CONGRESSWOMAN ELISE STEFANIK
The House is scheduled to begin consider the Senate amendment to H.R. 627, the Credit Cardholders' Bill of Rights Act, on Wednesday, May 20, 2009, under a closed rule that does not allow any amendments, denies a motion to recommit, and divides the consideration of the underlying language and a Senate amendment regarding firearms.
During consideration of H.R. 627, the Senate amended the bill to include a provision that would prohibit the Secretary of Interior from banning the possession of a firearm in a National Park in compliance with State law. The rule divides the question on the bill and the firearm amendment, providing for two separate adoption votes. The rule also provides that if either portion of the divided question fails, the House will be considered to have made no disposition of the Senate amendments.
H.R. 627 was introduced on January 22, 2009, by Rep. Carolyn Maloney (D-NY) and referred to the Committee of Financial Services. On April 22, 2009, the bill was marked-up and reported, as amended, by a vote of 48-19. On April 30, 2009, the bill was passed by the House by a vote of 357-70. On May 19, 2009, the Senate passed their amended version of the bill by a vote of 90-5.
The Senate amendments to H.R. 627 would place a number of new federal restrictions on credit card company practices, restrict credit card issuers from assessing certain fees on card holders, and create numerous new disclosure requirements. The bill also restricts a creditor's ability to charge delinquency fees and impose charges on overdue interest. The following summary reflects the bill as amended by the Senate. For more information on the House-passed version of the bill, please see the Legislative Digest for April 29, 2009.
Advance Notice of Rate Increases: Prohibits a creditor from increasing a card holder's annual percentage rate (APR) without providing written warning 45 days prior to the increase, except when the increase is due solely to a change in index that is not under the creditor's control or the increase is due solely to the expiration of a promotional rate. No APR increase could occur within a year of the credit card account being opened. The bill stipulates that a notice of an APR change is presumed to have been received 14 days after it is sent and the notice of increase must also contain a right to cancel notice. This section would go into effect 90 days after enactment.
Existing Balances: Prohibits a creditor from increasing any interest rate, fee, and finance charge on any existing credit card balances. The bill provides certain exceptions that would allow a creditor to raise such charges if:
Any increase made under one of the above exception must be noticed by the credit card company.
Repayment of Outstanding Balances: Prohibits a credit card company from changing the terms of repayment without providing the card holder with either a five-year repayment or a payment plan with a minimum payment of no more than twice the percentage of the outstanding balance required before the increase.
Interest Rate Reduction: States that if a credit card company increases an ARP, the company must review the increase every six months and reduce the rates if the increase is no longer necessary.
Limits on Increases: Prohibits a credit card company from raising rates for at least one year after the account is opened and prohibits raising a promotional rate within the first six months after the account is activated.
Double-Cycle Billing: Prohibits a creditor from imposing a finance charge on a credit card account based on balances from any billing cycle that precedes the most recent billing cycle (double-cycle billing). The bill provides that the restriction on double-cycle billing would not prohibit adjusting finance charges following the return of a payment for insufficient funds or following the resolution of a billing error dispute.
Over-the-Limit Transactions: Prohibits a credit card company from charging an over-the-limit-fee unless a card holder explicitly elects to have the ability to charge over their balance limit. A credit card company would be required to send an annual notification explaining the option to card holders. The bill would prohibit the creditor from issuing any fee for an over-the-limit transaction if the card holder had not elected to allow such transactions.
Method of Payment Fees: Prohibits a credit card company from applying a fee based on the manner in which a payment to the account is made.
Reasonable Penalty Fees: Requires that any penalty fee imposed by a credit card company be "reasonable and proportional to such omission or violation." The bill would require the federal banking agencies to devise rules within nine months to define and enforce this requirement.
"Fixed" Interest Rate: Stipulates that the term "fixed" may only refer to an interest rate that will not change over the specified period for any reason.
Prompt Crediting of Payments: Requires a credit card company to apply payments mailed by 5:00 p.m. on the due date to avoid a late fee. The bill also stipulates that if two or more different APRs apply to the same balance, the amount of any payment in excess of the minimum must be applied to the balance with the highest APR, with any remaining payment then going towards the other balance(s).
Subprime Cards: Stipulates that a credit card company may not charge any fee (other than a late fee, over-the-limit fee, or returned payment fee) on a consumer that pays a fee in excess of 25 percent of the total amount authorized by the account in the first year a credit card is open.
Due Dates: Stipulates that a payment due date must be on the same day each month and requires to accept a payment as paid on time if it is received on the first business day following a weekend or holiday on which the payment is due.
Periodic Statements: Requires a credit card company to send periodic statements at least 21 days before payment is due.
Enhanced Penalties: Amends the Truth in Lending Act (TILA) to increase penalties for violations of the bill to a minimum of $500 and a maximum of $5,000.
Payment Timing Disclosures: Requires credit card companies to provide customers with an annual "Minimum Payment Warning," which states that making only the minimum payment will increase interest costs. The amendment would also require companies to send annual outstanding balance information outlining how many months it would take to pay the total outstanding balance making the minimum payment, and how much a monthly payment would be needed to pay off the outstanding bonus in 36 months. In addition, credit card companies would be required to disclose current interest rates and the rate that will apply after the end of any promotional period. Credit card companies could face civil liabilities under the bill if these disclosures are not made.
Late Payments: Requires credit card companies to disclose whether late payments may result in fees or increased interest rates.
Internet Posting: Requires credit card companies to post all of their written contracts and agreements online and requires the federal banking agencies to specify a format for posting the agreements.
Credit to Young Consumers: Prohibits a credit card company from issuing a credit card to anyone under the age of 21, unless the individual demonstrates an "independent means of repaying any obligation" or has a cosigner. The bill also prohibits credit card companies from sending unsolicited credit card information to persons under that age of 21.
Credit to College Students: Prohibits a credit card company from increasing the credit available to a college student under 21 with a co-signer unless the co-signer approves. The bill also prohibits credit card companies from offering college students tangible items to induce them to apply for a credit card on a college campus.
Gift Cards: Prohibits a creditor from charging "dormancy fees" for inactivity unless the card hold has not used the card for 12 consecutive months. In addition, the bill prohibits companies from issuing gift cards that expire sooner than five years after the card is issued. The Federal Reserve would be responsible for issuing regulations under this section, and the marketing of products with credit offer.
Studies and Reports: Requires federal agencies to conduct a number of studies and reports, including reports on: interchange fees, consumer credit plans and regulations, reductions of consumer credit card limits based on consumer information, the use of credit cards by small business, emergency personal identification number (PIN) technology.
Small Business Security Task Force: Establishes a small business security task force to address information technology security needs of small businesses.
Balances Attributable to Interest Only: Prohibits fees on balances that are only attributable to interest accrued during a proceeding billing period. In addition, the bill would stipulate that failure to make payment on an interest-only balance would not constitute a default on the account. Thus, a credit card holder could refuse to pay an interest-only balance without being charged any additional fees or defaulting on their account.
Access to Payoff Balance Information: Requires each periodic credit card statement to contain the toll-free number and website address where the card holder may request the payoff balance on the account.
Guns in Parks: Prohibits the Secretary of Interior from banning the possession of a firearm in a National Park in compliance with State law.
Non-English Credit Reports: Requires credit card providers to make disclosures required in the bill available in the native language of the consumer, to the extent possible.
Effective Date: Stipulates that the provisions under this legislation are effective 9 months after enactment of the legislation, unless otherwise stipulated in the bill.
Rulemaking: Grants authority to the Federal Reserve to issue rules and regulations to carry out the provisions of this act.
In 2008, the Federal Reserve Board (Fed) issued 1,200 pages of new rules and restrictions on credit card practices. The Fed rules contain many of the same requirements as the underlying legislation, including prohibitions on increasing rates on preexisting balances, charging late fees if the consumer has not been given reasonable time to pay, and utilizing the "two-cycle" method for interest computations. The new guidelines are scheduled to be implemented on July 1, 2010. The application of the regulations was scheduled more than a year after the rules were introduced to give the credit card industry proper time to prepare for the new restrictions and any new expenses without passing on an undue cost to consumers or limiting access to credit. CBO has estimated that the mandates on private credit card companies contained in H.R. 627 would exceed $139 million per year.
During the Financial Services Committee hearings and mark-up of H.R. 627, a number of witnesses and Members pointed out that the duplicative application of these provisions may result in undue limitations on credit access for consumers. It is generally agreed that these new rules and restrictions on credit card companies will impose costs that would be, at least partially, passed on consumers. According to a statement by former FED Governor, Randall Kroszner, when the rules were originally issued, "Unfair practices can impose significant costs on consumers. Likewise, the new rules will have a cost, too... Although consumers might see some costs decline as new business models emerge, consumers might see other costs increase."
By requiring companies to stop imposing certain fees, especially on higher risk cardholders, the bill reduces credit card companies' ability to price based on risk. If companies are limited in their ability to impose higher rates on riskier consumers, the company has no incentive to provide access to credit for people without above-average credit ratings. Some Members have expressed concerns that this bill would have the unintended consequence of further restricting access to credit during a global credit crunch that is both a symptom, and a cause of the worldwide financial downtown.
Approximately 145 million Americans, or half the population, own credit cards. Credit cards provide a quick and easy option for individual consumers to make purchases, pay bills, or get access to cash. Perhaps more importantly, credit cards provide vital access to short term credit to small businesses, which use credit as start-up capital, or to purchase inventory, cover payroll, and make improvements. Given the nature of small business, access to short term credit is imperative to small business owners. According to Financial Services Committee Report 111-88, "The Small Business Administration (SBA) has testified that small businesses rely on credit cards as a tool for their day-to-day operations and often shut down or lay off employees when banks will not provide the necessary credit." Some Members may have concerns that the underlying legislation may restrict access to credit for small businesses, which, according to the SBA, have provided 60 to 80 percent of all new jobs in the U.S. over the last decade
According to CBO, H.R. 637 would not have a significant impact on spending or revenues. However, CBO estimates that the bill would impose large private sector mandates on credit card companies that would exceed $139 million per year, which exceeds the Unfunded Mandate Reform Act (UMRA) threshold. A CBO score specific to the Senate amendments to the bill was not yet available at press time.