U.S. PIRG Consumer Blog: Bachus changes tune on urgency of need for credit card reform

We're disappointed that Spencer Bachus (R-AL), ranking Republican on the House Financial Services Committee, who has played a key role in several hearings on unfair credit card practices, has sent a letter to members urging members not to co-sponsor the Maloney credit card reform bill, HR 5244. Seems now Mr. Bachus wants to wait for more hearings, wait for Fed rules to take effect, wait for more voluntary actions, and, of course, doesn't want to jeopardize the stimulus (expect this argument against regulation to be used a lot by a lot of people). It's too bad for consumers but we hope Mr. Bachus will vote for the bill after the anticipated hearings. After all, he already knows what's wrong, and he should know that the Fed rules don't really address the problems that the bill addresses. How do we know this? Here are excerpts of the encouraging things he was saying at hearings last year:

My introductions are in bold or comments in italics. Other material is direct quotes from Mr. Bachus:

On complaints he gets and what the Fed says to him: I can't speak for all the members of the minority, but I can tell you that I have a file, and there are 28 Republicans who have written me letters complaining about stuff, and saying, "You need to do something about this." I have talked with the Federal Reserve, and they have limited duties, as you know. They have to respond to truth in limit and disclosures. And they say certain abusive practices, even if we think they're abusive, even if the GAO thinks they're abusive, even if we have 40,000 letters from people saying they don't think this is right, we really can't do anything about that. If anything is to be done, the Congress will have to do it. And they have actually said, "That's your watch, not ours." (NOTE: Yet, in his new letter, he says essentially: Let's wait for the Fed rules to go into effect!)

On college marketing and his own experience as a parent: The experience of my colleagues may be different but a substantial percentage of the complaints I receive from constituents involves the parents of these students. And I might say that I could join my other constituents in having legitimate complaints on what I have witnessed in dealing with one or two of my five children. And I can say without a doubt that the treatment of them by the credit card companies was not fair and equitable.

On a consumer complaining that his payment was applied to his lowest, not highest, interest rate balance first: He sent that check in, plus his minimum payment for the month, and they applied it to his lowest balance. Now, here is a young man who would have never come into my office; he probably didn't have time. He saw me in a restaurant, and he came up to me and he basically said, "Congressman, I don't think that's right." And, quite frankly, I don't, either.

Regarding a well-off constituent who didn't pay any cards late, but used one a lot and had his rate on the other jump to over 20% APR, for no reason he could fathom (the full story includes a lot of back and forth about form letters being sent to his lawyer by the bank, etc.: And here is a sophisticated guy who has hundreds of employees, he has lawyers at his disposal, and he still can't find out what happened to him. Now, of course, what did he do? He immediately paid off that credit card. He immediately wrote a check and sent it in. And Americans every day are getting outraged by this. They get another credit card. And yes, you can do that. But that still doesn't make all of this right.

Asking the regulators about universal default and retroactive interest rate hikes: There has been a lot of talk about universal default. Now, I can certainly identify with a company that is extending credit, that all of a sudden sees a change in the consumer, or the credit card holder, that indicates that he may be going to have a difficulty. In fact, we have--our credit ratings now can pick up on some of these trends, although not always accurately. But let me ask you about this. I have a credit card. I have been told that I purchase stuff, and the interest rate will be 8 percent, and I make $10,000 worth of purchases. Now, all of a sudden I default on maybe not your credit card, but on somebody else's, or my credit score goes down. And that indicates to you, "I am not sure that I want to keep loaning this person money at 8 percent." I can actually see the equity in saying, "I am not going to loan you any more money at 8 percent," but I don't see the justice or the fairness in saying, "The money I loaned you at 8 percent, all of a sudden, I am loaning you that at 22 percent." What is your policy on that? Do you suddenly change the rules?

Unfortunately, the FSC committee has a lot of Democrats as well as Republicans who haven't yet co-sponsored this bill, which we and others have called a "an important step forward."