Credit Cardholders’ Bill of Rights Gets New Life in New Congress
A bill that would impose strenuous restrictions on credit card issuers is getting a new life in a new Congress after dying last year.
After dying in the Senate last year, lawmakers are taking another stab at the Credit Cardholders' Bill of Rights. The initial hearing on the 2009 version of the proposed legislation was on March 19. The hearing record was to remain open for 30 days, during which new comments or questions could be submitted.
The House Financial Services Committee plans to mark up the bill on April 1.
The bill, HR 627, would put the force of law behind some of the rules that federal banking regulators approved in December.
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The proposed legislation would prevent credit card companies from arbitrarily increasing interest rates on existing card balances. Additionally, it would end “double cycle” billing, meaning that credit card companies could not charge interest on debt consumers have already paid on-time.
The bill also requires even allocation of consumer payments. Many companies credit payments to a cardholder’s lowest interest rate balances first, making it impossible for the consumer to pay-off high-rate debt. The Credit Cardholders’ Bill of Rights requires that payments to be allocated proportionally to balances that have different rates.
Among some of the other rules:
- Prohibiting advertising a rate as “fixed,” unless the rate truly is not subject to change either for a clearly disclosed period or for the life of the plan.
- Requiring that cut-off times for receipt of mailed payments on the due date be reasonable, with a safe harbor for a cut-off time of 5 p.m. or later.
- Requiring a creditor that does not accept mailed payments on a Sunday or holiday due date to treat a payment received the next business day as on time.
“While we agree that a small number of issuers have engaged in practices that are harmful to consumers, any legislative remedy should more broadly focus on encouraging consumer choice, transparency, and disclosure,” testified Linda Echard, president and CEO of ICBA Bancard, the issuer and servicer of credit cards for participating members of the Independent Community Bankers of America. “This measure, which instead attempts to prohibit specific practices, imposes additional costs and burdens on community bankers who did not contribute to the problems in the industry, and will result in fewer and more expensive sources of credit for all Americans.”
Echard said the rules sought by the legislation would keep many smaller financial institutions from entering or continuing in the bankcard market, reducing competition and consumer choice.
“Risk-based pricing allows community banks to remain competitive, while being reasonable and flexible to their customers,” Echard added. “Without risk-based pricing, community banks will have a difficult time helping people struggling on the margin to get back on sound financial footing.”
Kenneth J. Clayton, senior vice president and general counsel of the American Bankers Association Card Policy Council, the group within the ABA that deals with card issues, testified that the new industry-imposed regulations are enough because they are “fundamentally changing the protections offered consumers while forcing a complete reworking of the credit card industry’s internal operations, pricing models and funding mechanisms. These new rules carry the full weight of the law, and failure to comply with them subjects the issuer to potentially significant fines – potentially up to $1 million per day for non-compliance – and enforcement actions. The changes are so broad they will affect every aspect of the credit card business.”
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Comments
Comment from Anonymous on March 25, 2009 at 11:14AM EST
Another thing they should address is the recent trend to arbitrarily reduce credit limits, sometimes to an amount lower than the balance, and then charge over limit fees.
Comment from mom on March 25, 2009 at 7:11PM EST
Yes and with the economy and people having to deal with inflation as well as job loss . Credit card issuers must be held liable for insurance companies they hire to insure customers for these things. If they lie and say any loss of income qualifies they should have to do just that. Also to use a credit score by employers with the economy is jsut making it ahrder for people to get back on there feet. Lets face it I had a few months worth of saving but with gas prices , health insurance and copays , and property taxes it is gone. SO once I had a perfect credit score now it is way to low and it was all out of my control. Trust me I stretch a dollar
Comment from PublicServiceMsg on March 25, 2009 at 1:39AM EST
How about the predatory lending practices? Issuing high-limit, high-interest cards to unemployed college students, based on their credit report, which in itself usually reflects their parents success, not their own. I partially agree with the unnecessary use of credit score for employment, what is that going to do to the recently laid-off, downsized americans trying to find work? The longer they are out of work, the bigger the chance their credit report is going to reflect circumstances that were truely out of their control.
Comment from Anonymous on March 26, 2009 at 7:32PM EST
As a partner in a debt collection agency, I have heard many horror stories from consumers. I really see nothing inherently overboard about the verbiage in the proposed regulations. And if, as the ABA says, the banks are already doing it, what does it matter if it is codified into law?
Comment from anonymous in TX on March 27, 2009 at 11:19AM EST
This legislation is necessary. Some of the biggest banks who have collected the largest federal bailout handouts are the worst offenders. It's time to stop preying on fellow Americans as Sen Sarbanes admonished the industry in the 2005 Senate hearings. Nothing has changed so time for some laws.
Comment from Anonymous on March 27, 2009 at 4:09PM EST
The revisions are warranted; it’s about time card issuers are held accountable to ethical business practices just as the rest of us are.
Personally, I wouldn’t be in business today if I were to harbor unscrupulous policies we as consumers (and entrepreneurs) have endured from the likes of these companies; my clients would have taken their business elsewhere without a second thought. I’m shocked it’s been tolerated this long!