Law and regulation

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WASHINGTON — The House Financial Services Committee approved a bill by Rep. Carolyn Maloney Thursday that would rein in a slew of common credit card practices.

The U.S. House Financial Services Committee yesterday approved the Credit Cardholders' Bill of Rights by a vote of 39-27, moving the bill closer to a vote in the House. The legislation would end credit card practices some lawmakers deem abusive. Amendments to the bill aligned it more closely with federal regulators' proposed new rules for the card industry and include a "sense of Congress" that the legislation should not prevent regulators from finalizing their new rules before the end of the year. Observers say the bill may not have enough time to come to votes in the full House and Senate this year, but its sponsor, Rep. Carolyn Maloney, D-N.Y., yesterday vowed to work to bring the bill up for a full House vote during this session. Maloney's bill would prohibit many of the practices the Federal Reserve Board, the Office of Thrift Supervision and the National Credit Union Administration seek to eliminate, including "any time, any reason" repricing of credit card interest rates and a host of other practices, such as billing cardholders for interest accrued during previous billing periods, otherwise known as double-cycle billing. The comment period for the proposed rules, which have generated more than 42,000 letters, closes Monday. "This landmark legislation will help level the playing field between cardholders and card companies, and give consumers the tools they need to responsibly manage their own credit," Maloney said yesterday in a statement. Edward L. Yingling, American Bankers Association president and CEO, said in a statement that the association is disappointed with yesterday's vote. "In its current form this bill seeks to lock into law restrictions on fundamental risk-management activities, the way interest is calculated and other responsible business practices. The result will be higher costs for consumers, reduced access to credit for those with an imperfect or limited credit history, and less access to low credit options," he said.

Chet Mullin, Omaha World-Herald, Neb. McClatchy-Tribune Info Svc

Merchant acquirers will have to report their retailers' credit and debit card transactions to the Internal Revenue Service under the Housing and Economic Recovery Act of 2008, which President Bush signed into law Wednesday.

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The Reserve Bank of India, the country's central bank, has told financial institutions to put mobile-banking services on hold so financial authorities can create and issue guidelines for mobile transactions, a Reserve Bank spokesperson tells CardLine Global. "The guidelines on mobile banking are likely to be announced soon, and we have advised banks to put on hold their plans till then," the spokesperson says without specifying when authorities would finish the guidelines . "This is to ensure that mobile banking takes off in a sound and robust manner to benefit both the banks and their customers." The spokesperson declines to discuss any mobile-banking related complaints financial authorities may have received. Also unclear is whether the directive applies to mobile payments-transactions that go beyond simple banking services. Clear guidelines from the Reserve Bank could help spark interest in mobile banking and payment services, Prathima Rajan, an India-based analyst with United States-based research firm Celent LLC, tells CardLine Global. She adds that while some private Indian banks, along with some foreign banks operating in the country, have launched mobile banking for debit or credit alerts and balance checks, mobile payments has a smaller foothold. "Mobile payment is still in a nascent stage in India, but the fact that India constitutes around 261 million mobile subscribers makes it a potential market for such transactions in the future," Rajan says.

Standard Chartered expects to win approval from the China Banking Regulatory Commission to issue yuan-dominated credit cards in the country, a spokesperson for the United Kingdom-based bank tells CardLine Global. The spokesperson declines to say when the bank expects to receive approval. The bank late last year applied to issue yuan-based debit and credit cards in China. Standard Chartered received permission to issue debit cards in China and this month said it had begun to issue them (CardLine Global, 28 July).

The U.S. House Financial Services Committee begins a markup session tomorrow on the Credit Cardholders' Bill of Rights, with the 70-member committee likely to cast votes on the legislation after considering amendments. Observers say the bill, which Rep. Carolyn Maloney, D-N.Y., introduced earlier this year (CardLine, 2/7), stands a good chance of passing because it closely resembles provisions of proposed federal regulations that would prevent many of the credit card practices some lawmakers deem abusive. The Federal Reserve Board, the Office of Thrift Supervision and the National Credit Union Administration proposed new rules in May that would prohibit "any time, any reason" repricing of credit card interest rates and a host of other practices, such as billing cardholders for interest accrued during previous billing periods, otherwise known as double-cycle billing. The comment period for the proposed rules, which have already generated more than 41,000 letters, closes Aug. 4. Maloney today released a report suggesting that inadequate regulation of the credit card industry poses serious risks to the U.S. economy. The 16-page report "Forever in Debt: Anti-Competitive Credit Card Practices and their Impact on the Economy" contends that policies that drive up interest rates and fees may help increase personal bankruptcy rates and may dampen consumer spending as more families divert their incomes to servicing debt. The report also suggests that the longstanding practice of securitizing credit card debt in secondary markets represents a substantial risk to the financial system.

President Bush this morning signed into law the Housing and Economic Recovery Act of 2008, which contains a provision mandating merchant acquirers to report their retailers' credit and debit card transactions to the Internal Revenue Service. Acquirers will have to submit annual reports listing the name, address, taxpayer identification number, and the gross amount of credit and debit card transactions for each of their merchant customers, according to the new law (CardLine, 7/28). The annual requirement will apply to merchant card transactions made after Dec. 31, 2010. Mandatory reporting of merchant credit and debit card transactions to the IRS could prove time-consuming and costly for acquirers and the independent sales organizations that work with them, according to Paul Martaus, president of the Mountain Home, Ark.-based consulting firm Martaus & Associates Inc. Acquirers and ISOs may have to absorb the costs of collecting and securely storing merchants' information, he says (CardLine, 7/29).

The Reserve Bank of India wants credit card issuers to improve their treatment of cardholders, according to a notice the financial institution released. The notice calls on issuers to stop sending credit cards to customers unless requested, offer clear information about card interest rates, release the main reason for a rejected card application and refrain from delaying to send card statements to customers. The circular contains recommendations. The bank released the suggestions after studying banks' credit card operations and reviewing complaints from credit cardholders, a Reserve Bank spokesperson tells CardLine Global.

Mandatory reporting of merchant credit and debit card transactions to the Internal Revenue Service could prove time consuming and costly for acquirers and the independent sales organizations, according to Paul Martaus, president of the Mountain Home, Ark.-based consulting firm Martaus & Associates Inc. A provision of the Housing and Economic Recovery Act of 2008 would require merchant acquirers to provide annual reports listing the name, address, taxpayer identification number, and the gross amount of credit and debit card transactions for each merchant customers to the IRS (CardLine, 7/28). Acquirers and ISOs likely would have to absorb the costs ofh collecting and securely storing merchants' information, Martaus says. Depending on how the IRS handles the provision, "there is a very strong likelihood that the ISOs themselves are going to have to go to every merchant location in the country they have clients in and reprogram all the terminals," says Martaus. In the past, acquirers and ISOs have not collected some information the IRS would require under the provision, such as taxpayer identification numbers. Consumers, though, may ultimately pay for the change. "Acquirers and ISOs will have to absorb the cost of this," but they will pass those costs to merchants, who will increase prices for consumers, Martaus says.

Western Union Co. said Friday that it is appealing a court ruling this month allowing Arizona to seize remittances sent to Mexico from other states.

A few weeks ago, I wrote a column about the wisdom of taking loans against your 401(k) account. The story mentioned a company called Reserve Solutions that allows customers to access their loan via a debit card at an A.T.M. or any merchant that accepts Visa.