Congressional Democrats served notice today that they want to move legislation curbing some credit card practices that have been labeled abusive, even while regulators write rules to rein in such activities. House Financial Services Chairman Barney Frank said he wants to mark up legislation that would require the industry to adhere to new safeguards, such as giving cardholders the right to cancel their cards and pay off their balance at their current interest rate if it is set to increase. The measure, sponsored by Financial Institutions Subcommittee Chairwoman Carolyn Maloney, D-N.Y., would prohibit other practices such as double-cycle billing, in which a bank assesses interest on the entire amount charged during one month unless the bill was paid in full; and universal default, a practice in which customers are charged a higher interest rate if they miss a payment on another card or if their credit score drops by a specified amount. “I think she has a very reasonable approach and I hope we will be able to move forward,” said Frank, who chastised the banking industry for insisting that it can change card terms retroactively.
Frank’s comments were echoed by others during a hearing of Maloney’s subcommittee, including Sens. Carl Levin, D-Mich., and Ron Wyden, D-Ore., each of whom have their own credit card measures. “It has to be resolved here in Congress,” said Levin. His Senate Homeland Security and Governmental Affairs Permanent Subcommittee on Investigations has taken on the banking industry on the issue. Republicans on the panel advocated a go-slow approach, noting that the Federal Reserve is writing rules to ban unfair and deceptive credit card practices as well as adopting better marketing and disclosure standards. “I do hope my colleagues will dedicate their time and that of their staffs to carefully review all that has gone into that [Fed] effort and give it the consideration it deserves before we legislate,” said Rep. Michael Castle, R-Del., whose home state is headquarters to major card issuers. Banks argue the Maloney bill would prohibit them from structuring card terms based on a particular customer’s credit risk, resulting in higher annual fees and interest rates across the board.
Despite the threat of legislation, proponents of tougher standards were clearly trying to influence regulators testifying at the hearing to do more when they issue final rules later this year. The Fed and the Office of Thrift Supervision are writing new rules for the industry. Sandra Braunstein, director of consumer and community affairs for the Fed, said her agency is reviewing Maloney’s bill and may incorporate her language in its rule. The Fed has already proposed to simplify credit card statements, by requiring banks to provide a 45-day advance notice of any change of interest rates or other key terms, instead of the current 15 days. Maloney has a similar provision in her bill. John Bowman, general counsel of the Office of Thrift Supervision, said that his agency is examining the use of retroactive rate increases to purchases and double-cycle billing. Any final rule would apply equally to banks, thrifts and credit unions, Braunstein said.
This article appears in the April 19, 2008, edition of National Journal Daily PM Update.