More and more Americans are turning to their credit cards to help pay bills, buy groceries, and simply make ends meet in this troubled economy. As a result, consumer credit card debt is now closing in on the $1 trillion mark - double the amount held in 1996. This trillion-dollar tower of secured debt is looming large above our troubled economy and threatening to worsen an already perilous credit crisis.
Recent news reports show that even as the Federal Reserve has cut interest rates to try and boost our economy, credit card companies have raised rates on cardholders - even those who pay on time- in an effort to try and plug losses they�ve suffered in other areas of their business. That's because the playing field between credit card companies and credit cardholders has become very one-sided in recent years, and it is average American cardholders, not the card companies, who are getting the short end of the stick.
The winds of change appear to be blowing, however. In an historic move, the Federal Reserve recently acknowledged that there are unfair and deceptive practices in the credit card industry, and proposed regulatory rules for correcting many of them.
Some of the practices the Fed identified as unfair and deceptive are the same ones that we have proposed curbing in new legislation, the Credit Cardholders' Bill of Rights (H.R. 5244): raising interest rates on existing balances- and doing so even to good cardholders who pay on time and never go over their credit limit; charging interest on balances that have already been paid off; unfairly allocating payments to make it difficult for cardholders to pay off higher interest rate balances; and marketing fee-heavy "subprime" credit cards to unsuspecting customers. It's encouraging that the Fed clearly agrees with the need for these solid and balanced reforms.
By the time the Fed gets around to finalizing its regulatory proposals, however, they may be watered down and come too little too late for struggling consumers who need help now. Just as we couldn't wait for the regulators to get around to helping the millions of Americans facing foreclosure, we can't count on them now to act quickly and help the millions of Americans being driven deeper into credit card debt. The mortgage reform regulations the Fed proposed over a year ago still have not been enacted. And, what is done by regulation can easily be undone by regulation. Legislation is the only solid and lasting solution.
Our legislative approach fosters fair competition and free market values. It simply empowers cardholders to make decisions about their own credit, and puts an end to the tricks and traps that undermine a competitive market. We set no price controls, rate caps, or fees, nor do we dictate any business models to card companies.
Despite this free market approach to reform, some in banking industry oppose both our bill and the Fed's new regulatory proposals. These opponents are pushing for zero intervention into the escalating credit crisis just as they argued for a hands-off approach to the subprime crisis. Doing nothing is not an option. The Fed is the federal agency responsible for steering our economy and ensuring the safety and soundness of our financial institutions and it has affirmed what many in Congress have been saying for some time: there are unfair and deceptive credit card industry practices that need to be corrected.
We are on the verge of cracking down on credit card industry abuses for the first time in decades. The Fed's recent action only adds to the incredible momentum for legislative reform that has been building. The Credit Cardholders' Bill of Rights now has the support of leading consumer advocates, and groups as diverse as The National Small Business Association and The Service Employees International Union (SEIU). It also has the support of 120 co-sponsors from different parts of the political spectrum. We may not agree on everything, but we do agree that American consumers deserve a level playing field. Instead of waiting for the Fed to act or for the next shoe to drop in the credit crisis, Congress should take swift action to reform major credit card industry abuses and improve consumer protections for cardholders.
This column was co-authored by Rep. Lincoln Davis (TN-4), Rep. Carolyn Maloney (NY-14), and Rep. Keith Ellison (MN-5). All three are members of the House Financial Services Committee.