February 16, 2009
The Federal Reserve last year adopted new credit card rules that ban practices often cited as unfair to consumers, such as raising the interest rate on an existing credit card balance when the consumer is paying the credit card bill on time.
However, those rules don't go into effect until mid-2010, prompting Sen. Chris Dodd (D-CT), chairman of the Senate Committee on Banking, Housing and Urban Affairs to re-introduce the Credit Card Accountability, Responsibility and Disclosure Act. The measure was offered last week.
Tamara Draut, Vice President for Policy and Programs at Demos, which calls itself a non-partisan policy center, supports legislative measures to re-regulate the credit card industry and bolster the household economy.
"America's families are facing a dire economy, and this bill couldn't come at a better time," Draut said. "As the consequences of the subprime meltdown spread, banks are openly increasing interest rates and fees on their credit card customers in order to cover losses in other areas. The only reason this is possible is because in the absence of almost any regulation, issuers have tilted the playing field heavily in their favor."
Draut said the bill would level the playing field between borrower and lender by putting an end to some of the most arbitrary, abusive, and unfair credit card lending practices that trap consumers — particularly disadvantaged and minority borrowers-in an unending cycle of costly debt. The bill would:
• Protect consumers from "any time, any reason" interest rate increases and account changes;
• Prohibit unfair application of card payments;
• Protect cardholders who pay on time;
• Limit fees and penalties;
• Ensure that cardholders are informed of the terms of their account; and
• Protect young consumers from credit card solicitations.
"Demos research shows that inequitable credit card underwriting practices have shifted the cost of credit to individuals least able to afford it, while at the same time generating some of the highest profits in the entire banking sector," Draut said. "Low-income families and households of color, primarily African Americans and Latinos, bear the brunt of the cost of credit card deregulation through excessive fees and high interest rates."
Last fall, a similar measure known as H.R. 5244 in the 110th Congress, passed the House of Representatives in September 2008 with largely bipartisan support. The Senate, however, did not take up the bill before the session ended.
Although the Federal Reserve and other bank regulators issued a rule in December 2008 that would prohibit many of the same unfair practices, Draut notes the rule does not take effect until July 2010, giving credit card companies 18 months to proceed unchecked and delaying relief for millions of American consumers.
