California banks won a clear victory this week in the first of a series of legislative votes that they hope will deregulate late and over-limit fees on credit card accounts.
The state Assembly's banking and finance committee voted 7 to 1 for a bill that would eliminate existing caps on the fees, which have been a major bone of contention among card issuers, consumer advocates, and lawyers who have filed class actions on behalf of allegedly overcharged cardholders.
Pricing Restrictions Axed
Before Tuesday's vote, committee chairman Louis Caldera amended the legislation to remove the pricing restrictions.
When the bill was introduced it allowed up to a $15 late fee -- which banks saw as an improvement from the current $5.75 cap. California-based issuers complained that out-of-state competitors are able to charge $15 or more.
A similar bill with a $15 cap fell two votes short of clearing the state Senate judiciary committee in January.
The cap-free bill must be approved by the Assembly judiciary committee and then the full Assembly before moving on for Senate consideration.
'Wait-and See Attitude'
"It's not a done deal," said Joel J. Crabtree, executive director of marketing for Household Credit Services Inc., the Salinas, Calif.-based card division of Household International Inc.
"We're taking a wait-and-see attitude before we start jumping up and down," he added.
Mr. Crabtree and Wells Fargo Bank executive vice president Barbara Brady-Smith -- representing two of the state's biggest credit card employers -- spoke to banking committee members before the vote Tuesday, stressing that nearby states have been courting their institutions to move jobs out of California.
Gail Hillebrand, legislative counsel for Consumers Union, complained that "no lid at all is quite simply a blank check which could cost consumers hundreds of millions a year."
"Not only can bank credit card companies charge 20% or more [interest]," she said, "but more they will be able to charge whatever they want" for paying late or exceeding credit limits.
Issuers are expected to adhere to the $15 late-fee benchmark, but Mr. Crabtree prefers no cap. "When you're doing pricing today, you have a whole bunch of levers you want to pull, and you want to be as flexible as possible," he said.
Out-of-State Issuers Immune
Class-actions challenging the relatively modest penalties have cost California institutions more than $30 million in legal costs and judgments to date, said Gregory O. Wilhelm, senior vice president and director of government relations for the California Bankers Association.
Out-of-state issuers, who hold about 75% of credit card balances in California, have been immune from these judgments, he added.
"This bill could make California competitive with the 18 free-market states out there," Mr. Wilhelm said.
"Why does sit make sense that a majority of the California marketplace be subjected to one rule and a majority subjected to an unregulated environment?"