WASHINGTON - Efforts to ban a variety of credit card practices, most of which target low-income cardholders, moved forward in Congress last week, but are not expected to be passed this year–leaving the issue for the next Congress to decide.
A bill endorsed by the House Financial Services Committee would ban so-called double cycle billing; universal default, payment allocations and retroactive rate increases.
The bill was broadly condemned by the banking lobby, which said it represents government intrusion into the free market at a time of financial distress for banks.
The credit union lobby also expressed its opposition, especially to a handful of key provisions, and called on lawmakers to wait until later this year when the Federal Reserve is expected to issue its own credit card reforms, as part of amendments to Regulation Z, the Truth in Lending Act.
“The (Fed’s) proposal seeks to address many of the issues identified in the committee print, and it may be more prudent to let the regulatory process run its course prior to legislating a remedy,” said CUNA President Dan Mica, in a letter to Rep. Carolyn Maloney, D-N.Y., the chief author of the bill, dubbed the Credit Card Holders Bill of Rights Act.
Maloney, who has been working on the bill for at least four years, rejected pleas to wait for the Fed to act. “Congress is written into the Constitution, the Federal Reserve is not,” she said during last week’s debate on the bill.
The credit union lobby said credit unions, in general, do not engage in some of the bill’s prohibited actions, but they oppose several provisions of the bill.
NAFCU said it opposes the new limits on retroactive rate increases, which some creditors assess on outstanding balances on cards after an adverse credit incident. NAFCU told Maloney in some cases rate increases may be necessary to protect the credit card portfolio, such as in times of rising interest rates.
CUNA said it opposes a requirement for a 45-day advance notice of a rate increase–compared to the current 15-day notice.
CUNA also opposes a provision requiring that creditors mail bills at least 25 days before the bill due date. They said a 21-day date would be better.
Both NAFCU and CUNA oppose a provision prohibiting issuing a card to anyone under 18 unless that person has been legally emancipated. They suggested the prohibition be lifted for anyone who has the approval of a parent or guardian.
The bill, which must now be voted by the full House, has little chance of passing this year, as a similar bill has been stalled in the Senate. Rep. Barney Frank, D-Mass., chairman of the Financial Services Committee, a supporter of the bill, conceded as much. “This is not going to go through the United States Senate. The Senate has completed its business for this year,” he said during last week’s debate.
But the chief sponsors in the House and Senate are expected to bring the issue back again in the next Congress, where they are expected to attract more support. That is because the Democrats, where most of the support exists in both the House and Senate, are widely expected to have a broader majority in both chambers next year.
The bill would ban:
* double cycle billing: this occurs when a creditor calculates interest based in a billing cycle that precedes the most recent cycle;
* universal default: when creditors use adverse information about a cardholder, other than actions directly related to their card, as a basis for increasing rates on outstanding balances;
* payment allocations: when a creditor, not the cardholder, designates which outstanding balances a payment is targeted for;
* retroactive rate increases: raising the rates on previously accrued balances.
The Federal Reserve is expected to approve final amendments to Reg Z by year-end that will incorporate many of these provisions. The Fed said it has received 32,000 public comments on its proposals so far.(c) 2008 The Credit Union Journal and SourceMedia, Inc. All Rights Reserved.http://www.cujournal.com http://www.sourcemedia.com
