This post was written by Stephanie Condon.
While President Obama met today with executives from the leading credit card companies, two senators called on the Federal Reserve to immediately implement an emergency freeze on interest rates tied to existing balances on credit cards.
The Federal Reserve plans to implement a new set of rules for credit card lending beginning July 2010, but that is too long to wait, Senators Chris Dodd (D-Conn.) and Chuck Schumer (D-N.Y.) said in a letter sent to Federal Reserve Chairman Ben Bernanke and other regulators. Companies are increasing interest rates now before the new rules go into effect, they said.
"Consumers describe situations to our offices in which the interest rates on their accounts have doubled or tripled overnight, without any misconduct on their part," the letter says. "This kind of practice clearly violates the spirit and intention of the rules, even if the delayed implementation date has the effect of making such behavior legal."
Congress is working on legislation that would codify the Fed's new rules, but the bill is still in development.
After meeting with 14 executives from companies like Bank of America, Wells Fargo, and Visa, President Obama said that his administration would work with Congress to evaluate proposals for reform.
"We're at a time where issues of credit and how businesses and families are able to finance everything from a car loan to a student loan to just paying their bills every day is on a lot of people's minds," the president said. "We want to preserve the credit card market, but we also want to do so in a way that eliminates some of the abuses and some of the problems that a lot of people are familiar with."
The card executives at today's White House meeting agreed to work with the administration to address the president's concerns, according to the American Bankers Association, and are currently working to implement the Federal Reserves' new rules. The ABA, however, took issue with the new regulations.
"The Federal Reserve itself has indicated these rules are likely to shrink credit availability and result in increased rates for some consumers," ABA President Edward Yingling said in a statement. "The goal of any additional efforts should be to achieve the right balance between enhancing consumer protections and ensuring that credit remains available to consumers and small businesses at a reasonable cost."
Some Republicans are also concerned about the impact of the new regulations. Rep. Scott Garrett (R-N.J.), a member of the House Financial Services Committee, said the legislation to codify the new rules is well-intended but will have negative consequences.
"There's no one on either side of the aisle who does not want to have more transparency so that people know what they're getting into and what they're dealing with," Garrett told CBS News. "But with the credit market already tightening, now is not the time to make it even more difficult for the moderate-income family, with even more reasons to rely on his credit card, to find out he can't get one."
He said implementing any of the Fed's new rules immediately, as Dodd and Schumer are requesting, would only exacerbate the impact.
"One benefit (of the current regulatory change) is it goes into effect later on, and we can hope the recession we're in now will be loosening up for other reasons," he said. "Once they go into effect, I think they will have a dampening effect on the availability of credit."