Congressional Fail: Don't Let Congress Take Credit

In an editorial this morning, the New York Times rightly supports a congressional measure, passed by the House Financial Services Committee yesterday, that would hasten the implementation of credit card regulations created by the Credit Card Accountability, Responsibility, and Disclosure Act (formerly the Credit Cardholders' Bill of Rights). The editorial asserts that "Congress blundered badly" by granting credit card companies as many as 15 months to comply with the legislation's restrictions. The companies have used this grace period to gouge consumers with high interest rates and outrageous fees.

But Congress is no hapless baseball team: it quite purposefully gave the credit card industry a pass.

The credit card bill is indeed a good consumer protection bill. It creates an "opt-in" for over-the-limit fees so that consumers, not card companies, can decide if they want to be charged fees for purchases in excess of their credit limit. It bans double-cycle billing, a practice card companies use to charge interest on debts that have already been paid on time, and generally prohibits retroactive application of interest rate increases. It also includes a slew of other restrictions on credit card billing practices, pretty much all of which Pew's credit card watchdog project finds "cause substantial monetary injury to consumers."

At the same time, most of these restrictions were significantly watered down by credit card industry lobbying. Prohibition on "universal default", the practice whereby credit card companies use information unrelated to a consumer's credit card as the basis for increasing the interest rate, was (don't believe the NYT editorial) removed. Instead, credit card companies must simply reconsider this information at a later date to determine if a rate reduction (from the increased rate) is warranted. And unlike earlier versions of the legislation, the bill did not limit the number of over-the-limit charges or prohibit abusively high fees.

But the worst example of the influence of the credit card industry was its ability to push back the legislation's "effective date." Rep. Carolyn Maloney's originally introduced Credit Cardholders' Bill of Rights was set to go into effect three months after the bill's passage. By the time the bill passed the House, this effective date was 12 months after passage (or June, 2010, whichever came first) for most provisions. The final legislation compromised at the 9-month mark, with some provisions taking effect after 15 months.

Perhaps most egregious, though, is that the Federal Reserve had already issued regulations quite similar to those included in the congressional legislation. These were set to take effect in June of 2010. In other words, one of the primary motivations for passing the Credit Card Accountability, Responsibility, and Disclosure Act was to hasten the implementation of consumer protections. Though now it is obvious that Congress's real motivation was to "take credit" for something that the Federal Reserve was already going to do.

The delayed implementation, as the Times editorial notes, has allowed credit card companies to systematically raise interest rates by an average 20 percent, increasing one Bank of America cardholder's APR to 30%, and create all sorts of new fees, even, yes, fees for no-fee cards. Even as consumers suffer the housing crisis and an abysmal job market, they face the prospect of hundreds or even thousands more dollars of credit card debt because of Congress.

The consequences of Congress's willingness to be influenced by those with money and power are not often so obvious. But this time consumers have been irremediably harmed by the smallest of details in a complicated piece of legislation.

Follow Harry Moroz on Twitter: www.twitter.com/HarryMoroz

Comments

[Deltau]

Well said! And, these issues only relate to the excesses on the bill paying side of credit cards. On the purchase side isn't the travesty worse. Don't we all pay "vig" on EVERY purchase we make because merchants have to build the credit card fees they pay into the price of everything they sell?

Why don't we have a gopvernment run electronic currency system? Why is it that a paper money system is ok for our government?

[markus7]

Would everyone who has a credit card at a bank please look at the credit cards available to you from a credit union in your state? At least where I live, Washington state, anyone who lives in the state can join any one of several credit unions. My experience is the credit unions are run by comparative boy scouts and girl scouts compared to the rapacious shysters who appear to run the big commercial banks. My understanding is my credit union has been fully in compliance for at least the last 30 years (my experience with them) with even the more progressive aspects of the consumer protection bills that have been proposed. I pay about 9.6% interest on unpaid balances.

Please look at credit unions. With a credit union card you will be financially better off and stop rewarding bad behavior, as I believe we are morally obligated to do, by the commercial banking industry.

[dadw5boys]

21 days billing cycles for credit cards when everything else in life is figured on 30 days.

THERE IS NOT WAY TO WIN IF YOU HAVE A CREDIT CARD. GET RID OF THEM.

[Bethab]

We just paid off our last credit card last week and will never use one again.

Thank you Dave Ramsey!!!

[Carl Caroli]

Each of our illustrious congresspersons and senators hide behind the fact that if they all agree to let these companies take advantage of the people of this country, it's ok because they can't be singled out and held accountable. Safety in numbers, like a school of fish banding together when a shark approaches. We need to stop this. There should be an easy way to access the voting record of all our representatives on every major piece of legislation. Every legislator has a web site, yet not one that I know of provides a record of how they voted. This should be a no brainer and required of them all. If they can't hide, they wont do something they should be ashamed of.

[msjimmied]

They have to know what they are facing. I doubt that the funds they get from the lobbyists will help them when the rage explodes. We are right now in the eye of the storm, its not over, not by a long shot...

http://pragcap.com/black-swan

[The Meek]

The ruling classes are expert at diverting rage away from themselves. It's an ancient craft. They studied it in college.

[The Cronk]

This legislation prohibits the banks from issuing a credit card to anyone under 21. Great news right?? Yes, but thanks to the long delay described above, our Congress has handed the banks another year's worth of teenagers and college freshmen, kids too young to know how these loan sharks operate.

[BurtonOerney]

How can a law passed by congress be the same thing as regulations passed by the federal reserve? The federal reserve doesn't make law. So I guess it wouldn't be true that congress rushed to take credit for something the federal reserve was already doing. Also, if the federal reserve regulations were set to go into effect in June 2010, wouldn't a law set to go into effect before then sort of conflict with an existing timeline?

So there are a couple of factual errors in this article. Is that egregious or outrageous? Somebody needs to publish a thesaurus for outraged bloggers.