The call to reform the most abusive and restrictive practices of the credit card industry was once again heard on Capitol Hill yesterday, as two separate hearings emphasized both the need for more oversight and new legislation to protect consumers.
The Senate Judiciary Committee convened a hearing over S. 2359, aka the "Consumer Credit Fairness Act," introduced by Senators Sheldon Whitehouse (D-RI) and Dick Durbin (D-IL). The bill would, if made law, amend a portion of the 2005 bankruptcy legislation to enable consumers to divest a portion of their debt in bankruptcy.
Under the terms of the Act, if a filer's consumer debt threshold — including credit card debt, payday loans, or other debts — exceeded 15 percent plus current rates on 30-year Treasury bonds, they could have it liquidated in bankruptcy. The Act would also exempt filers with debt levels above the threshold from the "means test" mandated by the new bankruptcy law.
"The standard credit card agreement gives the lender the power to bleed their customers through evolving and ever more crafty tricks and traps," Whitehouse said in his opening statement. "The typical credit card agreement, which twenty years ago was a page in length, has grown to a 20-page, small print contract filled with legalese. In substance, it gives the companies the right to raise interest rates for almost any reason, and in some cases no reason at all."
The committee heard testimony from Douglas Corey, a Bank of America customer who had been paying his card debt on time for years, until he accidentally paid less than his normal minimum payment in August 2008. That triggered a spiral of rate increases and penalty fees that threatened to bury Corey under even more debt.
"With my next statement in October 2008 came the devastating news that my interest rate had skyrocketed to an astonishing 28.99 percent," Corey said. "I went from paying $360 in interest to $792 in one month and I was charged a $39 late payment fee. The following month, I was laid off from my sales representative position of seven years."
Corey's debt troubles increased to the point where he was missing payments on his mortgage, but, he said, he struggled to keep current on his loans. "Bank of America has come before you asking for help, understanding, and, with both hands open, for financial support," he said. "Yet when we the consumers go to these institutions looking for the same help, understanding and financial support, we get roughed up and receive no compassion."
Whitehouse introduced the Act in the previous session of Congress, but no action was taken on it. The House of Representatives passed the "Credit Cardholder's Bill of Rights" last year, but that bill did not come to the Senate for consideration. The House Financial Services Committee is expected to act on credit card legislation next week.
"It must do more"
Meanwhile, the House Subcommittee on Commerce, Trade, and Consumer Protection grilled new Federal Trade Commission (FTC) chairman Jon Leibowitz for what they perceived as the agency's failure to aggressively protect consumers from unscrupulous lending and punitive fees.
"These schemes were allowed to happen in part because of a fierce anti-regulatory ideology that was held by the Bush Administration," said Rep. Henry Waxman (D-CA), who said the opposition to regulation led to failures to protect citizens from tainted pet food to predatory mortgage lenders.
Leibowitz agreed, but said that his agency was often constrained by both its small numbers and lack of enforcement authority, as well as an inability to keep up with quickly evolving problems.
As is clear from recent experience, markets for financial services are complex and dynamic, changing in response to developments in the economy, technology, the law, and many other factors," Liebowitz said. "To remain an effective protector of and advocate for consumers of financial services, the FTC recognizes that the government must continually increase its knowledge of changing practices, evaluate its efforts, and modify its approach as needed."
Leibowitz recommended that Congress authorize it to use calls for public comment and rulemakings to declare certain business practices unethical, and to invest in the agency more enforcement power to obtain civil penalties against lawbreakers in federal court.