Author of Credit Card Reform Act on New Federal Credit Card Regulations: Positive Step, Though Implementation Date Is Concern

Press Release

Author of Credit Card Reform Act on New Federal Credit Card Regulations: Positive Step, Though Implementation Date Is Concern

Sen. Menendez has introduced strongest consumer-protection legislation for credit cards, has urged Paulson and Bernanke to take steps to halt unilateral rate increases

Federal regulators today adopted new regulations on credit cards, cracking down on certain deceptive practices. The regulations include curbs on such practices as raising interest rates on current balances and allocating all payments to balances with the lowest interest rates if a cardholder has multiple balances. However, they will not take effect until July 2010, and they do not cover other deceptive practices that exist.

U.S. Senator Robert Menendez (D-NJ) is a member of the Banking Committee and author of the Credit Card Reform Act (S. 2753), which addresses these and a number of other deceptive and unfair credit card practices and which goes further in protecting consumers than any other current credit card legislation. He also recently pressed Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke to ensure that credit card issuers benefitting from a new plan to spur consumer lending do not unilaterally hike cardholders' interest rates (http://menendez.senate.gov/newsroom/record.cfm?id=305251). He released the following statement on the new regulations:

"In a season of tough economic realities, this is some welcome news for American families who could drown in a sea of credit card debt. We must make sure that this is only the beginning of credit card reform and that this action is followed up with more. Though they represent a good step forward, the main disappointment of these particular rules is the long wait until they take effect. Between today and a year from next July, far too many Americans could go bankrupt without being protected from deceptive practices.

"Credit card debt is such a struggle for so many American families not just because of this set of deceptive practices addressed today, but because of a whole range of tricks and traps that are sprung on consumers. It is vital that we both cement these regulations and end the many other deceptive practices with tough legislation in Congress. We need to make things fair between credit card companies and cardholders, which is the goal of the Credit Card Reform Act. I look forward to working with Chairman Dodd to get this done in short order."

CREDIT CARD REFORM ACT SENATOR ROBERT MENENDEZ

The Credit Card Reform Act (S. 2753) would end some of the credit card practices that continue to lure consumers into financial traps, such as excessive late fees, retroactive rate increases, universal default, unilateral changes to credit card agreements, and deceptive credit card offers.

Creates Opt-In for Underage Consumers: Requires credit card issuers to receive "opt in" approval from young consumers under age 21 before sending credit card solicitations.

-Young people should have a fair chance to make responsible decisions; far too often they get trapped in payments they can't afford, largely because of aggressive marketing tactics.

Prohibits Unilateral Changes in Credit Card Agreements: Does not allow issuers to change the terms of the credit card agreement or increase rates or fees for "any time, any reason."

-A credit card contact should be honored like any other contract, and credit card issuers should be held to the terms of the agreement just as the cardholder is.

Prohibits Universal Default: Does not allow credit card issuers from increasing interest rates based on activity or information unrelated to their credit card agreement.

-Interest rate increases should be based on a cardholder's activity with that credit card, not based on other actions such as a late payment on another bill or a change in credit score.

Ban on Retroactive Rate Increases: Prohibits interest rate increases on existing balances.

-Credit card issuers should be able to charge penalty rates for activity such as late fees or other actions by the cardholder, but any increases should not apply retroactively.

Limits Interest Rate Increases: Credit card issuers would not be allowed to impose penalty rate increases higher than seven percentage points above the previous rate.

-Penalty rate increases can be as high as 24 percent for actions such as being one day late in a payment. Issuers should be allowed to increase rates, but at a reasonable level.

Limits Late Payment Fees: Requires postmarked date and late payment amount to appear clearly on a billing statement and bans late fees for payments made by the postmarked date.

-Many consumers face high late payment fees due to post-marked issues or lack of clarity about the exact fee that will be charged. Issuers should recognize a postmarked date.

Makes Fees Reasonably Related to Cost: Requires penalty fees to be reasonably related to the cost that the issuer incurs as a result of the consumer's action.

-Consumers are facing fees that have grown at extremely fast rates and seem more intended to add to profits than to actually offset the cost to issuers.

Requires Verification of Ability to Pay: Requires credit card issuers to determine that consumers can make payments before offering credit terms or raise credit limits to consumers.

-This is not an undue burden on issuers, but a reasonable effort they can take to make responsible offers and not target those who clearly do not have an ability to pay.

Ban on Deceptive Credit Card Offers: Requires "pre-approved" offers to be a true, firm offer with actual interest rates and fees that will be honored if a consumer signs up for the offer.

-Issuers should provide true offers of credit, not lure consumers with an appealing offer that has a very small chance of being honored.

Bill is endorsed by: Center for Responsible Lending, National Consumer Law Center, Consumer Action, Consumer Federation of America, National Council of La Raza, Consumers Union, U.S. Public Interest Research Group, Demos, Service Employees International Union, and National Association of Consumer Advocates.

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