Chris Dodd writing in Huffpo: The Moment for Credit Card Reform

[flpoljunkie]

Good, but not good enough, Senator Dodd.

The Moment for Credit Card Reform

We all know what an uphill battle reforming abusive credit card practices has been. As a twenty-five year veteran of that fight, I know it as well as anyone. But this morning, the Senate took a big step up that mountain.

Today, the Senate Banking Committee passed the Credit Card Accountability Responsibility and Disclosure Act - legislation I wrote to stop abusive and deceptive credit card practices once and for all. Indeed, 2009 may well prove a watershed moment for credit card reform.

For people like Samantha Moore, a paralegal from Guilford, Connecticut I met a few weeks ago, it couldn't come a moment too soon. In January, she was three days late on a credit card payment - the first late payment in 18 years. For that seemingly minor transgression, she had her interest rate raised from 12% to 27% and her credit limit slashed from $31,400 to $4,500 - told that the reason for the severe penalty was that she hadn't been paying enough to other creditors and that their high credit limit exceeded their income.

Samantha was a victim of "universal default" - where credit card companies use unrelated information, like a late utility bill, to increase that family's rates.

Universal default is one of countless abusive practices credit card companies regularly engage in today that my legislation would put to an end.

Here are a few other practices the Credit C.A.R.D Act ends:

"Any Time, Any Reason" interest rate hikes. Issuers often unilaterally change the terms of a credit card contract before the term is up. One issuer "voluntarily" eliminated these hikes after Congress exposed them. They even ran ads stating that "a deal is a deal." But there is nothing binding them to that commitment, and most issuers have already gone back to the practice - one a Pew Charitable Trusts survey found in 93% of 400 cards issued by the country's largest banks and issuers. This bill makes that practice illegal.

Penalty Rates With No End. Let's say you've been a customer in good standing, and you have a reasonable interest rate of 12%. You pay your bill three days late, and you get raised to a penalty interest rate of 29.9%. Once that penalty rate increase is triggered, there is no limit on how long it will last. From that point on, you continue to pay your bill on time, but despite that, you continue to pay the penalty rate for the life of that card. The amount and duration of the penalty rate is entirely determined by the card issuer. My bill says that after 6 months of on time payment, your rate has to go back down. (Why allow a 29.9% penalty rate at all, Senator Dodd? It is a giveaway to the banks.)

Double-Cycle Billing. Say a few months ago, you had a credit card debt of a thousand dollars - and that since then, you've paid off $900 of that debt. It's not uncommon for credit card companies to keep charging interest not on a hundred dollars but on the full $1,000 for another cycle or two. The Credit C.A.R.D Act prevents that practice.

Aggressive Marketing to Young People. Recently, my seven year-old daughter received a credit card solicitation in the mail. Jackie and I laughed it off, but it brings up a serious point: young people are faced with an onslaught of credit card offers. And just as we saw in the mortgage crisis with lenders and borrowers, too often, issuers offer cards to young people without verifying any ability to repay whatsoever. This is particularly true for students, who are flooded with offers the second they set foot onto a college campus - in fact, industry officials have testified to Congress that simply being a college student is considered a "positive factor" toward the ability to pay. This bill simply says that credit card companies must take into account a young person's ability to repay before allowing them to take on what is all too often a lifetime's worth of debt.

The truth is, I've been working with advocates and consumer groups to reform credit card company practices for 25 years. For much of that time, our efforts have fallen on deaf ears. But I think this time is different.

And as we learned in this housing crisis, when companies lure people into deceptive, abusive and predatory financial agreements, it not only means mountains of debt for families, bankruptcy and financial ruin for too many - it can also prove catastrophic for our economy.

That is why I have said again and again that consumer protection must be at the forefront of our efforts to modernize our financial regulatory system. There are so many things we must do to make that possible. But none will be more important than reforming the practices of our nation's credit card companies drive so many families deeper and deeper into debt. It is one issue that quite literally touches every family in the country.

The moment to act is now.

http://www.huffingtonpost.com/chris-dodd/the-moment-for-credit-car_b_181296.html

[ellenfl]

1. kick for later. eom

[Thrill]

2. He better get something like this done, to save his career

[flpoljunkie]

3. It won't be easy. The bill came out of Dodd's committee on a 12-11 vote.

9All Republicans, plus Tim Johnson of South Dakota voted No. Our Congress is captive to special interests. How they ever pass anything to help average Americans is really amazing when you think about it. That Dodd feels it is okay for a credit card company to charge a penalty interest rate of 29.9% for a woman who was three days late in her payment shows us just how much special interests influence Congress.)

http://www.washingtonpost.com/wp-dyn/content/article/2009/03/31/AR2009033102177.html

U.S. panel backs FDIC borrowing, credit card reforms
By John Poirier
Reuters

Tuesday, March 31, 2009; 4:30 PM

WASHINGTON (Reuters) - A key U.S. Senate panel on Tuesday backed proposals to reform credit card practices and increase the authority of regulators to borrow from the Treasury Department to deal with a slew of expected bank failures.

By a 12-11 vote, the Senate Banking Committee narrowly approved a bill aimed at cleaning up unfair and deceptive practices by credit card companies criticized for surprising customers with fees and unilaterally changing terms.

"This is indeed landmark legislation," said Travis Plunkett, legislative director at Consumer Federation of America, a consumer group.

The bill, which was introduced by the committee's chairman, Christopher Dodd, also contains two provisions aimed at increasing the borrowing authority of regulators, the Federal Deposit Insurance Corp and the National Credit Union Administration.

The provisions, introduced by Republican Senator Mike Crapo of Idaho, would increase the FDIC's borrowing authority to $100 billion from the current $30 billion to deal with banks and increase the NCUA's limit to $6 billion from $100 million for nonprofit credit unions.

The provisions also allow the agencies to exceed the new limits through the end of next year for up to $500 billion for the FDIC and $18 billion for the NCUA in the event of extraordinary circumstances.

Rep. Barney Frank, chairman of the House Financial Services Committee, said the panel is working on similar legislative goals. Both chambers of Congress are controlled by Democrats.

Both of Crapo's provisions were tucked into the comprehensive credit-card bill, which drew criticism from the American Bankers Association industry trade group.

Kenneth Clayton, senior vice president for card policy at the ABA, warned that credit card companies might be forced curtail the amount of credit made available to card holders.

"It is essential that policymakers strive to find a way to address perceived ills in the marketplace while not unnecessarily curtailing access to reasonably-priced credit," he said.

The committee's second-highest ranking Democrat, Tim Johnson, voted against the legislation. Johnson's home state, South Dakota, is among several states with big credit card operations.

The panel's action marks a first for credit card reform in the Senate, a move applauded by consumer groups unsatisfied with recent rules adopted by the Federal Reserve. It also gives lawmakers, including Dodd who faces reelection next year, a pro-consumer legislative item to tout to their constituents.

Dodd said he is "determined to see this bill pass the United States Senate and become law."

In December, the Fed issued a set of rules that would give cardholders advance notice of increased interest rates and prohibit companies from changing terms based on unrelated activities and provide clearer disclosures.

Lawmakers and consumer groups, however, were disappointed the Fed allowed banks 18 months to implement the new rules.

The House of Representatives is expected to overwhelmingly pass credit card reform legislation but, according to analysts, the outcome in the Senate is somewhat cloudy.

It was not known when the full Senate would vote on the bill, called the Credit Card Accountability, Responsibility and Disclosure Act.