WASHINGTON (7/14/08)—Senate Banking Committee Chairman Christopher Dodd (D-Conn.) last week introduced a bill intended to curb such credit card practices as “universal default,” “any time, any reason'' repricing, multiple over-limit fees, and youth marketing. Dodd floated a draft of his legislation in April but said at the time that he would wait until regulators and the industry had a chance to curb perceived abuses. Dodd decided to go ahead with his legislation at this time because he believes both the government and private industry have failed to address the issues he has said negatively impact consumers, according to John Hildreth, senior legislative representative for the Credit Union National Association (CUNA). Among the bill’s provisions are prohibitions against:
* Interest charged for debt paid on time; * Interest charges on any portion of credit card debt which the credit card holder paid on time during the grace period’ * Credit card issuers from increasing interest rates on cardholders who are in good standing for reasons unrelated to the cardholder's behavior with respect to that card, a practice referred to as “universal default;” * Charging interest on credit card transaction fees, such as late fees and over-the-limit fees; and * Charging of repeated over-the-limit fees for a single instance of exceeding a credit card limit.
The bill also orders a government study of interchange fees, the fees charged merchants by credit card companies each time a consumer uses a card for a purchase. The House is expected to vote this week on legislation that would give merchants an antitrust exemption to negotiate interchange fees. (See relat4ed story, “Interchange bill markup expected Wednesday.”) On the House side, Rep. Carolyn Maloney (D-N.Y.), who chairs the House Financial Services subcommittee on financial institutions, introduced a package of credit card reforms in February called the Credit Cardholder's Bill of Rights (H.R. 5244). The bill was introduced with 40 co-sponsors and also is intended to curb abusive credit card practices, such as some interest-rate increases and late fees. CUNA applauds congressional and regulatory action to end discriminatory, predatory, deceptive, and abusive lending practices. However, it has several reservations regarding certain proposals aimed at achieving these ends. For instance, CUNA is concerned that a prohibition against universal default practices would prevent card issuers from adjusting a card holder’s interest rate based on their total credit risk. CUNA has noted that credit unions must often examine a card holder’s credit report, to approve a credit line increase for example. Negative information on a credit report would lower that credit score and thus a card issuer would have to consider that in its ongoing relationship with the card holder. On May 2, a joint proposal from the National Credit Union Administration, the Federal Reserve Board, and the Office of Thrift Supervision was released regarding overdraft protection plans and practices relating to credit cards. The plan also included possible amendments to Regulation Z (Truth in Lending) and Regulation DD (Truth in Savings) to complement the unfair acts and deceptive practices proposals. For credit cards, the proposal addressed time periods for making payments, payment allocations, interest rate increases on outstanding balances, fees resulting from credit holds, methods for computing balances subject to interest charges, excessive security deposits and fees charged when credit is issued, and advertisement that include multiple interest rates and multiple credit limits. For more on credit card proposals and CUNA’s position, use the resource link below.