Sensing the political upper hand on the issue, Senate Banking Chairman Christopher Dodd vowed Wednesday to move his legislation that would curb some credit card practices even though the Federal Reserve is scheduled Friday to release rules against abusive and unfair card terms.
The Dodd bill represents the strongest measure unveiled so far against the trillion-dollar industry, which is fighting battles both in Congress as well with federal regulators.
Dodd said that although some companies have taken steps on their own -- most notably Citigroup, which dropped its policy for increasing interest rates and fees at any time for any reason -- the efforts have not been sufficient. He noted card issuers made $17 billion in fees last year.
"It's something else to be gouging people and locking them into a lifetime of debt," Dodd said.
The Fed is expected to issue its preliminary rules Friday to rein in some abuses, but Dodd said he thinks such regulations will not go far enough.
"I'm delighted to hear they are going to move on this area and I want to see what they want to do," Dodd said. "But I think statutory language is necessary in these areas to guarantee the kind of protections [that are needed]."
The bill includes some similar provisions that are contained in a House version by Financial Services Financial Institutions Subcommittee Chairwoman Carolyn Maloney, D-N.Y. They include a ban on the 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.
But consumer advocates contend the Dodd bill provides stronger consumer protections in certain areas, such as requiring that penalty fees be reasonably related to costs that issuers incurred because of the late payment or over-the-limit transaction.
"That's a big issue," said Travis Plunkett, legislative director for the Consumer Federation of America. "If issuers know they can't soak people forever for increasing fees, they are going to be more careful about the reasons."
Unlike the House bill, the Dodd measure would place additional restrictions on issuing cards to those under 21 years of age, requiring them to obtain the signature of a parent, guardian or other person who will take responsibility for any debt.
Dodd said he wants to move the bill, but will have to pick up the support of fellow panel Democratic Sens. Thomas Carper of Delaware and Tim Johnson of South Dakota, both of whom represent states with significant card industries.
A spokesman for Banking ranking member Richard Shelby said he wanted the committee to review the Fed rules before considering any action.
The American Bankers Association said the bill would likely cause issuers to offer higher annual fees and interest rates so they could price better for risk.
"We have serious concerns that this legislation could hurt much-needed consumer access to credit by inserting the federal government into credit markets in unprecedented ways," said Edward Yingling, president of the ABA.
Supporters of the bill contend they have political momentum going into the fall, noting that both Democratic presidential candidates, Sens. Barack Obama of Illinois and Hillary Rodham Clinton of New York, have spoken out on the issue during the campaign. "This is very much on the minds of most Americans," said Sen. Carl Levin, D-Mich.
The bill also would require GAO to study the impact of card interchange fees on consumers and merchants.
Retailers have launched a campaign against banks over the fees that they are charged -- up to 2 percent for each transaction -- when customers use their Visa or MasterCard. Dodd indicated some sympathy for the retailers' plight, but held off on advancing any legislation similar to a House bill by Judiciary Chairman John Conyers that would require card companies to negotiate with the stores over the interchange fees they charge.
This article appears in the May 3, 2008, edition of NJ Daily.