WASHINGTON (5/1/08)—Senate Banking Committee Chairman Christopher Dodd (D-Conn.) introduced broad credit card reforms Wednesday, just days before the Federal Reserve Board is expected to address abusive practices and consumer protections through regulation. Dodd’s bill would ban practices such as universal default, double-cycle billing, and charging interest on fees. It would also require card issuers to apply cardholder payments to balances with higher interest rates first and to give a 45-days notice prior to any rate increases. The bill also attempts to address consumer complaints regarding the proliferation of card solicitations many young people receive just after their eighteenth birthday, a marketing practice that some claim could threaten to lead young consumers into dangerous levels of debt. The bill would, for instance, limit prescreened offers of credit to young consumers under the age of 21. It would also require issuers soliciting to those under 21 to obtain an application that contains: the signature of a parent, guardian, or other individual who will take responsibility for the debt; proof that the applicant has an independent means of repaying any credit extended; or proof that the applicant has completed a certified financial literacy course. The bill also intends to strengthen credit card industry regulation and supervision by:
* Requiring banking regulators to evaluate the policies and procedures of card issuers to ensure compliance with card requirements and prohibitions; *Improving data collection related to rates, fees, and profits; and * Provides each federal financial regulator with the authority to prescribe regulations governing unfair or deceptive practices by banks and savings and loan institutions.
In related news, the Fed, along with the Office of Thrift Supervision, is expected to issue a proposal Friday that would define unfair and deceptive card practices. (American Banker
April 30). The joint plan is expected to address many of the same issues as the Dodd bill, including prohibiting card companies from increasing interest rates on existing debt for reasons unrelated to the cardholder's behavior on that account. On the House side, Rep. Carolyn Maloney (D-N.Y.), who chairs the House Financial Services subcommittee on financial institutions, introduced a package of credit card reforms in February called the Credit Cardholder's Bill of Rights (H.R. 5244). The bill was introduced with 40 co-sponsors and also is intended to curb abusive credit card practices, such as some interest-rate increases and late fees. It features 45-day notice requirement for consumers before an interest rate could be executed. Cardholders would then have the right to cancel their card and pay off their existing balance at the existing rate and repayment schedule. H.R. 5244 would also prohibit the practice, known as "double-cycle billing," in which card companies charge interest on payments made on time during a grace period. It would also ban arbitrary changes in the credit card contract.