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Senate Banking Committee Greenlights Credit Card Reform

April 02, 2009 12:38 PM
by Anne Szustek
By a one-vote margin, the Senate Banking Committee approved legislation that would curb some fee and interest hikes by credit card companies, and simplify gift card use.

Proposed Credit Card Legislation: Consumer Protection or Crimp on Credit?

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On Tuesday the Senate Banking Committee voted 12–11 to push through a bill that would prevent credit card companies from “unfairly” raising interest rates, raising rates retroactively on old balances, curb some over-the-limit fees and put new regulations on card issuance to kids under the age of 21. Under the proposed bill, called the Credit Card Accountability, Responsibility and Disclosure Act, or CARD Act, it would also be “easier for gift-card recipients to use the cards,” writes The Wall Street Journal.

Unsurprisingly, consumer advocacy groups such as the Consumer Federation of America and Consumers Union have come out in strong support of the proposed legislation. But some in the financial industry as well as some legislators have expressed a concern that the proposed law would further constrict credit. “It is essential that policymakers strive to find a way to address perceived ills in the marketplace while not unnecessarily curtailing access to reasonably-priced credit,” Kenneth Clayton, senior vice president for card policy at the American Bankers Association, was quoted as saying by Reuters. Sen. Tim Johnson, D-S.D., said in a statement that the CARD Act “goes too far in prohibiting lenders from adjusting prices to account for increased risk.”
The bill also includes provisions to increase the FDIC’s borrowing authority from $30 billion to $100 billion for banks and up the National Credit Union Administration lending limit to nonprofit credit union from $100 million to $6 billion. “The provisions also allow the agencies to exceed the new limits through the end of next year for up to $500 billion for the FDIC and $18 billion for the NCUA in the event of extraordinary circumstances,” writes Reuters.

A House subcommittee is scheduled to consider similar legislation on Wednesday. It is not known when the CARD Act will reach the Senate floor. In the meantime, however, small businesses have begun to campaign against some card transaction fees. The Merchants Payment Coalition has started a television advertising campaign in the districts of several House Financial Services Committee members that outlines the so-called “interchange fees” levied on retailers by credit card companies Visa and MasterCard.

The Merchants Payment Coalition is pushing for negotiation rights with the credit card companies, “contending that the charges shouldered by retailers—which vary and are higher on rewards cards—have risen 400 percent over the last several years and amounted to $42 billion last year,” reports The New York Times’ The Caucus blog.

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Background: Credit card interest rates rise; debtors seek help online

With the tightening credit market has come a sudden spike in credit card interest rates by several issuers. “For low-interest cards, which have rates below the national average but are often offered only to customers with strong credit histories, the average APR was 11.58 percent” the week of March 23, “up from 11.55 percent the week before,” according to statistics compiled by Bankrate and cited by the Associated Press. Annual percentage rates on balance transfer cards were up to 13.14 percent from 13.1 percent the previous week. Cash-back credit cards also saw a bump in APR that week, from 13.81 percent to 13.85 percent.

This further aggravates the woes of the many Americans wrestling with seemingly out-of-control credit card balances. Earlier in March, it was announced that the number of credit card defaults in the United States was the highest ever in 20 years.

The strain of unpaid credit card accounts has debtors so overwhelmed they’re seeking support from outsiders. Debtors Anonymous, debt management Meetup groups and similar organizations have seen increased membership, while postings on iVillage’s debt relief message boards have risen 81 percent, according to a June article in The Wall Street Journal mentioned by findingDulcinea.
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