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Rocky Road for Credit Card Bill


Congressional lawmakers of both parties have found something to agree on: The credit card industry, they say, has evolved beyond the scope of regulations intended to protect consumers, and it requires reining in. Where they differ is how to do it.

House Democrats are pushing legislation — the Credit Cardholders’ Bill of Rights, sponsored by Rep. Carolyn Maloney (D-N.Y.) — that would force card companies to disclose looming rate increases, eliminate confusing fees and cease the retroactive application of hiked rates to existing balances. Republicans, siding with the banks, prefer to leave the task of reform to federal regulators, who are in the process of crafting new rules for the industry.


Illustration by: Matt Mahurin

The debate highlights the difference in each party’s approach to business oversight, as lawmakers aim to modernize federal rules governing the highly influential banking industry. It also illuminates the limits to what congressional Democrats, who hold a thin majority in both chambers, can accomplish in the face of a White House unabashed about killing Democratic proposals, even when they enjoy popular support. In fact, if Maloney’s bill does reach the president’s desk this year, supporters expect he would veto it.

Under the proposal, card companies would be forced to provide 45-day notice of rate increases; allow card users a 90-day opt-out period in the wake of such hikes, and offer a week-long cushion for accepting payments without applying late fees. Supporters, including a slew of consumer advocates, say the bill would provide balance to a lending arrangement that currently leans wildly in favor of the banks.

“Even cardholders who are financially responsible and do their very best to meet their obligations fall victim to rate hikes that are unexplained, totally out of proportion, and which drive them deeper into debt,” Maloney said Thursday during a hearing of the Financial Services subcommittee on consumer credit, which she chairs.

Bolstering Maloney’s case, several consumer witnesses offered damning testimony about their credit card experiences. The cardholders were scheduled to appear at another hearing on the topic last month, but a waiver controversy surrounding the public disclosure of their financial records prevented their testimony.

Rep. Barney Frank (D-Mass.), chairman of the Financial Services Committee, said Thursday that the blame for the snafu is his. “Mea culpa,” he said.

One consumer witness, Steven Autrey, of Fredericksburg, Va., told lawmakers that he saw the 9.9 percent rate on his Capitol One card — advertised as “fixed for life” — jump to 15.9 percent without explanation. Capitol One later informed Autrey that, based on “changes in the interest-rate environment,” the company “reserve[s] the right to make changes to your account as long as we provide you written notification.”

“I assume fixed means fixed,” Autrey told lawmakers, “not fixed until they want to change it.”

Maloney’s bill would establish a standard definition for “fixed rate” and other terms sometimes used deceptively by the card companies.

Still, Republicans and the banks have resisted the proposal, saying it would restrict card companies’ ability to raise interest rates for higher-risk cardholders. Limiting that practice, they contend, would result in rate hikes for all users.

“Many of the credit card practices Congress is attempting to curtail through legislation allow credit card issuers to provide worthy borrowers with low-interest rates, no annual fees and broad access to credit,” Edward L. Yingling, president and CEO of the American Bankers Assn., said in a statement. “Just as good drivers pay lower rates for auto insurance, good borrowers earn the best terms on their credit cards.”

Rep. Jeb Hensarling (R-Tex.) called the bill an “assault on personal economic freedom.”

Encouraging Republicans, the Federal Reserve is crunching consumer protection reforms, which are due for release before the year’s end. Sandra Braunstein, director of the Fed’s division of consumer and community affairs, said that nothing has been finalized, but the agency is considering a number of changes also pushed for in the Maloney bill. The Fed has already proposed, for example, to establish a mandatory 45-day notice of rate hikes and a standardized definition of “fixed rate.”

In light of the looming rules, said Rep. Judy Biggert (R-Ill.), ranking member of the subcommittee, Congress should resist the temptation to intervene based on the anecdotal testimony of a few cardholders. “Regulation and education,” she said, should be the first steps.

Consumer advocates reject that notion, however, arguing that the new disclosures under consideration by the Fed don’t go nearly far enough to rein in the industry. “Disclosure, while helpful, will not solve the underlying problem of the marketplace,” said Travis Plunkett, legislative liaison for Consumers Union and the Consumer Federation of America.

Democrats agree, and will push forward with the bill. “The notion that the legislative body should defer to the regulators gets it backwards,” Frank said.

With that in mind, the Democratic majority on the subcommittee intends to approve the bill before the summer, taking it a step closer to the president’s veto pen.

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