ABA Testifies on Regulatory and Legislative Initiatives Affecting the Credit Card Industry

The American Bankers Association urged Congress today to view discussion of any proposed legislation regarding credit card practices within the context of new rules recently finalized by the Federal Reserve.

Testifying before the Senate Banking Committee, ABA Senior Vice President and General Counsel for Card Policy Kenneth J. Clayton stated that the new rules address the fundamental concerns of cardholders and policymakers, that they mirror many provisions in proposed legislation and that they “represent the most sweeping reforms in the history of credit cards.”

Specifically, Clayton noted that the rules effectively eliminate practices such as “double-cycle billing,” “universal default,” changing of interest rates on past balances, and payment allocation methods perceived to disadvantage consumers.  He also noted that the new rules contain several consumer protection enhancements such as extended time for repayment, limitations on up-front fees, 45-day advanced notice before higher rates may apply, and simplified communications between card issuers and customers.

“These changes will provide significant benefits for millions of cardholders across the country,” said Clayton.

Clayton also noted, however, that the new rules may have broader implications for consumers, card issuers, and the general economy. “The rules affect every aspect of the credit card business, from how cards are funded to how they are priced, to how they are marketed, and to how credit is allocated,” he said.  “Consumers will clearly be affected, whether through higher rates or less credit availability.”

Given the enormity of the changes and the potentially broader impact that they may have, Clayton urged that any discussion over further legislation in the card area be viewed in the context of the recent Federal Reserve rule.  

“We need to better understand how these rules will play out,” he said. “It is clear that they broadly expand protections for consumers.  What is less clear is how they will affect the willingness of investors to fund credit card loans, the ability of lenders to make loans, and, more broadly, the impact the rules will have on the American economy. These are complicated and important issues that need to be more fully explored.”

Finally, Clayton maintained that the 18-month implementation period provided by the Fed is evidence of the sweeping nature of the rule changes and he suggested that this length of time may help ease the impact of the new rules on the economy.

“If the time period were shortened the impact could be very troubling,” said Clayton.  “There would not be time to fully evaluate the consequences for funding, pricing and allocation of credit, and any shortening of the time period to adopt the new rules may send further chills in a market already in deep freeze.”

For a copy of Clayton’s full testimony click here

The American Bankers Association brings together banks of all sizes and charters into one association. ABA works to enhance the competitiveness of the nation's banking industry and strengthen America’s economy and communities. Its members – the majority of which are banks with less than $125 million in assets – represent over 95 percent of the industry’s $13.6 trillion in assets and employ over 2 million men and women.