Credit Cards Ready for Reform? Some Lawmakers Think So
While most of Washington's attention is on mopping up the home mortgage mess, federal lawmakers are also launching another heavy-duty cleaning job -- reforming the credit card industry.
As you'd expect, the bank and credit card issuers, such as Visa and MasterCard, aren't happy about this attention and are determined to thwart any new Congressional efforts at bolstering regulations and curtailing some time-honored lending practices.
As Congress reconvenes this week, credit card reform is gaining traction in the U.S. House of Representatives. The House could vote on the Credit Cardholders' Bill of Rights, introduced by U.S. Rep. Carolyn B. Maloney (D-NY), which recently passed the House Financial Services Committee. Meanwhile, a similar measure was introduced this year in the Senate by Sen. Chris Dodd (D-CT), chairman of the Senate Committee on Banking, Housing, and Urban Affairs.
Each piece of legislation calls for ending lending practices that have come under fire from critics, including: Retroactive interest rate increases; marketing cards to minors; issuing sub-prime credit cards with excessively high interest rates and annual fees; and using due date "gimmicks" that expose customers to increased late fees and other penalties.
Obviously, there's a long way to go before any credit card reform bill becomes the Law of the Land, especially since this session of Congress is winding down. But should the bills fail this time around, they're expected to be reintroduced in the next Congress, according to legislative and bank lobbying executives.
"It's an issue in this Congress and we expect this to be an issue in the next," says a spokesman for the American Bankers Association in Washington D.C.
Talk of credit card reform isn't limited to angry elected officials. Federal regulators, who have been perceived as indifferent and lax while policing the mortgage industry, are being more aggressive on the credit card front.
Recently, the Federal Reserve and fellow regulators -- the Office of Thrift Supervision at the U.S. Department of the Treasury, and the National Credit Union Administration -- proposed an array of new credit card regulations designed, they contend, to stamp out industry abuses.
By some estimates the size of the U.S.'s outstanding credit card market is approaching $1 trillion, which rivals the size of the sub-prime mortgage market.
Credit card providers are use to feeling the fury of consumer activists. But this year, small business -- one of the credit card providers' main constituencies -- is also taking pot shots at the industry.
Entrepreneurs are increasingly dependent on plastic for fast financing -- especially as banks and other commercial lenders back away from making more traditional loans. A recent survey found that 44 percent of owners depend on credit cards as their primary source of funding, according to the National Small Business Association, which frets about the impact onerous financing terms are having on its members. The NSBA is a strong supporter of Maloney's Credit Cardholders' Bill of Rights.
Credit card issuers are ready to fight back, saying any harsh new regulations and laws will only end up hurting credit card users.
"The result will be higher costs for consumers, reduced access to credit for those with an imperfect or limited credit history, and less access to low credit options," says Edward L. Yingling, president and CEO, American Bankers Association, which also represents huge credit card companies like JP Morgan Chase and Bank of America.