Credit Cardholders? Bill of Rights Gets New Life in New Congress

After dying in the Senate last year, lawmakers are taking another stab at the Credit Cardholders’ Bill of Rights. The initial hearing on the 2009 version of the proposed legislation was on March 19. The hearing record was to remain open for 30 days, during which new comments or questions could be submitted.

The House Financial Services Committee plans to mark up the bill on April 1.

The bill, HR 627, would put the force of law behind some of the rules that federal banking regulators approved in December.

The proposed legislation would prevent credit card companies from arbitrarily increasing interest rates on existing card balances. Additionally, it would end “double cycle” billing, meaning that credit card companies could not charge interest on debt consumers have already paid on-time. 

The bill also requires even allocation of consumer payments. Many companies credit payments to a cardholder’s lowest interest rate balances first, making it impossible for the consumer to pay-off high-rate debt.  The Credit Cardholders’ Bill of Rights requires that payments to be allocated proportionally to balances that have different rates.

Among some of the other rules:

• Prohibiting advertising a rate as “fixed,” unless the rate truly is not subject to change either for a clearly disclosed period or for the life of the plan.
• Requiring that cut-off times for receipt of mailed payments on the due date be reasonable, with a safe harbor for a cut-off time of 5 p.m. or later.
• Requiring a creditor that does not accept mailed payments on a Sunday or holiday due date to treat a payment received the next business day as on time.

The banking industry disputes that the rules of HR 627 are needed.

“While we agree that a small number of issuers have engaged in practices that are harmful to consumers, any legislative remedy should more broadly focus on encouraging consumer choice, transparency, and disclosure,” testified Linda Echard, president and CEO of ICBA Bancard, the issuer and servicer of credit cards for participating members of the Independent Community Bankers of America. “This measure, which instead attempts to prohibit specific practices, imposes additional costs and burdens on community bankers who did not contribute to the problems in the industry, and will result in fewer and more expensive sources of credit for all Americans.”

Echard said the rules sought by the legislation would keep many smaller financial institutions from entering or continuing in the bankcard market, reducing competition and consumer choice.

“Risk-based pricing allows community banks to remain competitive, while being reasonable and flexible to their customers,” Echard added. “Without risk-based pricing, community banks will have a difficult time helping people struggling on the margin to get back on sound financial footing.”

Kenneth J. Clayton, senior vice president and general counsel of the American Bankers Association Card Policy Council, the group within the ABA that deals with card issues, testified that the new industry-imposed regulations are enough because they are “fundamentally changing the protections offered consumers while forcing a complete reworking of the credit card industry’s internal operations, pricing models and funding mechanisms. These new rules carry the full weight of the law, and failure to comply with them subjects the issuer to potentially significant fines – potentially up to $1 million per day for non-compliance – and enforcement actions. The changes are so broad they will affect every aspect of the credit card business.”