Panel 1 of a Hearing of the Financial Institutions and Consumer Credit Subcommittee of the House Financial Services Subcommittee Subject: H.R. 627and H.R. 1456

Interview

PANEL I OF A HEARING OF THE FINANCIAL INSTITUTIONS AND CONSUMER CREDIT SUBCOMMITTEE OF THE HOUSE FINANCIAL SERVICES SUBCOMMITTEE
SUBJECT: H.R.627, THE CREDIT CARDHOLDERS' BILL OF RIGHTS ACT OF 2009, AND H.R.1456, THE CONSUMER OVERDRAFT PROTECTION FAIR PRACTICES ACT OF 2009

REP. GUTIERREZ: (Sounds gavel.) This hearing of the Subcommittee on Financial Institutions and Consumer Credit will come to order this afternoon, and thanks to all the witnesses for appearing before the subcommittee today. Today's hearing is a legislative hearing that will examine two important consumer protection bills, H.R. 627, the Credit Cardholders' Bill of Rights 2009, and H.R. 1456, the Consumer Overdraft Protection Fair Practices Act of 2009.

The subcommittee has asked our witnesses to discuss recent regulatory action in the areas of credit card reform and overdraft protection and to comment on H.R. 627 and 1456. We will be limiting opening statements to 12 minutes per side, but without objection, the record will be open to all members. Opening statements will be part of the record. I yield myself four minutes.

In the 2008, this committee led the Congress in adopting tough but common-sense consumer protection measures for credit card borrowers. This legislation, appropriately titled The Credit Cardholders' Bill of Rights, was approved in the House by a wide majority. It was, unfortunately, not taken up by the Senate. The reintroduction of this legislation in the form of H.R. 627 and under the 111th Congress is a sign that this Congress is committed to American consumers who demand common sense, consumer-oriented laws in a time of economic recession.

Credit cards, when used properly, are an important part of the American economic system. More than a convenient means of payment, they can be instrumental in starting a small business, helping and building a solid credit history and even effective in providing families capital during times of economic crisis. But far too often, consumers come to rely on revolving debt or they are drawn to cards that offer low teaser rates and other mechanisms designed to create a never-ending cycle of debt.

Today, Americans are suffering from rising unemployment rates, dramatically falling household wealth and declining real wages, all of which make it harder for consumers to pay off credit card debt. In fact, in 2008 we saw the percentage of accounts 30 days past due to an all time high of 5.6 percent. And on average, American families owe 24 percent of their income in credit card debt. These are daunting figures in an unstable time, but Congress can and must do something about it by making sure that unfair credit card practices and fees do not deter consumers from paying down their debt.

Among its many consumer protections, H.R. 627 would prohibit unreasonable interest rate increases by preventing credit card companies from arbitrarily increasing interest rates on existing balances. Additionally, it would end double-cycle billing, meaning that credit card companies could not charge interest on debt consumers have already paid on time.

The legislation also requires fair allocation of consumer payments, banning the process of crediting a consumer's payments to low interest debt first, thus insuring the highest-yielding debt for the insurer remains on the books the longest. In addition, the credit card holder bill of rights protects vulnerable consumers from high fee subprime credit cards by preventing these fees from being charged to the card itself. This is an important provision for minority consumers, many of whom are twice as likely to have an APR over 20 percent.

We set to work on this legislation with the knowledge that the Federal Reserve Board has mandated new regulations that mirror many of the protections included in H.R. 627. I applaud the board for its work on UDAP and Regulation Z changes.

Today's hearing will also discuss 1456, the Consumer Overdraft Fair Protection Act. This bill would provide consumers with more notice choice regarding overdraft fees. Among other things, 1456 would require notice to consumers when an ATM transaction is about to trigger an overdraft. Consumers would then have a choice to accept or reject overdraft service and the associated fee.

Of course, the Federal Reserve has also proposed new rules outlining additional consumer protections regarding overdraft fees. But similar to the credit card issue, I believe Congress should keep the proverbial legislative heat on the industry.

I'm committed to working with the members on the subcommittee and the full committee to advance this practical and consumer-friendly legislation. I believe H.R. 1627 (sic) fits these criteria well and, with some work, so will 1456 soon.

I yield four minutes to the -- I'm sorry, forgive me. I yield five minutes to the ranking member, Mr. Hensarling.

REP. JEB HENSARLING (R-TX): Thank you, Mr. Chairman. Thank you for calling this hearing.

Last year the House Financial Services Committee approved what I believe to be a dangerous piece of anti-consumer legislation that ultimately would restrict the availability of credit card credit. Instead of giving borrowers more tools to determine which card best meets their needs, the bill would outlaw certain practices, set arbitrary payment deadlines and create industry mandates that will only make it harder for companies to use risk-based pricing methods.

The advent of risk-based pricing since 1990 has been a boon for consumers. Since then, interest rates have fallen substantially from 20 percent to below 15 percent. Consumer-hated annual fees on most cards have typically virtually disappeared. And fringe benefit rewards, offers like frequent flyer miles and cash back, have exploded.

Now, like a lot of people, I am not a fan of some of the practices and confusing legal manifestos that credit card companies employ. In fact, both my wife and I have changed credit cards on several occasions when we have not liked the service or the product. And there was one particular credit card company with which we refuse to do business.

But instead, this bill, instead of empowering consumers with enhanced competition and effective disclosure, instead represents another assault on personal economic freedom that will only exacerbate the credit crunch that already threatens so many of our citizens.

Let's take a quick look at the facts. According to the Census Bureau, over half of families almost always pay their credit card balance, while only 24 percent hardly ever pay off their balance. Furthermore, industry statistics reveal that more than 19 of 20 credit card borrowers are taking at least their minimum -- paying their minimum monthly payment on time.

Discarding risk-based pricing for the sake of that small group of borrowers who aren't paying their debts on time would effectively turn the clock back to an era where there was little competition and a third fewer Americans had access to credit cards. Those that did paid the same universal high rate, regardless of whether they paid their bills on time or regardless of their creditworthiness.

Make no mistake about it, if this bill passes it is going to be a lot harder for people to access the credit they need to pay their bills, cover their medical emergencies or finance a large purchase. I have heard from several of them who are represented in the 5th Congressional District of Texas that I have the honor of representing in Congress.

I heard from the Blinks (sp) family of Fruitvale, who wrote me: "My new business would not be started if not for my credit and credit cards. I hate to say it, but with a daughter and wife in college, my credit card is all I have." I want to make sure that the Blinks (sp) family of Fruitvale, Texas do not lose their credit card.

I heard from the Villen (ph) family of Rowlett, Texas. "In the fall of 2004, my wife and I were laid off from our jobs at the same time. We had just moved into our first home together in July of that year. Needless to say, the layoff was quite a shock, and without access to our credit cards at that time, frankly I don't know what we would have done." I want to ensure that the Villen (ph) family of Rowlett keeps their credit cards.

I heard from the Juarez family of Mesquite. "I oppose this legislation, as I have utilized my credit cards to pay for some costly oral surgeries. I do not want to get penalized by this legislation for making my payments on time."

And the correspondence goes on and on and on.

And don't take my word for what will happen. Listen to the nonpartisan Congressional Research Service, quote: "Credit card issuers could also respond in a variety of ways. They may increase loan rates across the board on all borrowers, making it more expensive for both good and delinquent borrowers to use revolving credit. Issuers may also increase minimum monthly payments, reduce credit limits or reduce the number of credit cards issued to people with impaired credit."

Now, I believe we already see in the credit crunch -- we know what will happen if we start to restrict credit. We are already seeing it. And as badly as my friends on this side of the aisle want to vilify some of those in the credit card company, I think that most of their vehemence is directed at those in the payday industry and the pawn industry.

I have an article from the IndyStar, dated February 3rd: "More Middle Class Families are Seeking Payday Loans as Financial Turmoil Mounts." I have another one from The Boston Globe, dated July 9th of last year: "Cash-strapped Consumers Desperate for Deals Are Increasingly Turning to Pawn Shops and Payday Lenders Instead of the Local Mall and Neighborhood Bank." And last but not least, from The Washington Post, from our friends across the pond in Italy: "As Italy Banks Tighten Lending, Desperate Firms Call on the Mafia."

Those are the choices consumers will be faced with when they lose their credit cards. I yield back the balance of my time.

REP. GUTIERREZ: Thank you, Mr. Hensarling.

Congresswoman Maloney for four minutes.

REP. CAROLYN MALONEY (D-NY): I'd like to thank Chairman Gutierrez and the ranking member for holding this hearing on the Credit Cardholders' Bill of Rights and the Consumer Overdraft Protection Practices Act.

I would say to my good friend on the other side of the aisle that I agree with his constituent that wrote that she did not want her credit card fees to go up or interest rates to go up for any time, any reason. This bill stops some of the most egregious practices. It came out of a series of meetings with stakeholders over two years with issuers, with consumers, with those professionals and financial services. We came up with a set of principles and drafted the bill in support of those principles.

Some financial institutions voluntarily instituted the gold standards, the gold practices, but other issuers did not. Therefore, they were at a competitive disadvantage. This levels the playing field not only for the consumer but for financial institutions themselves, so that businesses that are coming forward with best practices are not penalized economically for going forward with them. For too long, the playing field has been tilted against the American consumer, as they have battled against unfair, deceptive and anti- competitive practices. These are the words of the Federal Reserve.

Last fall, we took a major step forward in leveling this playing field when the House passed the Credit Cardholders' Bill of Rights by an overwhelming bipartisan vote of 312 to 112. This legislation works on the basis that a deal is a deal and would prohibit a penalty increase of an interest rate on an existing balance, unless the customer is more than 30 days late. It bans double-cycle billing, charging interest rates on a balance that's already been paid, and posting -- and requires all payments to be posted to account balances in a fair and timely fashion. Regrettably, this legislation was not considered in the Senate before the end of the session.

In December, we saw another important step forward for consumers, as the Federal Reserve, the Office of Thrift Supervision and the National Credit Union administrator, after receiving more than 66,000 comments from Americans across this country, setting a record of support of a rule change, finalized their rule that tracks the major provisions of this legislation, labeling these practices "unfair, deceptive and anti-competitive," end quote.

While this final rule will provide significant new consumer protections, it does not go into effect until July of 2010. And unless it is codified into law, these new protections can be changed at any time in the future, without the consent of Congress. For more than two years I've been working on this legislation. And during that time, we have garnered the support of more than 50 major editorial boards from across this nation and have earned the endorsement of many respected national consumer groups, labor unions, civil rights organizations. Many of these organizations have made passage of this legislation their very top priority.

Let me be very clear: Credit cards remain a vital tool, a vital innovation in our economy, a tool that enables consumers to do everything, from pay for an airline ticket or cover an emergency expense or pay for school books. However, with the now near universal use of credit cards, we need to ensure that consumers have adequate, fair protections.

The other bill before the subcommittee today is the Consumer Overdraft Protection Fair Practices Act. While I recognize the great benefits the increase in use in debit cards have provided American consumers, overdraft fees are becoming an increasing problem for bank customers.

A November 2008 Federal Deposit Insurance study -- let me just say, if I could, very -- at the end, both of these bills give tools to consumers to better manage their own credit, to allow them to make a choice whether or not they want to opt in to an overdraft protection. Some consumers have been charged a dollar -- $150 for having bought three cups of coffee, they did not know they were having an overdraft. This allows them to better manage their credit during a time when we are in a credit crisis.

We are helping the financial institutions. We should also help the consumers. That is what these two bills do. And I believe it helps our economy and the institutions. Thank you.

REP. GUTIERREZ: Thank you.

My friend from Delaware, Mr. Castle, for two minutes.

REP. MICHAEL N. CASTLE (R-DE): Thank you, Chairman.

Before I begin, I ask unanimous consent that this letter from First Data be submitted for the --

REP. GUTIERREZ: Without objection, so ordered. Thank you.

REP. CASTLE: Mr. Chairman, many of us are aware that the Federal Reserve Board announced in December of 2008, as a couple others have mentioned, final rules to improve consumer understanding and eliminate unfair practices related to credit cards and other credit plans. These rules were carefully crafted after holding rigorous consumer tests after taking into consideration over -- I have 60,000; Carolyn mentioned 66,000 comments on the proposals during the allotted comment period.

After receiving these comments and running these tests, the Federal Reserve announced that the final comprehensive list of reforms would be implemented by July 1st, 2010. This will allow 18 months' time for the industry to overhaul their current business models and work on improving disclosures to comply with the new rules.

To the 6,000 companies that issue credit cards, this is no easy task. It will require planning and assistance and effectively implementing these rules to ultimately help consumers. However, this hearing in part will address a new bill that would only give the industry three months to implement new rules. With any change in business model, there will be costs to consider and unexpected effects to prepare for and three months is not enough time to do this.

I believe the new rules take a comprehensive approach to protecting consumers and I remain convinced that enacting legislation that goes well beyond these carefully crafted rules is not wise. And I yield back the balance of my time, Mr. Chairman.

REP. GUTIERREZ: I thank the gentleman.

Mr. Miller is recognized for two minutes.

REP. BRAD MILLER (D-NC): Thank you, Mr. Chairman.

For millions of families, abuse of overdraft fees for debit and checking accounts -- debit cards and checking accounts have become an unconscionable burden. The problem is not that banks penalize consumers who overdraw their checking accounts. The problem is the manner and frequency with which those fees are assessed to consumers and that those practices have become predatory.

In 2007, banks loaned $15.8 billion to cover overdrafts. U.S. consumers paid $17.5 billion in overdraft fees. The typical overdraft transaction was a $20 purchase. The typical overdraft fee was $34. And about three-quarters of the overdraft fees were on families who were barely getting by. Overdraft fees now account for 45 percent of the service fee revenue for some banks and the number is rising.

And they game the system. They developed fee-harvesting software to manipulate the sequence in which checks and other debits are posted to maximize the charges for overdrafts. They consciously -- in some cases consciously do not post the overdrafts, so the consumer will not understand, will not know they have gone over their -- that they are now over drafting, so they will rack up more charges and more penalties. The result is that consumers are hopelessly in debt and their next paycheck is largely going to go to their bank, not to put food on their family's table.

Mr. Hensarling said that if they don't have overdraft, if we make banks reform their practices, they'll go to payday lenders. They would be far better off with payday lenders. The actual rate of interest for an overdraft fee for a $10 -- it works out to a 3,520 percent interest rate for overdraft fees paid in two weeks. This has to be reformed.

REP. GUTIERREZ: Thank you.

Mr. Price for two minutes.

REP. TOM PRICE (R-GA): Thank you, Mr. Chairman.

Mr. Chairman, we're considering this legislation today against an economic backdrop in our country that is uniquely challenging. I hear from constituents daily that have been unable to get loans or renew their lines of credit. I hear from banks in my district who are suffering under mark-to-market accounting rules, getting mixed messages from their regulators and still wanting to lend to their customers.

We ought to be pursuing every available avenue to loosen up credit. To that end, this legislation is simply the wrong thing at the wrong time. As has been mentioned, the Federal Reserve just issued a 1,200-page rule -- 1,200-page rule -- in December that completely overhauls the credit card industry. This bill appears to be a poor attempt to quote, "solve," unquote, what the Federal Reserve is accomplishing. And I look forward to the comments of the panelists regarding that issue.

This legislation isn't focused on giving consumers credit -- control over their credit. By imposing significant restrictions and price controls on creditors, individuals will have fewer options, not more, fewer options available to choose from. Consumers need access to key information about credit products in a concise and a simple manner. Information will empower them to make their own choices in determining what type of credit card is right for them.

The Congress ought to be -- ought not restrict the choices that are available, especially in a time of restrained credit markets. By statutorily preventing issuers from being able to price for risk, dictating how they must treat the payment of multiple balances and implementing price controls, we will only see restricted access to credit for those with less-than-perfect credit histories and an increase in the cost of credit for everyone. This means less credit availability.

And every member of Congress wants to ensure that consumers have the information that they need to make educated decisions about their credit. I hope that our commitment to ensuring access to affordable credit for all consumers is equally strong, especially in this time of strained credit markets.

I thank the chairman and I yield back.

REP. GUTIERREZ: Thank you.

Mr. Paulsen for one minute.

REP. ERIK PAULSEN (R-MN): Thank you, Mr. Chairman, for holding this important hearing today. I also appreciate the diligent work that's been done at the Fed and OTS and NCUA on the credit card rules. And I commend the collaborative way, actually, in which you have worked together and they've been devised.

I hope that the rules that you have issued prove to be helpful to the consumer. However, I have some strong concerns about the proposed legislation that is going to be before us today, that it may duplicate not only the efforts that you have done and ask credit card issuers to implement those changes much, much too quickly.

Giving issuers only three months to dramatically change the way they do business could have very adverse consequences, hurting credit access to consumers and especially small businesses when they are relying on credit cards more heavily now than ever before, since many are unable to access more traditional lines of credit from banks and other institutions.

So I look forward to your testimony and I yield back, Mr. Chairman.

REP. GUTIERREZ: Thank you very much.

Ms. Sandra F. Braunstein is the director of the Division of Consumer and Community Affairs for the Board of Governors of the Federal Reserve System and appeared before the subcommittee last week, so we welcome you back.

Ms. Montrice Yakimov is the managing director for compliance and consumer protection at the Office of Thrift Supervision, and this is her first time before this subcommittee this year.

Ms. Sheila Albin is the associate general counsel for the National Credit Union Administration, and I would like to welcome her before the subcommittee.

Ms. Braunstein, you may begin your testimony, please.

MS. BRAUNSTEIN: Thank you.

Chairman Gutierrez, Ranking Member Hensarling and members of the subcommittee, I appreciate the opportunity to discuss the Federal Reserve Board's recent regulatory actions to expand protections for consumers who use credit cards and overdraft protection plans.

Credit cards provide important benefits for many consumers, both as a source of credit and as a convenient payment mechanism. However, in recent years credit card terms and features have become more complex, which has reduced transparency in credit card pricing.

In December 2008, the board issued comprehensive sweeping rules to enhance protections for consumer credit card accounts. One rule prohibits certain unfair card practices using the board's rulemaking authority under the Federal Trade Commission Act, while a complementary rule improves disclosures for credit cards under the Truth in Lending Act. The two credit card rules were the result of extensive consumer testing, data analysis, public comment letters, outreach to consumer and community groups and industry representatives.

The final TILA rule includes both content and format changes to application and solicitation notices, account-opening disclosures and periodic statements. The rule also requires that consumers receive 45 days' advance notice of rate increases or changes in other key account terms to ensure that consumers will not be surprised by unexpected changes and will have time to explore alternatives.

The data obtained in our consumer testing illustrated the limitations of disclosures for today's complex financial products. There are certain key credit card terms that cannot be explained to consumers in a way that would improve their ability to make meaningful decisions about credit.

Because improved disclosures alone cannot solve all the problems consumers face in managing their credit card accounts, the board issued a rule prohibiting certain unfair practices. The board's final rule includes several key protections for consumers.

First, it ensures that consumers have an adequate amount of time to make payments once they receive their billing statements. Second, the rule requires banks to allocate payments in a manner that does not maximize interest charges. Third, the final rule contains several provisions that restrict the circumstances in which a bank may increase the interest rate applicable to the consumers' account. Fourth, the final rule prohibits two-cycle billing. And finally, the rule includes several provisions to protect the vulnerable subprime consumers from products that charge high fees and provide little available credit.

The combined rules will impact nearly every aspect of credit card lending. To comply, card issuers must adopt new business models, pricing strategies and credit products. Issuers must revise their marketing materials, application and solicitation disclosures, credit agreements and periodic statements.

These changes will include extensive reprogramming of automated systems and staff training. Although the board has encouraged card issuers to make the necessary changes as soon as practicable, an 18- month compliance period is consistent with the nature and scope of the required changes.

In addition to the final credit card rules, the board also issued rules for overdraft protection programs. In the past, overdraft services were provided only for check transactions. Institutions now have extended that service to other transaction types, including ATM withdrawals and point-of-sale debit card purchases. Most institutions have automated the process for determining whether and to what extent to pay overdrafts.

The board's proposal contains two alternative approaches for giving consumers a choice about the use of overdraft services. The first approach would prohibit an institution from assessing any fees on a consumer's account after an institution authorizes an overdraft, unless the consumer is given the notice and a reasonable opportunity to opt out of the institution's overdraft service.

The second approach would require an institution to obtain the consumer's affirmative consent or opt in before fees may be assessed to the consumer account for overdrafts. The proposed rules would apply to overdrafts for ATM withdrawals and one-time debit card purchases.

In closing, let me emphasize that the Federal Reserve's commitment to enhancing the ability of consumers to use credit cards to their benefit. The Federal Reserve is also committed to helping consumers better understand the cost of overdraft services and providing a means to exercise choice regarding the use of these services.

I am happy to answer questions from the committee.

REP. GUTIERREZ: Thank you very much, Ms. Braunstein.

Mrs. Yakimov please, for five minutes.

MS. YAKIMOV: Thank you.

Good afternoon, Chairman Gutierrez, Ranking Member Hensarling and members of the subcommittee. Thank you for the opportunity to present the views of the Office of Thrift Supervision on the Credit Cardholders' Bill of Rights Act of 2009, the Consumer Overdraft Protection Fair Practices Act of 2009, and issues related to credit card lending and overdraft protection. We appreciate your leadership on these important elements of the financial services market and we share your commitment to protecting consumers from abusive practices.

My written comments go into detail on the provisions of the proposed legislation. In my opening statement, I would like to focus on what the OTS and the other federal banking regulators have recently achieved in protecting consumers from unfair credit card practices. I would also like to emphasize the OTS position on how best to approach consumer protection in this area and what recommendations we can offer for making continued progress.

As you know, the Office of Thrift Supervision, Federal Reserve Board and the National Credit Union Administration issued the final rule in January of 2009 to protect consumers from unfair credit card practices. Their rule was the result of a process that the OTS initiated in August 2007 by issuing an advanced notice of proposed rulemaking, seeking comments and suggestions on what credit card practices and overdraft protection practices should be banned.

Comments in response to that advance notice urged a uniform set of rules across the credit card industry, across the practices we might cover. So the OTS worked with the Federal Reserve and NCUA to provide consumers with uniform protections regardless of which type of financial institution issued their product and the industry with a level playing field.

The rule prohibits raising interest rates on existing credit card balances when consumers are paying their card bills on time and generally also prohibits increasing rates on new balances during the first year of the account.

It requires that consumers receive a reasonable amount of time to make their credit card payment. It bans double-cycle billing, prohibits payment allocation methods that unfairly maximize interest charges, and in the subprime credit card market, it limits fees that had been significantly reducing the available credit to the consumer.

As I explain in the written testimony, this rule accomplishes primary goals of H.R. 627, the Credit Cardholders' Bill of Rights Act. In general, the OTS believes that using the agency's collective rulemaking authority over these practices provides greater ability to address unfair practices as they emerge. The industry has shown remarkable ability to adapt and alter practices, including unveiling new products.

Consumers have generally benefited from the expansion of products and certain practices. By exercising their rulemaking authority, the agencies can keep pace with these innovations while ensuring that they do not disadvantage consumers.

Regarding the overdraft legislation, the OTS shares the concern that prompted the bill and we see the benefit of many of its provisions. However, we believe that regulatory initiatives enacted and in process address several key issues there.

If Congress decides to proceed with legislation and move forward with both of these bills, the OTS respectively requests that they be amended to provide implementing authority jointly to the Fed, the NCUA and the OTS.

The history of the rule on unfair credit card practices demonstrates OTS's leadership in initiating the process to use the FTC Act rulemaking power to address abusive practices. The absence of such rulemaking authority would preclude OTS from providing the kind of policy perspectives that began and significantly shaped the credit card rule and the important consumer protections it contains.

Additionally, there are other observations in the written testimony that we would recommend if the Congress should move forward with the legislation.

Thank you again, Mr. Chairman, for inviting me here today. I look forward to responding to your questions.

REP. GUTIERREZ: Ms. Albin, please, for five minutes.

MS. ALBIN: Good afternoon, Chairman Gutierrez, Ranking Member Hensarling and members of the subcommittee. Thank you for the opportunity to testify on behalf of the NCUA regarding credit cardholder and consumer overdraft protection legislation.

NCUA's primary mission is to ensure the safety and soundness of federally insured credit unions, as well as their compliance with applicable federal regulations. It examines all federal credit unions and participates in the supervision of federally insured state- chartered credit unions. As the administrator for the Share Insurance Fund, NCUA provides oversight and supervision to over 7,800 credit unions, representing approximately 88 million members.

NCUA is responsible for monitoring and ensuring compliance with most federal consumer protection laws and regulations in federal credit unions. In state-chartered credit unions, the appropriate state supervisory authority has regulatory oversight and enforces state consumer laws and regulations.

In December 2008, NCUA, the OTS and the Federal Reserve Board jointly issued the UDAP rule, amending each agency's credit practices rule to prohibit several questionable credit card practices. Based on comments received, the agencies determined a more comprehensive approach, addressing more than just Truth in Lending Act disclosures was appropriate.

Each of the agencies oversees financial institutions that engage in the same type of business. And although practices addressed in the UDAP rule are not prevalent in the credit union industry, the NCUA board recognizes a uniform approach to the topic is best. Both total outstanding credit card debt and total loans in credit unions grew in 2008, albeit at slower rates than in previous years. This growth at a time when consumers are finding it difficult to obtain credit demonstrates that credit unions continue to strive to meet their members' credit needs.

In 2005, NCUA participated with member agencies of the FFIEC in issuing guidance regarding overdraft protection programs, focusing on automated systems. This guidance included a discussion of best practices and recommended that institutions provide consumers with an opt-out notice.

NCUA and the Federal Reserve Board have regulated the disclosures for overdraft programs using our authority under the Truth in Savings Act. NCUA amended its TISA rule in 2006 to address concerns relating to the uniformity and adequacy of fee disclosures in connection with overdraft programs. The amendment created a new requirement for credit unions that promote overdraft payment programs to disclose their fees and other information.

To address continued concerns about overdraft fees, Regulation DD recently extended the disclosures requirements for overdraft fees to all banks and now requires disclosure of the periodic and year-to-date totals for overdraft fees. Today the NCUA board is proposing a substantially similar amendment to NCUA's TISA regulations.

The Federal Reserve Board has recently proposed additional requirements for overdraft protection programs under Regulation E that will also apply to credit unions. The proposed rule would limit a financial institution's ability to assess overdraft fees for ATM withdrawals and one-time debit card transactions. The proposed rule also offers a right of opt-out or opt-in as alternative regulatory approaches.

Additionally, the proposed rule would prohibit assessing the fee if an overdraft is caused solely by a debit hold or funds in a consumer account. In addition, NCUA's general lending regulation for many years has required credit unions to establish a written policy for fees for overdraft protection programs.

In summary, credit cards and overdraft protection programs are useful member services. Currently, approximately half of all federally insured credit unions issue credit cards to their members. Approximately 2,800 federally insured credit unions offer overdraft protection services.

Overdraft protection programs can benefit both credit unions and their members if members access the program infrequently, because credit unions receive another source of fee revenue and members avoid the inconvenience and subsequent fees associated with returned checks.

NCUA is concerned with regulating overdraft programs under the Truth in Lending Act, because treating overdraft fees as a finance charge will adversely affect federal credit unions' ability to offer overdraft services to their members. This is because of the statutory limit on interest on lending, which is currently set at 18 percent for federal credit unions.

Thank you again for the opportunity to appear and I'd be glad to answer any of your questions.

REP. GUTIERREZ: Thank you. Thank you very much.

Ms. Braunstein, there were -- I don't know if you got this letter when you were doing your reviews, but there was -- these great parents that had this wonderful daughter that they loved very much -- when they sent her to college, they wanted to make sure she had access to money and so they went to the bank and got her a debit card so that she could take it to college with her.

And she'd got to the bank frequently and when she needed money, if there were insufficient funds, no problem. The ATM machine simply would not give her the money. She would call these wonderful parents of hers, who would automatically go online and transfer more funds to the wonderful daughter.

Except on one occasion, she decided she was going to be a little thirsty. And she used the ATM card issued by the bank as a credit card at a coffee shop. And the $1.89 overdraft cost these wonderful parents, who were -- loved their daughter very much, $185, because there was an initial $35 for the $1.89 overdraft and then the wonderful bank charged $10 a day for every day there were insufficient funds in this account, for a total of $185.

I don't know what the relationship is between $1.89 and $185, but it makes the payday lenders look really, really good in this case. And there was a total of 20 days, because you see, the bank doesn't just call up and say, "Hey, you have insufficient funds." They wait until you receive your bank statement at the end of the month and you see these wonderful charges of $35 and $10, $10, $10 and then you put the money in.

So did you ever -- did anybody ever, in your public commentary, send a letter like these two wonderful parents that sent their daughter to college?

MS. BRAUNSTEIN: Congressman, I think we got a number of letters like that out of the 60, you know, thousand letters.

REP. GUTIERREZ: I'm so --

MS. BRAUNSTEIN: That wasn't the letters on the overdraft, but we've gotten lots of letters.

REP. GUTIERREZ: I'm so happy to know my wife and I are not alone in this situation.

So let me ask you, in your regulations, did you address it at all?

MS. BRAUNSTEIN: Yes. In the proposal that we have now -- we have out now on Regulation E, that is one of the reasons why we want to offer alternatives of either opt-out or opt-in to overdraft programs. And basically what this would do was if somebody chose not to take overdraft, it gives consumers a choice, it means that if they go to use their debit cards to buy something in a coffee shop or McDonald's or wherever and there's not sufficient money in the account, then the overdraft -- then the purchase should be denied.

And, if for some reason, the bank pays it anyway, if it goes through or the merchant authorizes it anyway, what it would do is prohibit the financial institution from charging a fee.

REP. GUTIERREZ: Let me just ask -- okay, let me just ask you a question, because it seems to me different. I remember when a debit card was a debit card. That is, it was to be used at ATM machines. And then, all of a sudden one day they became a credit card, a debit/credit card, that is to say now you can use it and merchants ask you, "Do you want to debit? Do you want this used as a credit card?"

And I really think that we should -- and hopefully in the legislation -- that we should look at making sure that when a consumer comes in, he just wants a debit card, he should get a debit card. You know, there's --

MS. BRAUNSTEIN: Well, actually --

REP. GUTIERREZ: -- if there's not money in the card, there's not money in the card and it's just not used. If you want a credit card, you should get a credit card, because when I, obviously, use my credit card, they simply -- I mean, the fees are so much lower on a credit card than on a bank-issued debit credit card that it is astronomical almost.

MS. BRAUNSTEIN: And actually, just to clarify, it's not that the debit card turns into a credit card. I mean, in practice I understand what you're saying; because of the fact that an overdraft is extended, it has the impact of being a credit card. But it still is a debit card.

REP. GUTIERREZ: Yeah, but when you go to the ATM machine and you ask for $20 and there aren't $20 in it, you don't get $20 in cash. Yet, you can walk over to an establishment, ask for $1.89 for a cup of coffee and it turns into a financial bonanza for the issuer of the card.

And so, I want to ask you one other question. So when Congresswoman Maloney introduced the credit card protection act, bill of rights, I was very supportive of it, continue to be very supportive of it. That's why we're having a hearing this early in the process, so that we can get the work done and hopefully the Senate. So I want to commend the gentlelady from New York on her work and share with her that I'm not an unbiased spectator here.

Now, I noticed as I looked that there was a change, the one change. And I'd like you to comment on it, because I think it's important. In the original, it was one year of enactment for the credit card industry to get it -- to institute the new practices under the -- legislation, and under the new legislation it says three months.

You guys came up with like about 18 months from the time you put your regulations out. Did the industry want it to be 18 months? Did you at the board think it was 18 months? How did you get to the 18 months? And what do you think about the changes in the legislation?

MS. BRAUNSTEIN: Actually --

REP. GUTIERREZ: And I'm going to ask unanimous consent that she be allowed to answer the question so that we can -- thank you.

MS. BRAUNSTEIN: Actually, the industry wanted longer than 18 months. It was the Federal Reserve and the other agencies doing and the OTS and the NCUA that decided on the 18 months. And this was based on a number of things. One of the things is that this was a package. There are the UDAP rules you're talking about, which are contained in your legislation, to a large extent. But there's also all the truth in lending changes, which involves all new forms and also new processes that are involved with that. So this is one very large, sweeping, comprehensive package that is going to fundamentally change the way the industry does its business.

And when we looked at -- in terms of talking to the industry but also looking ourselves at everything that would be required in order to put everything in place to make this work well, we felt that 18 months was a reasonable time. The danger is if you don't give sufficient time to the industry to get everything in place in a way that has been tested, that staff is trained, that it's running smoothly, if there is not sufficient confidence in the new risk models -- which they're going to have to design all new risk models because of the pricing changes -- it could severely hamper the markets, in terms of credit availability.

So we wanted to provide sufficient time so that when this is implemented, it's implemented correctly and credit will flow to consumers and that, you know, it should -- the market should still work well.

REP. GUTIERREZ: I don't want to abuse the chairmanship. So your basic is the industry wanted more, but the Fed thought that in order to -- for credit risks and other areas, that the implementation -- thank you very much.

Mr. Hensarling, please, for five minutes.

REP. HENSARLING: Thank you, Mr. Chairman.

Ms. Braunstein, does Federal Reserve data indicate that credit card credit for consumers is contracting within our economy?

MS. BRAUNSTEIN: I think that's right, but frankly, all credit is contracted right now. It's very difficult to differentiate what might be the result of the pending rules versus what's happening just because of the economic situation. We are not in normal economic times --

REP. HENSARLING: No, that -- I believe we all understand that. In coming up with your rules -- and I know that they have been, I believe, three years in the making and I understand you've done extensive consumer testing, have you also examined other international models and studied a case history?

MS. BRAUNSTEIN: I would have to check on that. I'm not sure.

REP. HENSARLING: In 2006, the U.K. decided that credit card default fees were too high and ordered that credit card issuers cut them or face legal action. And independent studies have shown that that led to a retrenching of roughly $2 billion costs to the credit card industry, which caused them, two of the three biggest issuers, to impose annual fees on their cardholders. Nineteen major card issuers raised interest rates. And one independent study showed that credit standards became tighter and 60 percent of new applicants were being rejected.

If the Federal Reserve has not had an opportunity to study the U.K. model, and it's very late in the game, I would respectfully recommend that you do study the U.K. model.

Ms. Braunstein, does the Federal Reserve feel that we have an uncompetitive marketplace with credit cards? Do you feel that consumers have inadequate choices, or is it more that there is simply what you would describe as unfair and deceptive practices?

MS. BRAUNSTEIN: I think the market has been very competitive, but I don't think that there has been the transparency for consumers that is needed. I think that these are very complex products and that it is very difficult for consumers to understand what the terms are. And oftentimes, it's difficult for them to shop and compare, because there's such a wide array of products. And without the increased transparency, it's hard to compare one against the other.

REP. HENSARLING: Since there's such a wide array of products, do you observe that there are at least products in the marketplace that are widely available to most consumers that do not contain what you would consider to be the unfair practices with which your rules attempt to address?

MS. BRAUNSTEIN: I don't know. There may -- I can't say that there are not products already out there that don't contain --

REP. HENSARLING: In Page 2 of your testimony, you talk about limitations of the disclosure-based approach.

And that I believe, if I'm understanding you right, it is the position of the Federal Reserve that some terms are simply too complex, that consumers just cannot understand them, cannot fathom.

I think you've said that double-cycle billing is too complicated for the average consumer to understand. But if I read your final rules summary document from December of '08, it explains both it and its repeal in just 63 words. Did the Federal Reserve consider using that summary, or again, are consumers just too dumb to understand?

MS. BRAUNSTEIN: Well, we did -- Congressman, we did extensive consumer testing on these new credit card disclosures and we tested a wide variety of terms of which double-cycle billing is one. But we also tested explanations of payment allocation and other terms. And I will tell you, our experience has shown us that it's not necessarily the number of words, but it's the explanation of the process. It just -- some of these things just could not -- and we tried many different ways.

And it wasn't us, the Fed; you know, we hired experts on this who were trying many different ways --

REP. HENSARLING: But notwithstanding --

MS. BRAUNSTEIN: I'll bring a --

REP. HENSARLING: -- notwithstanding a competitive marketplace, notwithstanding a general credit contraction, you still advocate that consumers need to be protected against themselves, even though potentially that could lead to a loss of their own credit cards?

MS. BRAUNSTEIN: I think that when we decide to write rules on unfair and deceptive practices, we have to look at the risks and we have to look at the benefits and the harm. And we weighed all that and we felt these rules are needed in order to protect consumers.

REP. HENSARLING: What would happen, Ms. Braunstein -- with the chairman's indulgence of one last question -- if your rules, instead of having to be implemented in 18 months, had to be implemented within 90 days? What is your impression of the impact on the consumer credit marketplace?

MS. BRAUNSTEIN: Very honestly, I am not sure how that could even be done. I mean, if legislation came out, we would have to write rules -- the legislation does not quite mirror our rules. We'd have to make adjustments. It also puts it all in TILA, whereas we're using the FTC Act. We'd have to make a lot of changes. We would have to put that out for public comment. We would have to get comments back. We would have to put out a final rule and then you would have to leave some time for the industry to comply. I see no way that process could be done in 90 days, not --

REP. HENSARLING: Thank you, Mr. Chairman.

REP. GUTIERREZ: (Off mike) -- has expired.

And the gentlelady from New York, Ms. Maloney, is recognized for five minutes.

REP. MALONEY: I want to thank all of my colleagues that have worked hard on this bill and have supported it, some on both sides of the aisle. And I want to thank all of the panelists, not only for your testimony today but for your extraordinary work during what has been called the worst economic crisis in many of lives, in our lifetimes.

I wanted to clarify one of the statements by one of my good friends on the other side of the aisle and place in the record two reports. This is about the risk-based pricing and their claim that this bill would have a negative effect on risk-based pricing. And I'd like to place in the record a GAO study and a report by the Federal Reserve. Both found that there is no evidence that risk-based pricing has decreased overall interest rates. Rather, the decrease in the federal funds rate is more likely responsible for the decline in the interest rates consumers have seen.

I also would like to place in the record a testimony before this committee by the former head of Freddie Mac. He was testifying on housing, but then he started talking about the credit cards. And he talked about he and his wife had sat down at dinner and tried to figure out their credit card disclosure and could not figure it out. This is the former head of a very important financial institution. And I think that says volumes.

Also, the Federal Reserve in some of their reports testified that Reg Z or transparency was not enough, that you needed changes, fundamental changes, for unfair, deceptive and anti-competitive practices. And I feel strongly that we should move forward and pass the credit card bill of rights.

I would like to ask Ms. Braunstein, now that the Federal Reserve has labeled a number of practices as unfair, deceptive and anti- competitive, how in the world can it be justified to the American people that they should have to wait until July 2010 until they get relief of these practices?

And secondly, you testified that you need roughly 18 months. Are there some aspects of the rule or the legislation that could be implemented quicker? Possibly there's some that have form changes which are more difficult, but are there others that we could implement in a more, I would say, reasonable time frame?

MS. BRAUNSTEIN: We did look at that and what we found was that pretty much everything in there -- it's part of a whole package and there's a lot of overlap between what's going to be on the new disclosures versus what would be changed in the pricing models. Everything kind of ties together and is interconnected and it made more sense to have one effective date for everything. So that's why we did that. We feel that there really is -- there's a lot of interconnection between the different moving pieces.

REP. MALONEY: What was your personal recommendation for a time frame?

MS. BRAUNSTEIN: Eighteen months. The staff's recommendation was 18 months.

REP. MALONEY: I have spent so many hours and asked so many questions on this bill, I am going to give back my time so my colleagues can have more time to ask their questions.

I just want to conclude that of all the issues that I've worked on, this one has generated the most comment. Like the Fed, it is hard for me to go to the floor of Congress without getting a credit card story or to walk into a supermarket without getting a credit card story or get into the subway or the bus without strangers coming up and telling me a story that they feel was unfair and deceptive to them. And I truly believe that our commerce works better, our democracy works better when people understand the rules and make a decision that that is the rule they want to follow.

I'm very proud of having authored, along with many of my colleagues, the ATM disclosure. When you go to get your ATM money, many people wanted to ban institutions, financial institutions from getting any type of fee. But if they're providing a service, they're entitled to a fee. It allows the consumers to say yes. For the convenience to access my bank account from Washington, I'm willing to pay that fee. But it gives the consumer the power to control their own financial decisions and I feel that that's what important. And I think that's what we tried to accomplish in this bill, to give consumers more choice and more control in making decisions about managing their own finances.

MS. BRAUNSTEIN: Congresswoman?

REP. MALONEY: Yes, ma'am?

MS. BRAUNSTEIN: Can I just make one real quick --

REP. MALONEY: Yeah.

MS. BRAUNSTEIN: I do want to say in terms of the effective date that we have as an agency, and including our Chairman Bernanke, has made public comments that we would expect and hope that the industry would implement pieces as soon as was practicable for them. And I say that in my testimony. So it could be -- we're hopeful that we will see some implementation before the 18-month deadline.

REP. MALONEY: Thank you for that. And I'd like to applaud the industries that have voluntarily gone forward and implemented these improvements.

REP. GUTIERREZ: The time of the gentlelady has expired.

Mr. Bachus, you're recognized for five minutes, sir.

REP. SPENCER BACHUS (R-AL): Thank you.

Ms. Braunstein, back on December the 18th, Chairman Bernanke asked you how long it would take to implement the Fed rules for credit cards and, you know, can it be implemented sooner than July 1st, 2010? And your response was card issuers are going to need to rethink their entire business models. They're going to have to redesign their marketing materials, their solicitations, their periodic statements, all the pieces of paper that they use, their contracts -- all that's going to have to be redesigned. And you mentioned several other things they'd have to do.

And, in fact, I'd like to introduce into the record, you know, these are the Fed rules and regulations that the credit card companies have to comply with.

REP. GUTIERREZ: Without objection, so ordered.

MS. BRAUNSTEIN: I'm glad I didn't have to carry those up here today. (Laughter.)

REP. GUTIERREZ: Yes. The costs might be prohibitive but we're going to introduce them --

REP. BACHUS: Yeah, I'm not even sure I could read these in the time allotted. But, you know, all that is going to take a lot of time. So my question to you, and this may be kind of a set-up question, I mean, you could drive this a long way: Is it still your belief that the credit card companies will literally be unable to meet the 90-day deadline in the Maloney bill?

MS. BRAUNSTEIN: Yes, as I said already, yes. I do think that would be an almost impossible task for all of us, not just for the industry but also for the regulators to conform the rules and do what we need to do.

REP. BACHUS: And the two alternatives the credit card companies would have if they couldn't comply, they could cut people loose from their credit. That would be one alternative. I mean, they would have to just stop --

MS. BRAUNSTEIN: I don't know. I can't answer for the industry what they would do. But I know that we are, as I said, we would be concerned that if it was rushed and they didn't do it correctly there would not be confidence in the risk models, and that certainly could have impacts on the flow of credit in the marketplace.

REP. BACHUS: Right. And if they didn't comply, they could all be sued, is that correct, for violating the rule? If they weren't able to comply and they did one little thing wrong that violated this --

MS. BRAUNSTEIN: Well, yes, the rule -- depending how you write the legislation, but right now I think it's under TILA so there would be private rights of action.

REP. BACHUS: Okay. Which could -- that would be something.

I would yield the balance of my time to the gentleman from Delaware, Governor Castle.

REP. CASTLE: Thank you for yielding.

Let me just ask this question first, Ms. Braunstein. You've indicated that the Fed has said that the credit card issuers, 6,000 of them, should make their changes as soon as practicable. They shouldn't wait for the 18 months. Do you have any evidence of that actually happening? It may be more anecdotal than actual data-wise, but can you fill us in on that?

MS. BRAUNSTEIN: Well, anecdotally, I mean, we're constantly doing outreach both to the industry and also to consumer and community groups, and in some of our conversations with industry they have certainly started. I don't know -- I don't have any anecdotal evidence as to what their time frame is earlier than the 18-month compliance date, but we know -- we've had conversations where they have developed flow charts and that they're trying to put the pieces in place. So it's under way. It's definitely under way.

REP. CASTLE: I'm really asking you to do my work when I ask you this next question, I think. And perhaps it's a question for all of you. But can you explain if there are differences in the two bills that we are considering today and the regulations which you have drafted at the Fed, and, if there are, what they might be?

MS. BRAUNSTEIN: There are differences and one of the recommendations I would make is if Congress does move forward with this bill, if your committee moves forward, is you may want to take a look at that on both sides. I know that in pricing, we changed some things. I think when the bill was drafted here, it was done on the basis of the proposed rules we had issued in May of 2008. We made some changes in our final rules and that was due to the public comments we received and our analysis of the issues.

We actually went further than the bill does on pricing restrictions and repricing of existing balances and also making sure that you cannot change the price for any reason during the first year of the card. We went a little further on that. There are some differences in payment allocation. There are a few other things and we would encourage you to, you know, take a look at those.

REP. CASTLE: My time is up but I may be next anyhow.

REP. GUTIERREZ: I don't think so.

REP. CASTLE: No?

REP. MALONEY: Mr. Watt.

REP. CASTLE: I mean, not next -- after the other side. Excuse me.

REP. MALONEY: (Off mike consultation.) Okay, okay, so now -- Mr. Watt, and then we'll come back to Mr. Castle. Thank you.

REP. MELVIN L. WATT (D-NC): Am I recognized yet?

REP. MALONEY: (Off mike.)

REP. WATT: Thank you.

Actually, I want to follow the same question but I want to get more specific. I actually would -- I think the committee, the full committee, would benefit from a side-by-side analysis of the differences from the regulators who drafted the regulations that are to go into effect.

MS. BRAUNSTEIN: We would be happy to have staff come up --

REP. WATT: Let me be clear on what I'm asking for -- a side-by- side analysis and an explanation of why any changes, any differences, why you chose to go either higher or lower, because I think that would be very helpful to the committee in assessing. I know there are other differences in what you proposed and what the bill proposes other than just -- the July 1, I guess, 2010 implementation date is your drop- dead date at this point. And you've done an outstanding job of explaining why there are some implementation delays. But I think the committee would benefit from an explanation of all of the differences and why you opted for what you did, either greater or lesser than what the bill does.

And if I could request that in writing, then I'd be happy to yield back all of my time --

MS. BRAUNSTEIN: We have that information --

REP. WATT: -- because I think that's the kind of thing that really, even if we got it verbally, would probably not be all that helpful to us.

So I hope I've helped Mr. Castle. Even though he wasn't next, I kind of picked up on where he was going and that was the question that I was planning to ask anyway.

So I've got an important assignment on a plane, so I'm going to yield back.

MS. BRAUNSTEIN: Congressman -- I'm sorry -- can I just say that we have that information, we've done those kinds of analyses and we'll be happy to share that with you in writing.

REP. WATT: Share them quickly.

REP. MALONEY: And share it with the committee. Thank you.

MS. BRAUNSTEIN: Yeah.

REP. WATT: And could you -- I know the committee will get one but, you know, it takes a while so I'm asking this question for myself. (Laughter.) So at least give the committee, Mr. Castle and me one --

MS. BRAUNSTEIN: Not a problem.

REP. WATT: -- since we're tag-teaming this question.

Thank you.

REP. MALONEY: Thank you, Congressman.

Congressman Castle.

REP. CASTLE: Thank you, Madame Chairman.

And I thank Mr. Watt for asking my questions better than I did.

But I also would very much like to see that copy of whatever these differences are. And to me it's going to come down a degree, not completely, but to a degree, it's going to come down to the time differential and the ability to be able to put this into effect or not. And I realize that you're speaking as a regulator and maybe the others wish to speak to it as well, but we have all the issuers too, and you spoke to them to a degree, also.

But, I mean, you have the whole problem of passing legislation, which is going to get even closer to the 18 months left in yours, and then you're going to have all the problem of dealing with the issuers as well as whatever dealings you're going to have to do with the legislation. And, to me, it gets complicated. I mean, when we first passed the chairwoman's legislation, I forget if it was 18 months or not but I guess it was, but that was six months or so ago or more at this point. And, as that time narrows, I think it's going to get even more complicated to complete this task.

I think we need to be careful about this. I mean, one thing we need to remember is that you have -- you do have 6,000 credit card issuers, they are carrying out a business, they are in many instances, in most instances, related to financial institutions which have had some strains and I'm a little concerned about how far we can push them at this point.

And I don't know if that's in the form of a question, but if you want to respond to it, you may.

Ms. Yakimov?

MS. YAKIMOV: Well, thank you, Congressman Castle.

I think the point about the implementation date, the effective date, is an important one to try to get right. And what we tried to balance was our interest in providing significant new consumer protection while at the same time giving the industry the time that they needed to get it right, and we certainly didn't want to cause major disruption.

And one example I could point to is the provisions that deal with the subprime issuers, where we said that they cannot -- they cannot charge a fee in connection with getting the card that takes the majority of the credit line. And, taking it one step further, they can't charge more than 25 percent, so they can't charge more 50 percent and they can't charge more than 25 percent during the first month. So you have issuers that have kind of filled a niche in this space that will really have to kind of think through what's their new business model so that they can, you know, continue to offer credit.

So that's just one example of these major changes. The changes on the limitations to retroactive rate increases will have a significant impact. So again we try to -- these protections are really important. We wanted to give them, the industry, time to -- as Sandy points out quite well -- comply with TILA changes, do the training, do testing, do they need new product lines and all the rest.

MR. CASTLE: I appreciate that. I mean, I hate to make this comparison but I watch what we did on the floor today and how we've been handling some of the TARP money and the AIG issues or whatever, and sometimes when we rush legislation, like in the stimulus package, we end up with problems such as the bonus situation with AIG. It just seems to me that the Fed has gotten all these different -- 66,000, I guess, increase as a result of the preliminary rules which you've issued.

You've now gone back and all your agencies have been involved and you've looked at what that should be and you've come up with a plan and it takes a long time to implement it. We're talking about a lot of credit card issuers. And I don't in any way discredit the legislation. I happen to believe that the chairwoman is right in terms of what she's trying to do. But I am vitally concerned about the ability to do this. I mean, the credit card companies don't like what you've done much more than they like the legislation. But they may be put in a situation where you can't carry out your responsibilities and they can't carry out their responsibilities, and that concerns me a great deal.

So my hope is that we could at some point agree to just move forward as rapidly as we can with the regulatory practices which the Fed has drawn up, as just a better way of proceeding for everybody who's involved with this in getting to the same end, in which there's general agreement, I think, in this committee and probably in the Congress, if I had to guess.

And with that, I yield back, Madame Chairwoman.

REP. MALONEY: I thank the gentleman for his concern, but we've had well over four hearings on this legislation over a two-year period and numerous smaller roundtable discussions and meetings with stakeholders and industry and regulators on it, so it has been very deliberative.

I now recognize Congressman Moore.

REP. DENNIS MOORE (D-KS): Thank you, Madame Chair, and I appreciate your efforts to strengthen consumer protections on the use of overdraft services.

In this time of financial crisis, we need to do what we can to protect our consumers.

Ms. Braunstein, in your testimony you note that the Fed has offered a proposal to, quote, "give consumers better control over the payment of overdrafts," end quote. I understand the Fed has already issued rules to address depository institutions' disclosure practices related to overdraft services that take effect January 1 of 2010, and the public comment period of the Fed's overdraft protection proposal ends on March 30, 2009. You also note that, quote, "After evaluating the comments and conducting additional consumer testing, we expect to issue a final rule later this year," end quote.

Ms. Braunstein, when would you expect the Fed to issue that rule and do you have any comments on H.R. 1456, the Overdraft Protection Act, as it relates to the Fed's efforts?

MS. BRAUNSTEIN: As you say, our comment period on the Reg E proposal we put out ends at the end of this month and we'll look at the comment letters. We are hoping to have final rules out during the summer. And so, you know, we are moving forward on that. So we're hoping to have the final rules in the summer.

REP. MOORE: Final rules that would be --

MS. BRAUNSTEIN: For overdraft protection -- I'm talking about on the proposal we just issued on giving consumers a choice.

REP. MOORE: Any better estimate as to when besides this summer? Is that the best estimate you can give me right now?

MS. BRAUNSTEIN: Yeah, I think so at this point, because we need to see what comments come in and how long it takes to do the analysis and get the final rules completed.

REP. MOORE: Thank you.

I yield back, Mr. Chairman.

REP. GUTIERREZ: The gentleman yields back.

Mr. Lee is recognized for five minutes.

REP. CHRISTOPHER LEE (R-NY): Thank you.

I think I'm going to try to take this in a slightly different way and actually may be an advocate of what you're going through, because my background was running manufacturing businesses and I lived through, firsthand, doing major implementations of our enterprise system of our business and I can attest on some of the difficulties.

But starting off with, I agree with Chairwoman Maloney's bill in terms of the content of -- we ultimately want to protect consumers and that this is an issue that we definitely want to move forward on. At the same time, I see what the Federal Reserve has done over the past few years and it has painstakingly taken the time to make sure we get this right and I do applaud that.

But my concern is when we've ever, from a business perspective, done an implementation on major changes which you, Ms. Braunstein, have alluded to, best case you can do that in a year. And like you, I'm concerned about the risk of trying to push through legislation that within 90 days could have a very detrimental effect.

And one of the implementations we did for our company, when we ultimately went live after testing for almost a year, our go-live scenario almost put our company under, based on the fact that the system did not work the way we thought it was. We had thousands of lost records and lost many customers along the way. So my concern is making sure we do this in a way that not only protects the consumer but also makes sure that we have a system put in place that adequately functions.

My question to you is, because, like everyone, we want to get this implemented as fast as possible: Is there any time we could shave this, at this point, 18 months, if we were focused?

MS. BRAUNSTEIN: I don't know. I really think -- I know that we looked at it very thoroughly when we came up with the 18 months. We knew, frankly, that that was going to be something that we would get a lot of criticism on from consumer community groups, from certain members of Congress. We didn't go into that blindly. So we did spend a lot of time looking at that and talking about that issue and searching it out, and that's where we came out on this. I think that's a discussion you need to have in terms of -- or have with the industry and see if you think it could be done sooner.

MS. YAKIMOV: I'd like to add something. One of the things that we are doing as we look at the institutions that offer credit cards within OTS is we're checking on the progress they're making in terms of preparing. And we, in December, issued a CEO letter from our principals saying, look, we're looking for you to implement as soon as you possibly can. So I think, you know, through the exam process, we're in there, we can continue to monitor that.

The other thing I'd point to is we just recently, last month, had a conference call. We did it collectively with Federal Reserve and NCUA and we had more than 700 institutions participate, 700 lines. We're hearing from the industry that they are working hard. They're getting after this. So we'll continue to monitor.

REP. LEE: Would anybody be able to offer -- if we flipped a switch in 90 days, which I would say I'm dramatically opposed to just based on what my historical reference has been on doing three implementations from a software standpoint, could you name a specific risk that you would see that would come out of this?

MS. BRAUNSTEIN: Well, as I've mentioned a couple times today, I think the risk -- I'm not sure that it's even doable. But the risk of rushing this would be that the models would not be fully developed, new funding mechanisms would not be in place because the risk models would be in doubt and that could put some severe constraints on the availability of credit. I think that is a very real concern.

REP. LEE: Thank you.

I yield back.

REP. GUTIERREZ: Thank you.

Mr. Green, you're recognized for five minutes, sir.

REP. AL GREEN (D-TX): Thank you, Mr. Chairman.

And I thank the witnesses for your testimony.

I, too, am going to pursue this line of questioning with reference to the timeline. Do you have any empirical evidence to support the notion that one time is more beneficial than another -- that having 18 months is more beneficial? I understand that you have beliefs, but what empirical evidence did you acquire?

MS. BRAUNSTEIN: We spent a lot of time talking to industry. We also have a lot of years' experience with implementation of other regulations and we looked at those and how long it took to put systems in place to get those regulations up and running.

REP. GREEN: Give me an example, if you would, please. I'm looking for the actual empirical evidence as opposed to a commentary about how you approached it.

MS. BRAUNSTEIN: Can I -- can we get back to you with that information?

REP. GREEN: Could you just give me one example of another industry or some other time that you actually had to do this and the actual amount of time that it took? The obvious answer is yes, you can get back to me.

MS. BRAUNSTEIN: Yes.

REP. GREEN: But if you have something today, I'd be more than anxious to hear it.

MS. BRAUNSTEIN: Well, I know when we put major TILA changes, truth in lending, changes in place in the past we have always had to go out at least 12 months in advance to get those in place. And this is even more comprehensive than that because this is involving several regulations.

REP. GREEN: Did you exercise this 12-month rule based on other empirical evidence, or has this just become custom and tradition?

MS. BRAUNSTEIN: No, as I say, we have talked extensively about the kinds of systems changes that are needed, you know, the forms that need to be developed, the time it takes to do that. I think you could probably get even better data from the industry in terms of their flow, their workflows.

REP. GREEN: Well, my suspicion is that the industry will give me enough information to help with me with my 18-month conclusion, if that is my end. But what I'm trying to do is actually fairly understand what went into the calculation, the computations. And so far I'm hearing you say we've talked and after talking we sort of came to a conclusion. And I'm interested in knowing, for example, it takes X amount of time to develop a computer program. It takes X amount of time to run the model. Have you done that kind of analysis?

MS. BRAUNSTEIN: We could get back to you with that information. I am not prepared to go into that level of detail today, but we could certainly get back to you.

REP. GREEN: Yes, ma'am.

MS. YAKIMOV: I would just add that some of the comments that we got from industry and from some of the vendors that the industry will work with to process changes, like high to low, 21 days to make sure that people have a reasonable period of time to make their payment, those types of systems-based changes that we've made in the rules, we did get a fair amount of fairly specific comments from industry and from vendors that we could -- that are part of the record. I can't give you real specific --

REP. GREEN: Would you do this for me? Define industry for me. When you say "from industry," I think I know what you're referencing, but why don't you tell us so that we'll have it for the record?

MS. YAKIMOV: From some of the major credit cared issuers that wrote and they commented about the implementation period, and they commented about what, from their experience, they felt they would need to do in order to comply with the rule as it was proposed, so we got comments from there, and then also some, as I say, from vendors that provide the type of backroom support.

REP. GREEN: Is it possible that there may be a hint of, maybe a scintilla of bias associated with that sort of intelligence coming from what you have defined as the industry?

MS. BRAUNSTEIN: Absolutely. That's why, like I said in the beginning, this was a conclusion we came to. I think the industry actually requested longer. From what I remember in my conversations -- this was months ago now, but, you know, most of the industry was telling us they would need a minimum of two years or even longer. So yes, we did put that factor into our calculations.

MS. YAKIMOV: Right.

REP. GREEN: Well, just as a parting comment, and I'm really doing some soul-searching, but the anecdotal comment that I get from consumers would connote it can be done right away and I want it done right now. So consumers have an immediate need, as they see it, when they talk to me. I understand that industry has a need as well, which is why I conclude that empirical evidence is the best way to arrive at a reasonable decision.

Thank you.

I yield back. Thank you, Mr. Chairman.

REP. GUTIERREZ: Congressman Neugebauer, please?

REP. NEUGEBAUER: Well, thank you, Mr. Chairman.

One of the problems with getting to the dance late is the dance card gets filled up and so a lot of the questions that I have have already been asked, but I want to go back on a couple of things.

Ms. Braunstein, one of the things you said was -- and I think Ms. Yakimov -- is that right? -- I think you both said that some of these things our industry is already starting to incorporate into their business model. And one of the things that -- and obviously I'm not in that credit card business, but this is going to require a lot of software modifications, a lot of internal operational procedures. And somebody's not just going to flip the switch in 2010 and say okay, we're on the new system.

So I have to believe that the industry, and we'll have some of those folks here, but I have to believe, as I understand it, that they'll have to be in compliance by that date or, if I'm not mistaken, and so it would appear to me that that process in going to be an evolving process. Am I misreading that?

MS. BRAUNSTEIN: No, that's correct.

MS. YAKIMOV: That's right.

REP. NEUGEBAUER: You believe that's true. And, as you said, in some of the banks that you all have been in already you begin to see some of that implementation already taking place?

MS. YAKIMOV: We have a group at OTS that specializes in following credit cared issues. You know, we've seen, for example, we track, are there noncurrent and (charge-offs ?) -- the amount of noncurrent loans and charges, how is that changing over time? And so the -- this is the group that kind of specializes in collecting a whole host of data from the institutions through our supervisory process. And that's the group that we're using to give us constant, periodic reports on how the industry is preparing. And we'll continue to do that.

REP. NEUGEBAUER: And because I have some credit cards and I'm already getting changes in the contract and changes in the terms that are very consistent with the new regulations, and so I think, you know, some of the credit card companies are already, you know, moving in that direction.

And, of course, I guess I want to be -- continue to be Mr. Disclosure to all of you, and, as Ms. Braunstein knows -- she's been here before us before -- we've got to get to a universal consumer disclosure that is simple and easy to read, because I think a lot of the issues that are driving a lot of our consumer complaints and people that are -- get in trouble with their credit, some of that is poor choices that they're making. And we can't legislate, nor can we correct, poor choices. We can fix poor information and poor disclosure. And I know that there are some reforms in this, but I think one of the things that we almost need to get our consumers used to is whenever they're looking at any kind of credit, they're looking at that same disclosure statement no matter what type of credit it is, and so they get accustomed to seeing that and so they know what to look for on that, and so that we don't have people that, you know, say "I didn't know."

So I thank these witnesses. And, with that, I'll yield back, Mr. Chairman.

MS. BRAUNSTEIN: Congressman, could I just say a word about disclosures?

REP. NEUGEBAUER: Yes, please.

MS. BRAUNSTEIN: This package includes complete redesign of credit card disclosures --

REP. NEUGEBAUER: Yes.

MS. BRAUNSTEIN: -- you know, under the Truth in Lending Act, and those are all consumer-tested. And we did indeed find, one of the interesting pieces of that is, you know, years ago Congress legislated something that's referred to as the Schumer box for credit cards that has all kinds of information in the solicitations in a box, that's put in a box. People did recognize that and found that very useful. So, in fact, when we redesign disclosures we made the account-opening statements consistent with the solicitations utilizing a box tabular format, because we found that what you're saying is absolutely right. Consumers look for certain information and we tried to, you know, do that in the redesigned disclosures.

REP. NEUGEBAUER: We've just got to get our friends over at HUD and all of the other places that people read --

MS. BRAUNSTEIN: Well, that's another -- that was last week's panel.

REP. NEUGEBAUER: I know, but, you know -- (laughter) -- I find that if you say it over and over and over and over again, eventually maybe it gets done.

MS. BRAUNSTEIN: I couldn't agree with you more.

REP. NEUGEBAUER: So thank you.

REP. GUTIERREZ: Thank you.

Mr. Cleaver, you're recognized for five minutes.

REP. EMANUEL CLEAVER (D-MO): Mr. Chairman, I will for\go any questions in an attempt to bring the next panel up.

REP. GUTIERREZ: Thank you so much. With unanimous consent, we'll accept that. Thank you so much, Mr. Cleaver.

Number one, I want to thank all of the panelists for their testimony here this afternoon.

And Ms. Braunstein, since last week, you know, we got a little critical about how long it took between the time of the legislation -- we really would like to compliment everybody at the Fed for working so quickly on the new regulations, the UDAP and the Z regulations and working on them quickly. You know, we've got to balance ourselves out.

Thank you so much to all of the panelists for being here.

MS. BRAUNSTEIN: Thank you very much.

END.

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