and fee increases levied by the major credit card issuers warrant faster enactment of consumer protections.

“Some card companies have publicly stated that they will no longer increase interest rates, but some companies are continuing to do this retroactively on balances,” Rep. Carolyn Maloney, a New York Democrat, said during debate on the bill (H.R. 3639). “Some consumers are not only being hurt, they are really being crushed in this economy.”

Credit card issuers lobbied hard for delayed implementation because they said they needed time to revamp their card billing, marketing and application systems.

“The CARD Act represents the most sweeping reform of the credit card industry in decades and requires a major overhaul of intricate business practices by card issuers,” according to a statement issued by Kenneth J. Clayton, senior vice president for the American Bankers Association trade group.

“Banks are working diligently to implement the CARD Act by next February, as Congress required, but it would be extremely difficult, if not impossible, for them to meet the new deadline contemplated by this bill. Moving up the implementation date will place additional strain on institutions and is likely to further restrict access to credit at a time when consumers, small businesses and the broader economy need it the most,” Clayton added.

Lawmakers who opposed faster implementation cited an Oct. 20 letter from Federal Reserve Chairman Ben Bernanke stating a Dec. 1 startup would not give regulators enough time to draft guidelines for the law.

“The regulators and the companies and the different entities that are involved in issuing credit cards and managing credit cards just simply cannot accommodate these changes so quickly. We simply cannot do this in that time,” argued Rep. Mike Castle of Delaware. The Republican lawmaker co-sponsored an amendment with Rep. Christopher Lee of New York to require the Federal Reserve to certify that regulators and card issuers can meet the deadline before the measure could take effect. “You simply can’t overhaul entire business enterprise systems overnight.”

Added Lee: “Attempts to speed up the transition too quickly would ultimately lead to consumer harm.” Their proposal failed.

Small card issuers exempt

The committee agreed to allow smaller credit card issuers (those with 2 million accounts or fewer) to keep the original Feb. 22 startup date. Maloney noted that the majority of consumer complaints are about the top issuers — namely Chase, Bank of America, Citi, American Express, Discover, Capital One and Wells Fargo.

Smaller card issuers, including many credit unions and community banks who issue only 10 percent of credit cards nationally, complained they have limited resources. “They barely have the computer staff and the lawyers to go in the right direction by the original effective date,” Democratic Rep. Brad Sherman of California said during debate on the measure.

Gift card measures unchanged

The committee also approved an amendment to allow gift card restrictions in the Credit CARD Act to keep their original August 2010 enactment date.

The Fed is still working on the regulations dealing with credit cards and is just beginning to write the regulations for gift cards,” said Sherman. “Gift cards are being shipped now for retailers for sale for the Christmas season. It makes more sense to stick with the original effective date in the legislation already enacted.”

The next step

Lawmakers have only about six weeks until the Dec. 1 startup to gain final approval of the bill. The measure now goes to the full House for a vote. A similar bill must also pass in the Senate and be signed by President Obama before it can become law.

Consumer financial protection agency advances

In other business Thursday, the financial services committee also voted 39-29 to create a Consumer Financial Protection Agency — a federal watchdog that would focus on protecting consumers from bad mortgage, credit card and student and car loan deals.

The financial watchdog measure must also go to the full House for debate and vote. Lawmakers said they expect it to come up within the next month. The Senate must also consider and pass the plan.

See related:  Credit card reform and you, A comprehensive guide to the Credit CARD Act of 2009

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