Action on Legislation
FTC Enforcement
HR 2309, HR 2221
The House Energy and Commerce subcommittee on commerce, trade and consumer protection House panel approved two bills June 3 that would expand the power of the Federal Trade Commission and state attorneys general.The bills' sponsor, panel Chairman Rep. Bobby Rush, D-Ill., said that neither bill is meant to cover insured depository institutions, but industry representatives have said that the legislative language is ambiguous and is fueling concerns that consumer protection could be headed for enforcement outside of the traditional banking agencies.
The Consumer Credit and Debt Protection Act, which passed 16 to 9 along party lines, would give the FTC expedited rulemaking authority to target unfair or deceptive acts or practices and to obtain civil penalties, which state attorneys general could enforce. It would specifically direct the FTC to consider additional consumer protections for payday lending, mortgage foreclosure rescue and loan modification scams. It also would require the FTC to ensure regulations on debt settlement in auto financing were necessary to prevent unfair and deceptive practices.
The Data Accountability and Trust Act, which passed by voice vote, would require the FTC to issue data-protection and breach-notification requirements that it and state attorneys general could enforce.
The bills were aimed at closing consumer protection gaps in consumer credit and data security. The full committee is expected to approve the measures soon.
Credit Cards
Public Law No: 111-24
After more than a week of debate in the Senate, President Obama met his Memorial Day goal by signing comprehensive credit card reform legislation into law on May 22.
The Credit Card Credit Card Accountability Responsibility and Disclosure Act of 2009 represents a significant overhaul of the credit card industry.
The law, authored principally by Rep. Carolyn Maloney, D-N.Y., and Senate Banking Committee Chairman Chris Dodd, largely eliminates rate increases on existing balances, restricts fees, bans double-cycle billing, lengthens the payment period and adds disclosures designed to warn customers about the risks of making only minimum payments.
In the Senate, several lawmakers succeeded in adding amendments to strengthen the bill.
The final version of the legislation passed the Senate May 19 with a vote of 90 to 5. It sailed through the House the next day with a vote of 361 to 64.
The Senate added standards that require bankers to consider borrowers' ability to repay, strengthened fee restrictions and added further protections for borrowers under 21 years old.
It added provisions that require more disclosures for college affinity cards and extended protections to cardholders under 21 to other student financial products, including student loans and insurance products.
Most of the card standards will go into effect in February, but one that will take effect in 90 days requires issuers to give customers 45 days' notice before increasing rates so that they have time to close the account and pay off balances at the current rate.
The statute bans card companies from increasing rates, fees or finance charges on existing balances the first year the account is opened except in four circumstances: when a payment is 60 days or more late, a promotional rate expires, the rate is tied to a variable rate or the cardholder has entered a workout agreement.
After a cardholder's rate is increased, the card company must review the account every six months to consider reducing the rate.
It also requires consumers to opt in for over-the-limit fee protection, and it restricts the number of over-the-limit fees issuers can charge for a single event of exceeding a credit limit.
Under the statute, billing statements must be mailed 21 days before they are due, and companies cannot charge fees to pay a bill online or by phone except when live services are required to expedite payments.
The statute requires disclosures designed to caution cardholders about the consequences of making only minimum payments by highlighting how long it would take to pay off balances and showing how much interest would get tacked on.
The law also requires promotional rates to be in place for at least six months, and it requires payments to apply to highest-rate balances first.
For borrowers under 21 to obtain cards, they must prove that they have sufficient income to cover the credit limit, or have a parent co-sign.
Premium Relief and Foreclosure Mitigation
Public Law No. 111-22
President Obama signed into law a bill on May 20 that is designed to reduce foreclosures and improve bank liquidity.
The statute includes a major provision sought by bankers that would allow the Federal Deposit Insurance Corp. to extend its borrowing authority.
The statute more than triples the FDIC's credit line with the Treasury Department, to $100 billion, to help shoulder costs from bank failures. In addition, it would make a credit line of up to $500 billion available temporarily in emergency situations until next year. The line could be tapped with approval by the FDIC board, the Federal Reserve board, the Treasury and the president.
The law also would make improvements to the Hope for Homeowners program to help underwater borrowers refinance into government-insured mortgages, and it would provide liability protection to servicers that modify mortgages.
It would also extend the temporary increase on FDIC insurance to $250,000 per account to the end of 2013. The increase was originally supposed to expire at the end of this year.
The law includes an amendment from Sen. Jack Reed, D-R.I., that would let the Treasury Department hang on to warrants it took for injecting capital into banking companies under the Troubled Asset Relief Program after they have repaid the funds to the Treasury. Reed said the Treasury could better protect taxpayers by letting the market improve while the government retains its stake in financial firms.
Financial Crisis Commission
Public Law No. 111-21
Also on May 20, President Obama signed into law a mortgage fraud bill that enhances the government's ability to fight mortgage fraud, partly through additional funding for law enforcement agencies and extending federal fraud laws to cover mortgage lending.
The law also calls for creating a 10-member Financial Markets Inquiry Commission to examine the causes of the financial crisis.
The commission would be independent of Congress, with six members chosen by Democrat leaders and four chosen by GOP leaders.
The commission is intended to be similar to the investigation of the Pecora congressional subcommittee that examined the stock market crash of 1929. It is to focus on all aspects of fraud and abuse in the financial sector. The commission is to study state and federal regulatory enforcement; credit rating agencies; lending practices; and securitization. It is also to be tasked with reviewing corporate governance and executive compensation, federal housing policy; derivatives; government-sponsored enterprises; and short-selling, among others. The commission is also required to examine the causes of major financial institutions that failed or were likely to fail without government assistance.
It is due to report its findings to Congress by Dec. 15.
New Legislation
HR 2695, HR 2382
Interchange
Senate Majority Whip Dick Durbin reintroduced a bill June 9 designed to give merchants more control over setting interchange fees.The Credit Card Fair Fee Act is largely similar to one the Illinois Democrat offered last year. It would remove antitrust hurdles to let merchants enter collective bargaining agreements with banks when negotiating interchange rates. It would also allow a three-judge panel appointed by the Department of Justice and the Federal Trade Commission settle disputes.
House Judiciary Committee Chairman John Conyers also reintroduced a similar bill on June 4. His bill, which is also called the Credit Card Fair Fee Act, incorporates changes his committee made during a vote on the bill last Congress. His bill also removes antitrust hurdles for merchants to negotiate rates, but it does not include the three-judge panel and it would exempt credit unions with assets of less than $1 billion.
Rep. Peter Welch, D-Vt., introduced a different interchange fee bill on May 13. The Credit Card Interchange Fees Act would let merchants set minimum and maximum amounts for credit card purchases, offer discounts for particular forms of payments and let merchants steer patrons to the least-costly purchase methods.
Pending Legislation
Rate Cap
S 257
The Senate Judiciary Committee is expected to vote soon on a bill that would use the Bankruptcy Code to set a rate cap on consumer credit.The Consumer Credit Fairness Act bill, by Sen. Sheldon Whitehouse, has been on the Senate Judiciary Committee schedule for weeks but is expected to eventually pass. The bill would effectively cap the annual percentage rate on any consumer loan, including fees, at 18.5%. It also would weaken some key components of the 2005 bankruptcy reform law to make it easier for consumers to discharge their debt when it hits that trigger.
Though the bill would amend the Bankruptcy Code to make it easier for borrowers to unload debt, its goal is to stop high-cost loans from being made in the first place. If enacted, it would have a major impact on credit cards, auto financing and payday loans.
The bill would change the standard practice of how annual percentage rates are calculated by factoring any fee into the rate and defining "high cost" as the lesser of either 36% or 15% plus the yield on the 30-year Treasury securities, which is currently about 18.5%.
To discourage creditors from offering rates at or above such levels, the bill would waive creditors' claims to collect on outstanding credit by letting borrowers with high-cost debt skip the means test and wipe out their debt by proceeding directly to Chapter 7 bankruptcy.
Regulatory Reform
President Obama is expected to unveil his plan for regulatory restructuring on June 17, after which House Financial Services Committee Chairman Barney Frank is expected to quickly introduce legislation on the issue.
House Republicans are expected to offer their alternative this week.
Though none of the details are set in stone, Frank and Dodd have pledged to work together and have expressed similar interests.
For example. late last month when rumors emerged that the administration was considering consolidating all the federal banking regulators into one prudential regulator, both Frank and Dodd raised issues with the idea, largely ruling out a Financial Services Authority model and leaning toward a council of regulators to safeguard against systemic risk. The administration has since backed away from recommending the creation of a single regulator, and is expected to keep the current structure largely intact, though it is widely expected to recommend merging the Office of Thrift Supervision with the Office of the Comptroller of the Currency.
Both chairmen have also expressed interest in a financial product safety commission, giving the FDIC expanded resolution power and reining in risk-taking in executive compensation.
