By Mark Huffman
February 25, 2010
It's a new day for credit card holders. A new law took effect this week giving card-holders new rights and reining in some of the industry's more abusive practices.
Yet consumers should expect their lender to try and recoup some lost avenues of revenue in other ways, in the form of new fees. As Congress wrangles over financial reform, consumer groups say a Consumer Financial Protection Agency, one of the more controversial parts of the current bill, is needed more than ever.
"The lesson of the CARD Act is clear: we need a Consumer Financial Protection Agency," said Heather McGhee, Director of the policy group Demos' Washington Office. "Banks have already found new ways to abuse consumers, and Congress can't meet every year to legislate against the newest credit card outrage."
McGhee said new credit card outrages include 79 percent interest rates and enormous establishment fees on so called "subprime" credit cards; hidden costs on pre-paid cards, and the marketing of specialty cards to cover medical costs.
"These kind of practices will continue until there is one agency charged with ensuring the safety of financial products used by American families and small business," she said.
Even so, it appears that Congressional leaders are placing the CFPA on the back burner in order to advance financial reform legislation in the Senate. Last week Sen. Chris Dodd (D-CT), Chairman of the Senate Banking Committee, agreed to suspend consideration of the CFPA until the end of negotiations, in order to win the support of Sen. Bob Corker (R-TN).
AGs support CFPA
Though Senate Republicans oppose the stand alone consumer protection agency, it enjoys bipartisan support among the various state attorneys general. Last October, a number of attorneys general signed a statement urging Congress to approve CFPA.
"Risky lending practices and a free-for-all in the financial services industry helped cause our current economic problems," said North Carolina Attorney General Roy Cooper at the time the statement was issued. "Smarter regulation and stronger enforcement, from federal and state authorities, are clearly needed to protect individual consumers and our entire economy."
Why would state officials be in favor of the agency? Cooper noted that strong North Carolina laws against predatory lending prevented a foreclosure problem in the Tar Heel state until federal regulators "pre-empted" those laws, allowing national banks to engage in subprime lending.
"Creation of a federal CFPA will be an important step toward a safer and sounder financial marketplace," he said.
The proposal would give state regulators, including state attorneys general, the authority to enforce their state consumer protection laws against federally-chartered institutions.