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Congressional Fail: Don't Let Congress Take Credit

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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.

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