Congress Eyes Credit Card Reform In 1st Senate Hearing
The Democrats made it clear they plan to revisit some of the issues swept aside by the previous, Republican-controlled Congress during the debate over bankruptcy, which was led by the credit card industry.
"I would like to put the credit card industry and the issuing banks on notice, that we're going to take a long, hard look at how you treat your customers, both short-and long-term," said Connecticut Sen. Christopher Dodd, the new Chairman of the Senate Banking Committee, who made it clear that popular issues like credit card abuse will be central to his fledgling campaign for president.
Perils And Opportunities For CUs
The debate poses both perils and opportunities for the CU lobby, which teamed with the credit card companies to pass the bankruptcy reform bill that was unanimously opposed by consumer groups. But credit unions, which lawmakers acknowledged mostly avoid predatory practices under fire, could benefit by illustrating examples of consumer assistance and financial literacy.
Dodd, who has long criticized credit card companies, said he is concerned about the growing credit card debt of American consumers, the targeting of students, senior citizens, low-income people and hiding fees and rate increases. Dodd cited data that shows that credit card penalties paid by consumers grew by 15% last year to $17.1 billion, and have exploded 15-fold since 1996 when the figure was $1.7 billion.
In addition, Dodd said he will hold hearings later this year on the growing market of interchange fees, which have been lucrative for card issuers, including credit unions, at the expense of consumers and merchants.
Robert Manning, business professor at Rochester Institute of Technology and author of Credit Card Nation, told the committee the evolving practices of the credit card industry has increased the vulnerability of the American consumer, especially those of low- and moderate-income.
Several Senators indicated they plan to introduce legislation to set new standards for credit card disclosures and fees and banning certain practices, like universal default. Democrat Daniel Akaka, of Hawaii, criticized the disclosures included in the bankruptcy reform law and said he will introduce a bill setting new rules disclosing the affects of minimum monthly payments.
New Jersey Democrat Robert Menendez, a member of the banking panel, said he has introduced a "Credit Card Bill of Rights" that would, among other things, prohibit universal defaults; restrict excessive late fees and tighten regulations on credit card companies to ensure that they are not offering credit to high-risk cardholders without verifying their ability to pay.
The Menendez bill would also prohibit credit card solicitations to consumers under 21 unless they proactively "opt-in" to receive such solicitations; and establish a financial literacy in elementary and secondary schools to help prepare young people to use credit responsibly.
GOP Warms To The Issue
Several Republicans also warmed to the issue. Sen. Richard Shelby of Alabama, said the current credit card disclosures "make it harder for consumers to understand their rights and basic responsibilities." Sen. John Sununu (R-NH) sited what he considered fraudulent practices and suggested Congress establish penalties for issuers that engage in those practices.
Members of the House Financial Services Committees have also expressed concerns about some of the practices in the credit card industry and have also indicated plans to introduce their own legislation in the House.