Rep. Carolyn Maloney (D-N.Y.), chair of the House Financial Institutions subcommittee, last month released a list of credit card-reform principles that will serve as "pillars" of proposed legislation this fall.
Maloney released the list after hosting a private roundtable meeting on July 30 with consumer groups and six leading card issuers, including JPMorgan Chase & Co., Bank of America Corp., Capital One Financial Corp., Citigroup Inc., American Express Co. and Discover Financial Services LLC.
The principles would ban universal default, in which an issuer raises the interest rate applied to a credit card if a cardholder misses a payment to another creditor, and double-cycle billing, in which interest is calculated by the average daily balance over a two-month period instead of over one month.
If the principles become law, consumers would be able to set their own due dates; make online, telephone or automated payments without charge; and cap or lower their own credit limits. Issuers would be required to offer cards with fixed rates over fixed periods of time and to employ a different set of underwriting standards for groups with "special needs or limited incomes," such as students or the elderly. Issuers also would have to provide clear notice and the opportunity for cardholders to opt out of card contracts when rates increase for any reason.
"These principles recognize that the modern risk-based pricing credit card system requires shared responsibility between credit card issuers and their customers," Maloney said in a statement.
Ken Clayton, chief legislative counsel of the American Bankers Association, says the association and many of its issuer members appreciate Maloney's "willingness to promote dialog on the topic" of credit card reform between issuers and consumer groups. "Participants felt the dialogue was fair, balanced and thoughtful," he says.
Many of the reforms Maloney calls for, such as clearer disclosure of credit card terms, are changes many issuers have been making on their own in recent years. Other changes could be problematic for some issuers, particularly community banks without deep pockets to pay for 24-hour or bilingual customer service, or for technology to send balance alerts or to allow cardholders to set different due dates, Clayton says.
Ed Mierzwinski, consumer program director at the U.S. Public Interest Research Group, praises Maloney for her efforts. "For the first time in my 17 years in D.C., the Congress, led by Maloney and others..., is serious about bringing the credit card industry to heel," he says.
House Financial Committee Chairman Rep. Barney Frank (D-Mass.) plans to set additional hearings and possible legislation on credit card reforms this fall, according to a spokesperson.
Clayton says the ABA always worries about the "unintended consequences of legislative actions." But, he adds, "We hope policy makers look closely at these issues and approach them with balance.
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