WASHINGTON — Credit unions are being urged to beware politicians who have "better answers" for the credit card business.
Credit card rates, fees and practices have become a populist issue for both sides of the aisle as politicians look to soothe an angry public, many of whom have seen their card APRs rise sharply even when they have always paid on time. President Obama two weeks ago, in a much publicized meeting, called for the numerous, pro-consumer changes in card practices.
While credit unions have generally avoided most of the abusive practices, such as double-billing and universal default, the concern is CUs will be swept up in bills working their way through Congress and the results will be detrimental to operating plastic card programs.
Two Bills Being Watched Closely
Two bills being watched closely by the plastic card industry are a House measure by Rep. Carolyn B. Maloney (D-N.Y.), referred to as the Credit Cardholders' Bill of Rights Act of 2009, and a similar effort authored by Sen. Christopher Dodd (D-Conn.) known as the Credit Card Accountability, Responsibility and Disclosure Act, or CARD Act, which calls for more extensive federal oversight of card issuers (CU Journal, April 27).
Jeff Russell, vice president of strategic development for The Members Group, a Des Moines, Iowa-based payments solutions provider for CUs that handles processing for credit and debit cards, pre-paid and ATM cards, noted credit unions need to be aware that while the regulators already have stricter card rules that go into effect July 1, 2010, the House and Senate bills aim to shorten implementation.
"The vast majority of credit unions have never been involved in detrimental practices these rules are intended to stop," Russell said. "It has been the large banks that have had high fees and practices that are bad for consumers. However, operationally these rules will impact credit unions. Even though they have not been part of these practices, credit unions will have to change disclosure formats, address payment allocation calculations, and there will be system setting changes to ensure they are in compliance."
Ryan Donovan, vice president of legislative affairs for CUNA, said the trade groups agree the Maloney bill's intention is to shorten implementation time of credit card rules, which could caused considerable problems for credit unions.
"Fortunately, we were able to work with the committee to extend the effective date of the bill to July 2010, which is the same as the new rules," Donovan said. "We felt pretty good about that because the effective date was the key issue we raised in our testimony."
Added NAFCU CEO Fred Becker, "We feel we treat our members pretty well overall. We realize it is difficult to have a surgical strike-it is easier to sweep with a broad brush. We appreciate the chairman's [House Financial Services Committee Chairman Barney Frank (D-Mass.)] concerns, but we hope he appreciates the impact on credit unions, as it eventually comes out of our members' pockets."
Despite the positive news coming out of the House Financial Services Committee regarding extending the effective date, CUNA's Donovan warned there were several reasons for credit unions to remain wary and watchful of doings in Washington.
"We were able to extend the date in subcommittee, and the bill passed by a vote of 48 to 19, so it is unlikely the effective date would change going forward," he explained. "Whether or not the bill becomes law, or how quickly, depends on the bill on the Senate side. We have concerns with the bill on the Senate side because it goes further than the House bill. We generally support the House bill because it covers regulations credit unions will have to comply with, anyway."
Donovan expects the House bill, given the ease of carrying the vote, could come up on the floor before Memorial Day. "We have expressed concerns on the Senate bill. There is work to be done before it goes to the floor," he said.
Hampering CU Business Practices
Eddie Ambrose, NAFCU's associate director of legislative affairs, joined the chorus of credit union representatives voicing displeasure with the House and Senate efforts to jump into credit card oversight.
"From our perspective, the bills cover things that credit unions already were not doing," Ambrose said. "Credit unions didn't do double billing. Dodd's Senate bill is egregious in that it limits credit unions from changing interest rates based on risk, more so than the House bill."
NAFCU's Becker said he spoke with the CEO of a credit union regarding that very topic-provisions in pending legislation that would prevent issuers from applying risk-based interest rates to credit cards in the case of consumers' credit scores declining. He said the CEO has a group of members who carry the CU's credit card, "but if he can't raise interest rates on some, he has to raise rates on all members because he has to arbitrize it on his balance sheet.
"It is about the practicality of running a credit union," Becker observed.
