Mr. Speaker, I think all of us in this body have had constituents call and complain that what they saw were unfair and deceptive credit card practices, and in many cases, these practices were not fair. As a result of that, the Financial…
Mr. Speaker, I think all of us in this body have had constituents call and complain that what they saw were unfair and deceptive credit card practices, and in many cases, these practices were not fair.
As a result of that, the Financial Services Committee, working with the Federal Reserve, proposed--and the Federal Reserve has now adopted--changes. The things that have been talked about by Members of this body in the debate last week and in the debate today are taken care of in the Federal Reserve's requirements. In fact, they went through a long public process. They had over 60,000 public comments about the issues, and they issued, actually, 1,200 pages of changes in our credit card regulations. This included going up on balance fees. This included double-cycle billing. This included giving people a longer period of time from the time their statement was mailed to the time they had to get a payment in--all of the things, I think, that most of us have received calls on.
One matter that we raised when this bill was before us--and I want to commend the Senate, and I want to commend the Democratic majority in the House--was this idea in the original legislation that you could apply for a number of credit cards, but it would not go on your credit report until you activated that card. I think, as a result of the debate 2 weeks ago, we took a closer look at that, and we did pass an amendment by Aaron Schock, which, I think, will close the door to a lot of fraud in that regard. I appreciate the majority's support on that. I think the Senate further closed that loophole, and I think we've struck the right balance there.
As for the supporters of this bill, I don't question their sincerity, and I don't question their motivation. They and the American people want credit card reform. What we had said is there is tremendous reform in the Fed's proposals, in the Federal Reserve's proposals, and we felt like those ought to have a chance. We expressed why we were for those reforms which were going into effect next July and not for this bill.
One of our concerns--and I think that this bill will do this, and I hope I'm wrong--is that this legislation, I believe, will restrict credit for those who don't have the best credit reports. They're really the people who probably need credit the most. In fact, the subcommittee ranking member, Mr. Hensarling, referred to a New York Times article. Now, that article and an article that appeared in today's Washington Post really express some of the same concerns that the gentleman from Texas and I expressed 2 weeks ago, which is that we are going to have several things happen as a result of this bill.
One is we're going to have a restriction of credit. The Washington Post article does quote from the Financial Services Roundtable, but they say that they believe that credit could be reduced by as much as $2 billion. That's not very good timing if that's done, ladies and gentlemen of the House.
As I have said and as I said yesterday in the Rules Committee, I fear that many Americans will not be able to renew their credit cards or I fear that their credit card lines will be reduced. Sometimes maybe this is good, but I think, in a time of economic crisis, it's going to be somewhat ill-timed.
The New York Times and The Washington Post both mention that they believe, as a result of this legislation, you are not going to see any offers to transfer balances at zero percent. They also say the most creditworthy customers, those who pay every month and who haven't had to pay interest, will probably have to as a result of these changes. They probably will be charged interest. There are predictions in here that there will be the return of higher fees. I hope these predictions don't pan out.
[From the New York Times, May 19, 2009]
Credit Card Industry Aims To Profit From Sterling Payers
(By Andrew Martin)
Credit cards have long been a very good deal for people who
pay their bills on time and in full. Even as card companies
imposed punitive fees and penalties on those late with their
payments, the best customers racked up cash-back rewards,
frequent-flier miles and other perks in recent years.
Now Congress is moving to limit the penalties on riskier
borrowers, who have become a prime source of billions of
dollars in fee revenue for the industry. And to make up for
lost income, the card companies are going after those people
with sterling credit.
Banks are expected to look at reviving annual fees,
curtailing cash-back and other rewards programs and charging
interest immediately on a purchase instead of allowing a
grace period of weeks, according to bank officials and trade
groups.
``It will be a different business,'' said Edward L.
Yingling, the chief executive of the American Bankers
Association, which has been lobbying Congress for more
lenient legislation on behalf of the nation's biggest banks.
``Those that manage their credit well will in some degree
subsidize those that have credit problems.''
As they thin their ranks of risky cardholders to deal with
an economic downturn, major banks including American Express,
Citigroup, Bank of America and a long list of others have
already begun to raise interest rates, and some have set
their sights on consumers who pay their bills on time. The
legislation scheduled for a Senate vote on Tuesday does not
cap interest rates, so banks can continue to lift them,
albeit at a slower pace and with greater disclosure.
``There will be one-size-fits-all pricing, and as a result,
you'll see the industry will be more egalitarian in terms of
its revenue base,'' said David Robertson, publisher of the
Nilson Report, which tracks the credit card business.
People who routinely pay off their credit card balances
have been enjoying the equivalent of a free ride, he said,
because many have not had to pay an annual fee even as they
collect points for air travel and other perks.
``Despite all the terrible things that have been said,
you're making out like a bandit,'' he said. ``That's a third
of credit card customers, 50 million people who have gotten a
great deal.''
Robert Hammer, an industry consultant, said the legislation
might have the broad effect of encouraging card issuers to
become ever more reliant on fees from marginal customers as
well as creditworthy cardholders--``deadbeats'' in industry
parlance, because they generate scant fee revenue.
``They aren't charities. They have shareholders to report
to,'' he said, referring to banks and credit card companies.
``Whatever is left in the model to work from, they will start
to maneuver.''
Banks used to give credit cards only to the best consumers
and charge them a flat interest rate of about 20 percent and
an annual fee. But with the relaxing of usury laws in some
states, and the ready availability of credit scores in the
late 1980s, banks began offering cards with a variety of
different interest rates and fees, tying the pricing to the
credit risk of the cardholder.
That helped push interest rates down for many consumers,
but they soared for riskier cardholders, who became a
significant source of revenue for the industry. The recent
economic downturn challenged that formula, and banks started
dumping the riskiest customers and lowering their credit
limits in earnest as the recession accelerated. Now,
consumers who pay their bills off every month are issuing a
rising chorus of complaints about shortened grace periods,
new hidden fees and higher interest rates.
The industry says that the proposals will force banks to
issue fewer credit cards at greater cost to the current
cardholders.
Citigroup and Capital One referred comments to the A.B.A.
Discover and American Express declined to comment. Bank of
America intends to ``provide credit to the largest number of
creditworthy customers possible, while also remaining prudent
in our lending practices,'' said Betty Riess, a spokeswoman.
Together with JPMorgan Chase, which has said the changes will
force it to limit credit availability and raise fees, these
banks account for 80 percent of the credit card industry.
Banks are not required to publicly reveal how much money
they make from penalty interest rates and fees, though
government officials and industry consultants estimate they
constitute a growing portion of revenue.
For instance, Mr. Hammer said the amount of money generated
by penalty fees like late charges and exceeding credit limits
had increased by about $1 billion annually in recent years,
and should top $20 billion this year.
Regulations passed by the Federal Reserve in December to
curb unexpected interest charges would cost issuers about $12
billion a year in lost fees and income, according to industry
calculations. The legislation before Congress would build on
the Fed rules and would further squeeze banks' revenue when
they are being hit with a high rate of credit card charge-
offs. The government's stress tests showed that the nation's
19 biggest banks will take on $82 billion in credit card
losses in the next two years.
A 2005 report by the Government Accountability Office
estimated that 70 percent of card issuers' revenue came from
interest charges, and the portion from penalty rates appeared
to be growing. The remainder came from fees on cardholders as
well as retailers for processing transactions. Many retailers
are angry at the high fees and plan to pass them on to
shoppers once the Congressional legislation takes effect.
Consumer advocates say they have little sympathy for credit
card issuers, arguing that they have made billions in recent
years with unfair and sometimes deceptive practices.
``The business model will change because the business model
doesn't work for the public,'' said Gail Hillebrand, a senior
lawyer at Consumers Union.
``In order to do business under the new rules, they'll
actually have to tell you how much it's going to cost,'' she
said.
With many consumers mired in debt and angry at what they
consider gouging by credit card companies, the issue of
credit card reform has broad populist appeal. Members of
Congress and the Obama administration have seized on the
discontent to push reforms that the industry succeeded in
tamping down when the economy was flying high.
Austan Goolsbee, an economic adviser to President Obama,
said that while the credit card industry had the right to
make a reasonable profit as long as its contracts were in
plain language and rule-breakers were held accountable, its
current practices were akin to ``a series of carjackings.''
``The card industry is giving the argument that if you
didn't want to be carjacked, why weren't you locking your
doors or taking a different road?'' Mr. Goolsbee said.