Mr. Chairman, I appreciate the time, and I certainly want to respond to my colleagues. It's always possible to raise those kinds of concerns over fraud, and this is not intended to do that on the face of it, but we're willing to work with…
Mr. Chairman, I appreciate the time, and I certainly want to respond to my colleagues.
It's always possible to raise those kinds of concerns over fraud, and this is not intended to do that on the face of it, but we're willing to work with you, because the reality is that, if fraud is being committed, then these kinds of agreements wouldn't hold anyway, and the banks would certainly have a way of dealing with this.
The real concern here is letting consumers know what's going on with their accounts. If they have been in an experience--and we know there are many consumers who have been--where card accounts that are not being used very often are closed and where they don't know about it, then their credit scores are affected. That's one of those surprises that comes along that people aren't expecting.
This is an attempt to be transparent about it and to give people, really, the opportunity to be able to respond and to work out whatever problem exists and to move on. So we appreciate the opportunity to put this in what I think is some very important legislation.
Mr. Chairman, today Mr. Gutierrez, as my designee, offered a common sense amendment to H.R. 627--The Credit Card Bill of Rights Act.
This amendment warns consumers of possible reductions to their credit scores.
Currently, credit card companies are not required to notify a consumer when they decide to close an account.
Often, consumers do not know that their accounts are being closed until after the fact.
Because of the way credit scores are calculated, account closures can lower a consumer's credit score, sometimes significantly.
A reduction in a consumer's credit score can hamper his or her ability to buy a car or home, start a business, or pay for college.
Especially in today's tight credit market, a solid credit score is more important than ever.
A large number of consumers have no idea that the mere closure of a credit card can adversely impact their credit scores.
Imagine saving for a home only to discover your credit score is too low for a mortgage because of an account closure.
Consumers do not get a chance to prepare and plan their finances accordingly. This is an issue that affects all consumers and not just the elderly retiree in San Diego who first brought this to my attention.
It affects teachers, firefighters, doctors, and our men and women in uniform.
I ask unanimous consent to enter into the Record a recent article in the Wall Street Journal detailing this problem for consumers across the country.
The amendment Mr. Gutierrez offered on my behalf would require credit card companies to give consumers a 30-days advance notice that their accounts are being closed.
Within this notice, the card issuer must also include:
The reason why the account is being closed;
Options the consumer has to keep the account open;
Programs available for the consumer to repay their account balance over time;
And the fact that an account closure may impact the cardholder's credit score.
This amendment is really about informing consumers so they are not caught by surprise.
We believe that consumers have a right to know when their credit scores may be lowered so they can plan their finances accordingly.
This amendment has been endorsed by a broad coalition of consumer groups including the Center for Responsible Lending, Consumer Federation of America, and U.S. PIRG.
I thank Congressman Carney for all the hard work he has put into this amendment. It has been a pleasure working-With you and your office in this effort.
I urge the adoption of this amendment.
[From the Wall Street Journal, Mar. 11, 2009]
Credit Card Issuers: Buy Something or Else!
(By Kelli B. Grant)
One of the biggest causes of the financial crisis was that
Americans were borrowing (and spending) more money than they
could afford to pay back.
So how are credit-card issuers reacting to consumers'
attempts to live a more financially responsible lifestyle?
They're threatening to cut their credit cards off if they
don't spend enough.
Loretta Maxwell of Troy, Mich., thought her credit score of
790 buffered her against most of the fallout of the credit
crunch. When Chase closed her $6,000-limit card in December
without warning after two years of inactivity, she called to
fight it. She was unsuccessful. ``If you're not using it,
they entice you to do so, and then the moment you don't spend
enough, they cut your limit,'' she says. (Chase says it is
standard practice is to review inactive accounts. ``Inactive
cards with large open credit lines present a real risk of
fraudulent use and large potential liabilities for Chase,''
says spokeswoman Stephanie Jacobson.)
Maxwell's experience is far from an isolated incident. Most
major issuers, including Chase, Bank of America, American
Express and Citibank have been slashing credit lines and
closing the accounts of those who don't spend on their card
regularly. While these issuers are required to notify you in
writing of an account closing, there's no requirement that
they do so in advance. Even when they do give early notice,
the only way a cardholder can stop their account from getting
shut down is to start spending again.
In December, Discover reported that it closed three million
accounts during 2008 due to inactivity, and plans to cull up
to two million more. A Discover spokeswoman says the issuer
is constantly reevaluating cardholder's credit and assessing
whether they have the most appropriate credit line and
product. Capital One is suspending accounts that have been
inactive for at least a year, warning account holders they
only have 60 days to redeem their rewards. ``Some of these
accounts had literally never been used,'' says spokeswoman
Pamela Girardo. A spokeswoman for Bank of America, meanwhile,
says the bad economy prompted it to close accounts with zero
balances that have been inactive for more than a year.
American Express spokeswoman Lisa Gonzalez says it
periodically reviews inactive accounts for cancellation.
Citibank did not respond to requests for comment.
From a business perspective, cutting off certain customers
is a smart financial move, says Sanjay Sakhrani, an analyst
with investment bank Keefe, Bruyette & Woods. Closing rarely-
used accounts lowers a card issuer's risk profile by keeping
their potential liabilities (i.e., the amount of credit
available they extend to cardholders) from outweighing
their assets. Inactive accounts also cost the issuer money
to maintain, without providing the benefit of income from
interest or merchant fees, he says.
For consumers, however, closing accounts can be
devastating--especially to their credit score. Your credit
utilization ratio the amount of your debt in relation to the
amount of your available credit--comprises 30% of your score,
says Craig Watts, a spokesman for Fair Isaac Corporation, the
company that calculates and issues the FICO credit score that
most lenders use. So when an account is closed, you have less
credit available to you--and the ratio immediately jumps
higher. A person with a solid credit score of 720 or so,
whose utilization ratio jumps from 35% to 75% after one of
their accounts is closed is likely see their score drop by
``several dozen points,'' to somewhere in the 600s, he says.
That's a far cry from the 760 (or higher) consumers need to
get the best rates from lenders.
One thing that somewhat softens the blow is that FICO
factors in closed accounts when calculating the longevity of
your credit history, which accounts for 15% of your score.
While lenders may make a note on your report indicating
whether the account was closed by them or you, the
information isn't used in the scoring formula, says Watts.
Ironically, an excellent credit score can actually serve as
more of a bulls-eye than a shield, says Dennis Moroney, a
research director and senior analyst for consulting firm
Tower Group. He says banks figure they can limit cardholder
backlash by targeting consumers with few debts and plenty of
other accounts. That way, a closed account won't have as much
of a detrimental effect on their creditworthiness.
Even years of loyalty and regular spending won't spare some
cardholders. David Good of Houston, used to be devoted to
American Express, with which he had two credit cards: an
unlimited charge account and a $7,500 revolving account. Yet
a solid credit score, eight years of on-time payments and
fairly frequent purchases on the cards--including more than
$100,000 last year alone--weren't enough to save his
accounts. In December, Good received a written notice that
the issuer had closed both due to ``low activity in the past
six months.'' ``I was shocked,'' he says. ``They lost my
trust, totally.'' (American Express declined to comment on
Good's or any other individual's accounts.)
New Yorker Veronica Eady Famira was vacationing in Germany
when she discovered that her $1,500-limit Delta SkyMiles card
from American Express had been shut down. ``I must have spent
$300 in cellphone charges
calling banks,'' she says. ``I was pretty stranded.'' Adding
insult to injury, Famira had just earned a free companion
ticket on the card valued at up to $400 for a domestic
flight--now she can't redeem the ticket.