Mr. President, this is the Credit Card Accountability, Responsibility, and Disclosure Act. That is what we are going to talk about over the next few days, about credit cards, about interest rates, penalty fees, and other matters. Let me…
Mr. President, this is the Credit Card Accountability, Responsibility, and Disclosure Act. That is what we are going to talk about over the next few days, about credit cards, about interest rates, penalty fees, and other matters.
Let me call up the amendment.
Amendment No. 1058
(Purpose: In the nature of a substitute)
I ask unanimous consent the reading of the amendment be dispensed with.
For the purpose of my colleagues, this is the substitute amendment that Senator Shelby and I have worked on over the last number of days. I want to begin by expressing, first, my gratitude to the majority leader, Senator Reid, for his leadership and support in the effort to get this matter to the point we are this afternoon. Of course I express my gratitude to Senator Shelby and his staff as well as my own staff, who worked all through the weekend to try to resolve outstanding differences to bring us to the point where we have the bipartisan proposal to offer reform of the credit card laws in our country that most Americans do not need much of a speech about. Many times we are involved in a discussion and we are informing the public for the first time about a problem, or at least a very limited number of people are aware of it. In this case, the public is probably more aware than many about problems with interest rates and fees and penalties and the like. Every single day people go through this. This afternoon I want to talk about this bill. I want to tell my colleagues what is in this credit card reform bill.
I thank the Presiding Officer, a member of the Banking Committee, along with other members of the committee who worked with us over the last number of weeks to try to complete a product here that can enjoy, I hope, as we go through this over the next day or two, broad bipartisan support.
Let me take, if I can, the next few minutes and talk about the bill specifically, what the provisions are and why we have worked so hard to pull this bill together.
This is not a new issue for me. I have been at credit card reform issues for actually more than 20 years. In the past I have not succeeded, candidly, reforming the credit card laws of our Nation. But in light of what has occurred over the last number of months and years, I think there is a greater indication of the need to step up and create
some real changes, given the conditions our constituents are living with, the number of people unemployed, the obvious problem of foreclosure rates, and the like.
This issue is finding a tipping point. I believe we have a wonderful opportunity to create some meaningful reforms, and nothing would please me more than to have that kind of strong bipartisan support for these changes.
I rise in strong support of the Credit Card Accountability, Responsibility, and Disclosure Act of 2009. The substitute amendment, I have offered on behalf of myself and Senator Shelby of Alabama, the former chairman of the Banking Committee. I thank him and his staff, and, of course, my own staff, who worked very hard on this issue--I will make specific reference to them during the debate--and who have done a terrific job in bringing this together in this bipartisan fashion.
The bill before us addresses an issue of critical importance to millions of American consumers and their families and to the stability of our financial system; that is, the need to reform the practices of our Nation's credit card companies and provide a comprehensive regime of tough new protections for consumers.
I begin by thanking Senator Shelby for his diligence throughout this process. I also acknowledge the hard work his staff has put in negotiating this important bill, along with my own staff who have worked very hard as well.
Americans know they have a responsibility to live within their means and to pay what they owe. But they also have a right not to be deceived, misled, or ripped off by unfair and arbitrary practices that have become all too common within the credit card industry. Banning these practices is especially critical today.
Since the recession began in December of 2007, 5.1 million jobs have been lost in our Nation, with almost two-thirds of those losses occurring in the last 5 months alone. It is clear the financial crisis is hitting American families very hard indeed. But precisely at a time when our economy is in crisis and consumers are struggling to live within their means, credit card companies too often are gouging them with hidden fees and sudden interest rate hikes that for many make the task nearly impossible.
With the average outstanding credit card debt for households with a credit card now nearly $10,700, credit card companies are making an already difficult economic downturn suffocating for far too many millions of our American citizens.
The range of abusive practices is as long as it is appalling: retroactive rate increases on existing balances; double-cycle billing that charges interest on balances the consumers have already paid; deceptive marketing to young people; changing the terms of the credit card agreement at any time, for any reason, on any balance; skyrocketing penalty interest rates, some as high as 32 percent.
My colleague from New York, Senator Schumer, has called this ``trip- wire pricing,'' saying the whole business model of the credit card industry is not designed to extend credit but to induce mistakes and trap consumers into debt. I think he is absolutely right, unfortunately. This is an industry that has been thriving on misleading its consumers and its customers.
If you need any evidence of that, just look at how they even hike interest rates on consumers who pay on time and consistently meet the terms of their credit card agreements. Take Phil Sherwood of my State, who always paid his bills on time, who had a credit score in the 700s. He is an upstanding member of his community; in fact, a city councilman in New Britain, CT. One day recently he received a notice from his credit card company informing him that his interest rate was nearly doubling, and the associated fees on his account were going up as well. He had done nothing wrong, not been late, no changes whatsoever, just an arbitrary increase.
A recent survey of the country's 12 largest credit card issuers by the Pew Charitable Trust found that Phil Sherwood was not alone. Pew reported that 93 percent of surveyed cards allowed the issuer to raise interest rates at any time, for any reason.
Between March of 2007 and February of 2008, credit card companies raised interest rates on nearly one out of every four accounts, nearly 70 million cardholders who were charged $10 billion in extra interest rates. That is within an 11-month period.
That $10 billion is not paying for college tuition; it is not paying for groceries or for safe, affordable shelter in the midst of a housing crisis. It is going straight into the pockets of credit card companies; and they are doing it for one reason--because they can.
Little wonder that we have seen a tenfold increase in the penalty fees customers have been charged in the last decade alone. Even the Federal financial regulators who dropped the ball terribly, in my view, during the subprime mortgage crisis have recognized the harm these sinister practices pose not only to consumers but also to our economy as a whole.
Recently, in fact, the Federal Reserve, the Office of Thrift Supervision, and the National Credit Union Administration finalized rules aimed at curbing some of these practices. These rules are a good first step. I want to commend them for it. They deserve commendation for having stepped up and proposed these regulations. These rules made a difference already.
But with our economy hanging in the balance, layoffs mounting, and consumers struggling to pay for basic necessities, I think the moment is right for more comprehensive reform, despite the good first step of the Federal Reserve and others.
I first began waging this fight to reform credit card company practices more than 20 years ago. Back then it was difficult to get anyone to pay much attention to what was clearly becoming a slippery slope toward more abusive and deceptive practices by these card issuers. It was a lonely fight in those days.
But today we have an American President, President Obama, on our side. He recognizes that credit card reform is not incidental to our economic recovery. As he has stated over and over again, it is essential to it. He has pledged to get credit card reform ``done in short order'' to quote him exactly, and said this weekend that he wants us to send him a bill by Memorial Day.
I intend to do everything I can, and I am sure my colleagues will, to ensure we meet that challenge--not for the President, not for the White House, but for the consumers and customers out there who are waiting to see whether we will step up on this side of the ledger and do something on their behalf.
We have spent a lot of time in this body, a lot of time over the past weeks and months, to help the financial institutions, to stabilize them, to get them on their feet, to get credit flowing again. I believe those decisions, by and large, we have made have been the right ones, although clearly we could have started earlier.
But now it is time to do something for the other side of that ledger; that is, for consumers out there who deserve a break, particularly with practices, as I mentioned: 70 million accounts having their rates raised in the last year alone, and people such as Phil Sherwood having them raised for no reason whatsoever, solely because the issuer can do so.
So it is time we do this--not for the President, not for the White House, not because the President would like it but, more importantly, because the American consumers deserve it in these times to get the help they need in this area.
So today as the Senate takes up the credit card legislation, we stand up for the people in this country who want no more of these practices, no more tricking customers into taking on more debt than they agreed to, no more taking advantage of financially responsible credit card users, and no more abuse of consumers that goes unpunished.
The time has come to insist on consumer protections that are strong and reliable, rules that are transparent and fair, and statements that are clear and informative. Those principles are the very essence of the Credit Card Act.
Allow me to take, if I can, just a few minutes to explain how the provisions of this bill will work. First and foremost, this legislation prevents unfair and arbitrary increases in interest rates and changes in the terms of credit card contracts.
Why is this so important? I recently met Kristina Jorgensen, a graphic designer from Southbury, CT. She transferred her student loans to a credit card to take advantage of the low ``fixed rate'' offer, only to have the interest rates on that debt increase from 5 percent to 24 percent.
Her monthly payments increased by $260. She had to cash in her retirement IRAs to pay off the credit card debt, all because she paid 1 day late by phone. Let me repeat that: never in trouble before, saw an opportunity to pay off her student loans, she sent out, with that 5- percent rate she had because of her good record over the years, and all of a sudden, because she is 2 days late--one of them a Sunday, by the way, because she paid by phone, not through the mail--her rates went from 5 percent to 24 percent, thereby crippling her ability, draining off that IRA. She did not graduate from college a year or two ago. I will tell you she is far closer to my age than a high school senior or a college graduate's normal age.
So here she is at a point of retirement in her life where her IRA, her individual retirement account, now has been drained of a good part of its value because her rates went from 5 to 24 percent.
What happened to Ms. Jorgensen is wrong. Having one's retirement security wiped out is frightening under any circumstances. But it is positively terrifying in a recession.
Samantha Moore and her husband, a small business operator--Samantha is a paralegal from Guilford, CT--experienced a similar situation. She had her credit card interest rate raised from 12 percent to 27 percent. Why? Because she was 3 days late on a credit card payment for the first time in 18 years. She and her husband, who own a small business, saw their credit card limit drop from $31,000 to just over $4,000--the credit limits from $31,000 to just over $4,000, a small business, 3 days late, first time in 18 years, and they watched the rate jump to 27 percent, and their credit limits plummet to a point which pushes that business into jeopardy.
So I would ask my colleagues: What is a family in this economy supposed to do if they are counting on that credit card to help them through a medical crisis. That one patently unfair decision could mean the difference between scraping by during a recession and a financial catastrophe.
The legislation Senator Shelby and I have put together prevents credit card companies from unjustifiable ``anytime, any reason'' rate increases on existing balances for people such as Samantha and Kristina.
Our bill also prohibits credit card issuers from increasing rates on a cardholder in the first year after a credit card account is opened and requires promotional rates to last at least 6 months.
Our bill prohibits issuers from changing the terms governing the repayment of an outstanding balance. For the first time ever we put provisions in place that ensure that risk-based pricing will not always work against the consumer and drive up rates.
This legislation says, if your issuer has raised your rate since the beginning of the year, they have to review your account within 6 months and bring the rate back down if the review warrants it, thus putting an end to the kind of risk-based pricing that always costs the consumer more and never less.
Secondly, our bill puts an end to the exorbitant and unnecessary fees that drive families further into debt. Not that long ago, if you were over your credit card limit, your card was declined at the store. I am old enough to remember when that could happen--it happened to me--that awkward moment when you have gone to purchase something, and you are standing in line, and all of a sudden that clerk says, ``I am sorry, but you have been rejected.''
That is always an awkward moment, particularly if people are standing behind you in that line, and you take your purchases and sheepishly walk away and put them back on the shelf because you went over your limit.
It was not comfortable, but it protected you against going over the limit. In those days you did not have to ask for it, it happened automatically. Well, that has all changed, of course, in recent days. In fact, the issuers enjoy that moment because when you walk up and purchase something, despite the fact that you may want a fixed limit, at that point you go over, of course, then the penalty fees and other charges pour in. Of course, that becomes a bonanza on additional penalties collected.
Now, I am not suggesting the consumer does not bear a responsibility. But in the past there was a responsibility exercised on both sides of that equation, a borrower and lender. Here lately, of course, that equation has been disrupted. Today we have repeatedly heard about cardholders being charged enormous fees for unknowingly going a few dollars over their credit limit.
Our bill prohibits issuers from charging hidden over-the-limit fees. It says if cardholders want to go over their card limit, they have to ``opt in'' with their issuer, putting the choice of going over the credit card limit and paying extra fees squarely in the hands of consumers, not the banks.
Our bill also requires penalty fees to be reasonable and proportional to the violation. Further, our bill prevents companies from charging fees for customers making payments by mail, telephone, or electronically, and strengthens protections against excessive fees on low-credit, high-fee credit cards. The days of issuers unreasonably jacking up these fees to unreasonably high levels to make money on the backs of consumers will be over.
Third, our bill protects the rights of financially responsible credit card users. Say last month, for instance, you had a credit card debt of $1,000, and since then you have paid $900 of that debt off. It is not uncommon for some credit card companies to keep charging interest not on the remaining $100 of debt but on the full previous $1,000 of debt. Our bill puts an end to this so-called ``double-cycle billing,'' and says if the credit card company delayed crediting your payment, you will not be charged for their mistake.
Our bill also requires the credit card statement to be mailed 21 days before the bill is due rather than the current 14. The bill also encourages transparency in credit card pricing, requiring the Government Accountability Office to study the effect that interchange fees have on our merchants and consumers.
I thank a number of my colleagues who expressed a strong interest in that subject matter. There will be a study done on this issue. It is a complicated area, the interchange fees, but a lot of retail stores are deeply concerned about these fees, the excessive charges they believe exist. They would like to see some changes.
I have promised my colleagues who expressed an interest that we will take this up. I believe it is Senator Corker of Tennessee who has written a stronger study provision than the one we had originally crafted. I thank him. I know he has a strong interest in this subject, as do other Members. We will get to the interchange fees at a later date. Certainly, a study would give us a better framework in which to consider legislation.
Fourth, our bill provides far better disclosure of card terms and conditions. One member of the credit card industry recently told Time magazine, ``The American people cannot manage their credit.'' Well, it is not hard to understand why. A quarter of a century ago, a typical credit card contract was about a page in length. Today, it is 30 times as long and 100 times more incomprehensible. You practically need a microscope to read what it says and a law degree to understand what it means. If this financial crisis has taught us anything, it is that consumers can only make responsible decisions if they have all the necessary information. The American consumer should not have to live in fear that a clause buried in the fine print of their credit card contract might someday be their financial undoing.
Our legislation also requires credit card issuers to provide far better disclosure of terms and conditions. The bill says cardholders must be given 45 days' notice of an interest rate increase. The bill mandates that issuers disclose to consumers when the card terms have changed, and it forces issuers to disclose how long it will take to pay off a card balance if you only make minimum payments, something our colleague from Hawaii, Senator
Dan Akaka, has led the fight for over many years.
The bill also requires the Federal Reserve Board to post consumer credit card agreements on its Web site.
Fifth, our bill insists on a fair allocation of payments. Many cardholders hold multiple credit card balances with multiple interest rates. If you send an extra thousand dollars along, for example, with your minimum payment, that amount should be credited to the account with the highest interest rate first. Our legislation ensures that it will be.
Our bill also prohibits issuers from setting early-morning deadlines for credit card payments. We all understand that we have to pay our credit card bills on a specific date, but what too many card companies don't tell you is that it isn't just the date the payment is due but often a specific time in the day. In too many cases, it is in the morning rather than at the end of business for that day. So, for example, if you pay your bill--call the company or make an online payment--before the close of business on the due date, sometimes you will get penalized for a late payment because the credit card deadline, unbeknownst to the cardholder, was at 10 a.m. that morning on the due date. This legislation puts a stop to that as well.
I should add that for the very first time the Federal Government will provide new protections for recipients of gift cards, and we thank our colleague from New York, Senator Schumer, for his leadership on this issue. This legislation will make it easier for recipients of gift cards to cash them in. Under the Schumer provision, if you receive a gift card, your balance won't disappear before you have a chance to spend it.
Sixth, this legislation includes robust protections for young people and students. Recently, my 7-year-old daughter received a credit card solicitation in the mail. We laughed it off, but it brings up a serious point. Young people--and ultimately their parents--are faced with an onslaught of credit card offers, often years before they turn 18, usually as soon as they set one foot on a college campus. Just as we saw in the mortgage crisis with lenders and borrowers, too often issuers offer cards to young people without verifying any ability to repay whatsoever. This is particularly true for students. According to Sallie Mae, college students graduate with an average credit card debt of more than $4,000. That is up from $2,900 just 4 years ago. Nearly 20 percent of college students have credit card balances of over $7,000.
Our bill requires issuers soliciting anyone under the age of 21 to obtain the signature of a parent or guardian or someone else who will take responsibility for the debt or proof that the applicant, as many are capable of doing under the age of 21, has some independent means of repayment. It prohibits increases in credit card limits unless that person who is a cosponsor or is jointly liable approves of the increase in writing. Our bill limits the kinds of prescreened offers that get so many young people into trouble.
I thank our colleague from New Jersey, Senator Menendez, for his leadership on this issue. It is time to insist that credit card companies take into account a young person's ability to repay before allowing them to take on what is all too often a lifetime worth of debt. Very little we do in our legislation will be more important than these provisions. Many of my colleagues on the Banking Committee expressed a strong interest in these provisions. I don't have the statistics in front of me, but a significantly high percentage of students drop out of school because of the debt they have incurred. A lot of it is credit card debt, not just the student loans but the credit card debt.
That is also why the final component of our bill is so critical as well. That involves tougher penalties and enforcement. Credit card companies need to understand that if they violate the terms of an agreement with a cardholder, there will be serious consequences.
With this legislation, if your credit card company wrongly raises your rate, the company could pay as much as $5,000 per violation--even higher if the company is found to engage in a pattern or practice of violations. Our goal is not to be punitive, although I can understand why someone might want to be, given some of the practices that have gone on over the last number of years. Rather, we need to put in place strong incentives that will encourage these companies to act more responsibly in the first place.
Every one of these provisions I have mentioned is rooted in simple common sense; no more tricks, no more strings attached. Over and over, we have heard that consumers should act responsibly when it comes to credit cards. I agree completely. We all need to act more responsibly. But it is time the credit card companies were held to that same standard, and with this legislation they will be.
I thank Senators Schumer, Akaka, Menendez, Tester, and Kohl on the committee, who have strongly supported the fight to protect consumers against predatory credit card practices. Senator Carl Levin of Michigan has been a champion of credit card protections for many years as well and generated some important ideas that are included in the bill Senator Shelby and I are offering. For decades, their efforts have fallen on deaf ears but not this time.
Today, with practices so brazen and widespread, as our economy quite literally hangs in the balance, one thing is clear: This is the moment for credit card reform. Our economy will not recover if we allow practices such as those I am talking about today that drive so many families deeper and deeper into debt. Americans do not deserve and cannot afford to be pushed down this economic ladder by credit card issuers any longer. This is a once-in-a-generation opportunity. In my view, we will never have a better opportunity to protect consumers than we do today with what we propose.
This legislation has been worked on extensively over the last number of weeks. We listened to a lot of people, including the issuers, to make sure what we are doing is fair and balanced and gets to the heart of the matter; that is, to cut out these excessive increases, without warrant, in rates and fees and penalties that I have mentioned.
Forty-six years ago, President John Kennedy delivered his special message to Congress on protecting consumer interest. In that speech, he established four very simple rights: the right to safety, the right to be informed, the right to choose, and, above all, the right to be heard, to be assured that consumer interests would receive full and sympathetic consideration in the formulation of Government policy. I cannot think of a single issue or moment where the need to act on principles articulated nearly half a century ago--and embraced by our current President and many in this Chamber of both political parties-- was clearer or more urgently needed than those articulated by President Kennedy more than four decades ago.
I urge my colleagues to support this legislation, to stand up for American families who are already facing tremendous difficulties on a daily basis, with rising costs in energy and health care, the difficulty of holding on to their homes. All of these issues are confronting them. At the very least, having spent as much time as we have on dealing with stabilizing financial institutions, to take out a few days in all of the debate and stabilize American families by reducing outrageous and egregious practices that have added so many financial burdens to them is long overdue.
Senator Shelby and I are proud of this substitute. We thank our colleagues who helped us work on it. We look forward to the debate on amendments that may be offered. Some may strengthen what we have suggested. Others may try to undo it. But we need to have a full and open debate. Then my hope is that, by an overwhelming vote, my colleagues will support this legislation.
The House has already acted--I commend them--under the leadership of Barney Frank and others on the Financial Services Committee in that Chamber. Our intention is to follow with this legislation. Congresswoman Carolyn Maloney deserves credit, having authored the legislation in the House.
We think we have a good bill, a strong bill. We think we have made some improvements on what the House recommended. I look forward to the debate that is forthcoming.
Amy Friend and Lynsey Graham, who are sitting here next to me, did a
remarkable job in negotiating, working with other Members, with outside interests, including the issuers and consumer groups, on putting this bill together. Charles Yi, as well, worked on this, and Colin McGinnis. A lot of people worked on this. But these three--Charles Yi, Lynsey Graham, and Amy Friend--did a great job.
Our staffs do so much hard work and don't get the credit they deserve for the work they do. I am deeply grateful to them for their tremendous leadership as well.
I suggest the absence of a quorum.
Madam President, I object.
Madam President, as a counter to that proposal, I ask unanimous consent that the Senate proceed to the immediate consideration of Calendar No. 49, H.R. 131, the Reagan Commission bill; that a Feingold amendment, which is at the desk--the text of S. 564, the Wartime Treaty Study Act--be agreed to; the bill, as amended, be read a third time and passed; and the motions to reconsider be laid upon the table with no intervening action or debate.
Madam President, I would note that the objection I registered was on behalf of Senator Feingold, and I wish the Record to reflect that.