Credit Card Legislation

Updated July, 2010

Several bills addressing credit card reform were introduced in both the House and Senate in the 111^th Congress, and committees in both houses held hearings on the issue. While many proposals were floated, only one piece of legislation for comprehensive reform gained traction – H.R. 627, introduced by Representative Carolyn Maloney as the Credit Cardholders Bill of Rights Act of 2009.

Senator Dodd introduced similar legislation in the Senate, entitled S. 414, the Credit Card Accountability, Responsibility and Disclosure Act of 2009. When H.R. 627 moved to the Senate for consideration, portions of S. 414 (including its title) were added into the bill as part of a substitute amendment introduced by Senators Dodd and Shelby.

Much of H.R. 627 legislates the new Unfair or Deceptive Acts and Practices (UDAP) rules adopted by the NCUA and the Federal Reserve on December 18, 2008, which are set to take effect on July 1, 2010. The rules bar five practices in connection with consumer credit card accounts:

• Providing insufficient time for a consumer to make payments (21 days are considered within compliance);
• Unfairly allocating payments among balances with different interest rates;
• Unfairly applying increased annual percentage rates to outstanding balances;
• Using double-cycle billing to compute balances; and
• Requiring excessive security deposits and account-opening fees for the issuance or availability of credit.

H.R. 627 goes further than the federal UDAP rules in several respects. As enacted, the bill implements the UDAP regulations listed, and prohibits:

• Issuing a credit card to a consumer under the age of 21, unless he has a co-signer or can demonstrate a reasonable ability to repay his debts;
• Imposing a fee based on the manner in which payment is made;
• Considering a payment late if it is made before 5 p.m. on the due date;
• Charging fees that are not “reasonable and proportional” to the act or omission of the consumer (as determined by the Federal Reserve); and
• Providing gift cards that expire less than 5 years from the date of their issuance.

In addition, most of the provisions of H.R. 627 become effective in February of 2010, approximately five months earlier than the UDAP regulations.

Several attempts were made to include provisions regarding interchange fees in the legislation. NAFCU fought proposed amendments that would allow merchants to offer discounts for consumers using debit cards or would impose an additional regulatory burden by requiring credit unions to report any fee they charge on all payment cards they offer. The final version of the legislation did not include any changes to the interchange fee system, but instead ordered a government study of the interchange issue. NAFCU will continue to monitor this issue closely.

After passing both houses of Congress, H.R. 627, the Credit Card Accountability, Responsibility and Disclosure Act of 2009 (Credit CARD Act), was signed by President Obama and became public law on May 22, 2009.

Another bill of note to credit unions is H.R. 4300, the Restoring America’s Commitment to Consumers Act of 2009,” introduced by Congressman John Tierney (D-MA) and Rules Committee Chairwoman Louise Slaughter (D-NY). The bill would establish a usury ceiling of 16% on any credit card account and would lump membership fees and annual fees into the calculation of the annual percentage rate.

NAFCU is concerned about H.R. 4300 for several reasons. Credit unions already have a federal usury ceiling under the purview of the Federal Credit Union Act, which limits the cost of credit to consumers and thereby accomplishes the ultimate goal of the legislation. Any additional interest rate limitation would interfere with the existing system and would force credit unions to go back and change their business models to account for this new obligation, thereby imposing a considerable and unnecessary regulatory burden. Furthermore, under the existing usury ceiling, the NCUA has an established track record of determining which fees fall under the cap. Regulation of interest rates by an agency other than the NCUA could impose significant compliance burdens when applied to credit unions.

NAFCU has instead advocated that any interest rate cap legislation, including H.R. 4300, recognize the credit union usury ceiling and keep it intact. Although the issue has not yet come up for a vote in the 111^th Congress, it could come to the forefront sometime within the next few months. NAFCU will continue to oppose H.R. 4300 in its current form, as well as any other legislation that could limit credit unions’ ability to design products to serve their members.