So This is Their Plan …
We just put up a piece about how the Democrats’ legislative efforts to make credit cards more consumer friendly have been delayed, likely until July 2010, when new consumer protections crafted by the Federal Reserve will be installed anyway. It was probably inevitable that the banks would try to cash in on current practices as much as possible before those reforms take hold by hiking fees and rates without notice and applying the higher rates retroactively — even for customers with good credit ratings and reliable payment histories. And indeed, that’s exactly what’s happening.
Now, conceding that their legislative proposals don’t act quickly enough to protect consumers in the interim, some Democrats are calling on the Federal Reserve for an emergency freeze on rate hikes for existing balances.
In a letter to Fed Chairman Ben Bernanke, Sens. Chris Dodd (D-Conn.) and Charles Schumer (D-N.Y.) argue that the Fed has acted quickly to help the banks survive the downturn, and should do the same to help consumers.
Credit card providers have been aggressively raising rates on consumers now to avoid the ramifications of this rule when it goes into effect next year. Companies have increased interest rates across the board now, to increase interest rates before the new rules go into effect. Consumers describe situations to our offices in which the interest rates on their accounts have doubled or tripled overnight, without any misconduct on their part. This kind of practice clearly violates the spirit and intention of the rules, even if the delayed implementation date has the effect of making such behavior legal. [...]
Over the past year, the Federal Reserve has cited the financial crisis as one of the reasons for acting quickly to implement new lending facilities and programs to protect financial institutions. It is long past time for the regulatory agencies to act with the same sense of urgency to protect consumers from the behavior of those same financial companies.
Dodd, who’s sponsored a credit card reform bill that goes much further than the Fed rules to protect consumers, originally hoped those reforms would take hold immediately upon passage of his bill. Dodd and the Banking Committee in March delayed that implementation timeline by nine months — a recognition that industry opposition would kill the bill otherwise.
This letter seems to be indicate that the strategy of Senate Democrats will be to sidestep their own institution, rather than try to push quick reforms through it.