Senate Banking Chairman Christopher Dodd will introduce legislation today that would curb certain credit-card practices that consumer groups have labeled abusive, even while the Federal Reserve prepares rules to rein in such activities.
A longtime industry critic, Dodd has pushed top issuers to take steps to provide consumers more friendly terms. While some issuers such as JPMorgan Chase & Co. and Citigroup have taken initiatives to ban some practices, Dodd contends there needs to be a uniform playing field so all consumers are treated fairly.
The Dodd bill would require cardholders to be given 45 days notice of any interest rate change; the current limit is 15 days. It would ban a practice called "universal default," in which customers are charged a higher interest rate if they miss a payment on another card or if their credit score has dropped, and prohibit interest charges on all debt paid on time.
Some card companies assess interest on the entire amount charged during one month, not the remaining balance, unless the bill was paid in full.
If an issuer were to raise interest rates on a card with outstanding debt, the measure would require payments to be first applied to the balance with the highest rate of interest. It also would ban issuers from charging interest on late and over-the-limit fees.
Dodd will be joined at a news conference with Senate Homeland Security and Governmental Affairs Permanent Subcommittee on Investigations Chairman Carl Levin, D-Mich., who has sponsored a bill that includes many of the same provisions.
House Financial Services Chairman Barney Frank said he wants to mark up a House version sponsored by Financial Institutions Subcommittee Chairwoman Carolyn Maloney, D-N.Y. Banking lobbyists have been trying to target Blue Dog Coalition members on the panel to stymie its movement.
The congressional action comes as the Federal Reserve is expected soon -- possibly by the end of the week -- to announce preliminary rules limiting unfair and abusive practices by card issuers. The Fed contends that any final rule would apply to banks, thrifts and credit unions.
Maloney contends that legislative action is required because different bank regulators have taken different stances on her bill: the FDIC supports it; the Office of the Comptroller of the Currency opposes it; and the Office of Thrift Supervision is writing its own rules.
She argues such differences necessitate congressional involvement.
"These are the same regulators who gave us the subprime mortgage crisis; I'm not holding my breath on them delivering effective or timely regulation anytime soon," Maloney said.
This article appears in the May 3, 2008, edition of NJ Daily.