Feds May Crack Down on Credit Cards -- Eventually
Federal officials have promised to take action against banks and credit-card companies that use over-the-top tactics to sap consumers' cash. But the banking industry -- and government officials themselves -- may stand in the way of quick reform.
Congress is considering legislation that would make changes to interest rates, fees, billing, payments and disclosures. Federal banking regulators have proposed a narrower set of rules to protect consumers from overdraft fees, sudden interest-rate hikes and a practice known as "double-cycle billing," in which a company charges interest on debt that has already been repaid.
Consumer advocates, who have been pushing for tighter credit-card rules for years, are hopeful that the economic climate will push reform. In an election year, with lending practices under a harsh spotlight, it's tough for legislators to support the banking industry over consumers.
"The mood is changing -- it would have been unthinkable a couple of years ago," said Lauren Saunders, managing attorney at the National Consumer Law Center. "But now people on both sides of the aisle are recognizing abuses in the credit-card industry."
Still, she noted, "the Banking Committee is a tough committee, and to get anything passed through Congress is tough."
Legislation unveiled late last month by Connecticut Sen. Chris Dodd essentially molds together ideas from several other proposals that have tried and failed before. His Credit Card Accountability, Responsibility and Disclosure Act (or CARD Act) is so far-reaching that it's unlikely to gain approvals from all of his Democratic contemporaries, much less his Republican counterparts.
Sen. Tim Johnson, a Democrat on the Banking Committee that Sen. Dodd chairs, said he supports consumer protection, but not at the cost of a free market.
Johnson did not comment specifically on the CARD legislation, but said he is "concerned some changes floated could limit consumers' access to credit. It is important to encourage competition in our markets, strengthen consumer protection and ensure Americans have appropriate access to credit."
The House is considering a similar but less extensive proposal called the Credit Cardholder's Bill of Rights, introduced by New York Rep. Carolyn Maloney.
Reforms also face heated opposition from the banking industry, which says the government should not be allowed to decide pricing structure and risk management.
The CARD Act "insert
s the federal government into credit markets in unprecedented ways," Edward Yingling, president and CEO of the American Bankers Association, said in a statement. He warned that if passed in its current state, the bill "would have serious, unintended consequences such as unfairly raising the cost of credit for consumers -- even those who have a record of managing their credit well."
It could take months of wrangling and compromise before a softer law comes to fruition. That may not happen during this legislative session, and it will take even longer for changes to be felt by struggling consumers. If both parties can pass some type of reform, it would still need to be signed by President Bush, who will not necessarily support such hands-on regulation of the banking industry.
"I would be surprised if Dodd's bill gets through without significant change," said Roderick Hills, professor of public law at New York University. Republicans are less likely to filibuster the proposal in an election year with banking and credit-card practices under a harsh spotlight, he said. However, they'll still "work hard to water down the bill to nip out" some of the items that might be more controversial.
Three federal banking agencies have approved a far narrower set of reforms, and expect them to be put in place by the end of the year.
Jeannine Kenney, senior policy analyst at the Consumers Union, said she expects it to take "at least that long for Congress to act" and that effects will be felt "no earlier than next year."
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