AP News, June 7th, 2007
Lawmakers said Thursday that stronger action than rules proposed by the Federal Reserve may be needed to curb abusive practices by credit card companies.
Throughout a lengthy hearing by a House Financial Services subcommittee, credit card companies' practices were denounced as deceptive and predatory. Executives of banks that are major issuers of credit cards were put on the defensive in questioning by lawmakers from both parties.
With Americans carrying hundreds of billions of dollars in credit card debt and the average household card balance at $13,000, panel chairwoman Rep. Carolyn Maloney, D-N.Y., said she fears "that we will see a perfect storm in consumer credit as these pressures converge on Americans, and that the ripple effect will be felt throughout our whole economy."
The Fed's proposed changes, issued last month, include requiring credit card companies to give customers 45 days' notice before making any changes to the terms of an account, including slapping on a higher penalty rate for missing payments or paying bills late.
The central bank's proposal is a helpful step forward, but regulators should act to ban abusive practices outright, several lawmakers insisted.
The chairman of the Federal Deposit Insurance Corp., Sheila Bair, said she was not convinced that full disclosure will completely resolve problems with credit card practices.
Frederic Mishkin, a Federal Reserve governor, said the Fed would consider whether other steps might have to be taken. However, he said, the central bank wants to avoid action that could have "unintended consequences" on the consumer credit market.
Bair and the other federal regulators testifying at the hearing _ Comptroller of the Currency John Dugan, Office of Thrift Supervision Director John Reich and JoAnn Johnson, head of the National Credit Union Administration _ endorsed the idea of legislation giving them authority to restrict practices they deem to be unfair and deceptive.
Legislation proposed by Democratic lawmakers would outlaw some credit card billing and interest-rate practices. It would, for example, prohibit interest from being charged on any portion of a credit card debt that the consumer paid on time during a grace period and would ban the practice known as "universal default" _ in which card issuers raise interest rates for customers because they're late on payments to other creditors separate from the account in question.
However, many lawmakers, including Democrats in power positions in the House and Senate, have expressed reluctance to impose mandates on how banks do business and would prefer that regulators act to address the problems.
Amid the congressional scrutiny in recent weeks, several major banks began to eliminate or temper some of their credit card practices.
Consumer borrowing posted the smallest increase in six months in April as Americans actually paid off some of their credit card debt, the Fed reported Thursday. Consumer borrowing rose at an annual rate of just 1.3 percent in April, down from a 7 percent rise in March _ the weakest showing since consumer debt edged up 0.1 percent last October.
The slowdown was led by a 0.5 percent rate of decline in the category of debt that includes credit cards. That meant consumers were paying off more credit card debt than they incurred, something that has not occurred in 13 months.
