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April 30, 2008
Dodd to introduce major credit card legislation today
Chairman Chris Dodd (D-CT) (New London (CT) Day story) of the Senate Banking Committee will introduce a major credit card reform bill today, joined by U.S. PIRG and other major groups (our letter of support) and by Senator Carl Levin (D-MI), whose blockbuster hearings last year in his Permanent Subcommittee on Investigations exposed the seamy underside and dirty little secrets of the credit card industry. The biggest not-so-secret? That all the bank kids on the block -- even the big, white-shoe bank kids on the Wall Street block (named Citi and Chase) were using tawdry practices.
Also, on Friday, the Fed is expected to announce proposed rules banning unfair and deceptive practices by credit card companies. Some in the media are reporting that the rules may be stronger than I'd originally (one story from yesterday) expected, but then again, that may be a calculated attempt to head Congress off from even stronger reforms. Among the proposals the Fed may adopt are these: banning the practice of allocating consumer payments only to the lowest interest amount of a balance based on multiple rates; banning double-cycle and other methods of balance calculation that allow banks to collect interest on balances already paid (yes, you read that right-- banks can collect interest on balances already paid); a ban on raising rates on existing balances when the consumer is "risk re-priced" based on factors outside his/her relationship with the account itself. This practice of claiming that because a good customer's credit score declined or because he or she paid an unrelated bill a day late, the bank can then raise their interest rate to 36% APR or more, is generally called universal default. We're unconvinced it has anything to do with risk at all.
The bankers walk around the hill uttering the mantra "risk" but have provided no proof. We'll have to see if the Fed's rules are actually bans, or "guidance" or, worse, messages that "it is only OK to do these otherwise unfair things if you tell the consumer first in a disclosure."
Meanwhile, over at The Politico, there's a detailed story by Lisa Lerer explaining the battle between merchants and the card associations (Visa and Mastercard) over interchange fees. We've generally sided with the merchants, since all consumers pay more at the store and more at the pump, even if they pay cash, due to the high and probably anti-competitive fees charged merchants to accept credit or debit cards. We haven't yet taken an official position on the merchants' proposed remedial legislation itself however.
Posted by Ed Mierzwinski at April 30, 2008 09:45 AM
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