Credit Card Practice Revisions (Legislation & Regulation)
Background
For the past couple years, the credit card industry has been under attack from Congress and consumer advocacy groups. In 2007, congressional leaders encouraged regulators to adopt changes by introducing legislation that would strip the legislators of their credit card industry oversight duties. Regulators responded by methodically looking into appropriate changes and the legislation never got off the ground. In the spring of 2008, numerous banks voluntarily proposed changing some of their policies that were attracting the most criticism - including double-cycle billing, and halting certain marketing practices that targeted younger adults.
Congressional Pressure
Also in the spring of 2008, Rep. Maloney (D-NY) introduced a sweeping credit card reform bill that House Financial Services Committee Chairman Barney Frank took to regulators to illustrate what his preferences and expectations were.
Regulatory Action
In May of 2008, the Federal Reserve released a notice of proposed rulemaking that suggested changes to Reg. AA and Reg. Z. It included much of what was suggested in Rep. Maloney’s bill (summary in a link below). Issues addressed in the proposed rule included:
- Banning double cycle billing and universal default practices,
- Defining appropriate allocation of payments and the monthly payment grace period,
- Creating additional disclosures regarding interest rate changes, opening an account, and information required within the monthly statement.
A slightly revised final rule was adopted by the Federal Reserve Board on Dec. 18th 2008, is scheduled to go into effect July 1st 2010, barring any additional legislative action.
Congressional Action
Supplementing the regulatory actions, Congress passed the CARD Act in May of 2009, which put into law many of the guidelines created in the Federal Reserve Final Rule and added some new mandates including a ban on retroactive interest rate hikes on existing balances. It also required credit card companies to provide 45 days advance notice of any impending rate hike, and required various additional disclosures. The legislation kept the same 2010 compliance deadlines for the majority of issues, except the rate hike notice, which went into effect August 20th 2009.
Accelerating the Effective Date
Claiming credit card companies were raising rates prior to the new rules effective date, Chairman Frank introduced additional legislation that would move up the effect date to December 1st 2009 from February 22nd and August 22nd, 2010. Colorado’s Sen. Udall introduced similar legislation in the Senate. The House version passed by a wide margin on November 4th, 2009. Included in that House bill were amendments that exempted issuers with fewer than 2 million cards in circulation and exempted pre-paid gift cards.
Interest Rate Freeze
In addition to the Chairman Frank’s bill, Senate Banking Committee Chairman Christopher Dodd (D-CT), with seven co-sponsors, introduced a bill that upon enactment would freeze the interest rate on outstanding credit card balances. This has not garnered any attention in the House.
Complications
CBA has stated that moving the compliance date up to December 1, 2009 could, in some cases, prove practically impossible for some issuers since they’re being asked to design complex systems without knowing the rules of the road.
Additionally, Regulators might not have corresponding rules finalized by the December 1st deadline since the Federal Reserve has just issued an 800-page proposal, with comments due on some - but not all - Credit Card Act provisions in late November. There isn't sufficient time for the Fed to review comments, incorporate appropriate changes, and issue a final rule before H.R. 3639's Dec. 1 effective date.