President Obama Signs Credit Card Reform Legislation Into Law
On May 22, President Obama signed into law the Credit Card Accountability Responsibility and Disclosure Act of 2009, legislation that reforms credit card practices and which passed the House of Representatives by a margin of 361-64 one day after the Senate passed the legislation by a vote of 90-5. The new law codifies much of what was included in Federal Reserve’s Regulation Z, which incorporated a number of recommendations made by RILA and our member companies to the Federal Reserve. The legislation will become effective nine months after enactment.
Key Provisions of Legislation
Some key provisions of the legislation include: a prohibition on arbitrary interest rate increases and universal default on existing balances; a requirement that promotional (or “teaser”) rates to last at least six months; a requirement that payments made in excess of the minimum to be applied first to the credit card balance with the highest rate of interest; a prohibition on interest charges on debt paid on time (also known as “double-cycle billing” ban); a requirement that cardholders be given 45 days notice of interest rate, fee and finance charge increases; a requirement that issuers disclose the period of time and total interest it will take to pay off the card balance if only minimum monthly payments are made; and increases existing penalties for companies that violate the Truth in Lending Act for credit card customers.
Gift Cards
Title IV of the bill places new restrictions on expiration dates and fees associated with gift certificates, store gift cards, and general-use prepaid cards. This provision was originally sponsored by Sen. Charles Schumer (D-NY) during the Banking Committee’s consideration of the bill. Schumer’s stated purpose for introducing the provision was to encourage all fees and costs associated with gift cards be front loaded and paid for by the purchaser of the gift card. However, his provision was modified by the manager’s package agreed to by bill negotiators Senate Banking Committee Chairman Chris Dodd (D-CT) and Ranking Republican Richard Shelby (R-AL), while no similar provision was included in the package that previously passed the House. The gift card provisions become effective 15 months after the bill’s enactment.
Specifically, the provision states that it is prohibited to charge a “dormancy fee, an inactivity charge or fee, or a service fee with respect to a gift certificate, store gift card, or general-use prepaid card” UNLESS the card has been dormant for at least one year and no more than one fee is charged per month. Such fees may only be charged if certain disclosure requirements, as prescribed in the legislation, are met. In addition, the bill prohibits the issuance of gift certificates, store gift cards, or general-use prepaid cards that have expiration dates unless they are at least five years after the gift certificate was issued, or the date on which card funds were last loaded to a store gift card or general-use prepaid cards.
Deferred Interest Programs Untouched
During Senate consideration of the underlying credit card, bill negotiators Dodd and Shelby engaged in a colloquy on the Senate floor clarifying that deferred interest programs, which are offered by many retailers to entice consumer purchases for large ticket items, were not intended to be swept into other provisions of the bill which require that introductory, or “teaser,” credit card rates be offered for no less than six months. During the colloquy Dodd clarified that it was “not the intent of this provision to eliminate deferred interest programs that help consumers. In fact, the payment allocation provisions in the legislation envision the continued availability of such programs.”
Interchange Rate Study
During Senate consideration of the bill, Senate Majority Whip Richard Durbin (D-IL) and Sen. Kit Bond (R-MO) offered an amendment (S. AMDT. 1100) to the underlying bill related to interchange fees that was ultimately not voted on and was not included in a manager’s package put together by bill negotiators Dodd and Shelby. As originally drafted, the amendment would have allowed retailers to offer discounts for cash, check and debit transactions by prohibiting banks and credit card networks from imposing restrictions and fines on retailers. The amendment also allowed retailers to steer customers or offer discounts for using low-fee cards versus high-fee cards. Finally, the amendment would have directed the Federal Reserve to collect information on interchange rates every two years and publish and make available that information to the public.
After some back and forth between the amendment sponsors and bill negotiators, the amendment was paired back somewhat by removing the Federal Reserve study as well as the ability to offer discounts for certain credit cards. Amendment sponsors Durbin and Bond both made impassioned floor speeches on behalf of the amendment, however, Dodd and Shelby ultimately rejected the amendment, saying that they were trying to keep the bill clean and didn’t want to jeopardize passage of the underlying bill by weighing it down with controversial amendments. However, Dodd made positive statements on the Senate floor during debate and said that he thought the Banking Committee should address interchange fees on a separate bill at a later date.
In a positive development, consumer groups for the first time went on record supporting legislative action on interchange fees. The Consumer Federation of America, the Consumers Union, the National Consumer Law Center and U.S. Public Interest Research Group wrote a letter to the entire Senate asking senators to support the Durbin-Bond amendment. The letter discusses in detail how high interchange rates are passed along to consumers, and advocates for allowing retailers to provide discounts for debit or cash payments. However, the letter also stipulates that “in order to ensure that consumers actually benefit from this proposal, it is important that Congress and the GAO closely monitor whether and how much of the savings that merchants receive from the debit card usage are passed through to the consumers in the form of discounts and lower prices.”
Notwithstanding the fact that the Durbin-Bond amendment was not agreed to, the underlying bill contains a provision (Sec. 501) directing the Government Accountability Office to “conduct a study on use of credit by consumers, interchange fees, and their effects on consumers and merchants” and report back to Congress within 180 days of the bill’s enactment on its findings. This provision was originally put into the version of the bill that passed the Senate Banking Committee last month and was strengthened during floor consideration at the urging of Sen. Bob Corker (R-TN). That report will now be due back to Congress sometime around December of this year.
Other Interchange Activity
During House consideration of the underlying credit card bill, Reps. Peter Welch (D-VT) and Bill Shuster (R-PA) had tried to offer more comprehensive interchange legislation as an amendment during floor consideration of the bill but it was ruled nongermane to the debate and consequently never came up for consideration. On May 13 Welch and Shuster reintroduced the legislation as a free standing bill (H.R. 2382, the Credit Card Interchange Fees Act of 2009), which has been referred to the House Financial Services Committee for consideration. Other cosponsors of the bill include Reps. John Barrow (D- GA), Christopher Carney (D-PA), Keith Ellison (D-MN), Steve Kagen (D- WI), Zoe Lofgren (D-CA) and Todd Russell Platts (R-PA).
We have also been told that Sen. Durbin and House Judiciary Committee Chairman John Conyers (D-MI) are working on reintroducing comprehensive bills (S. 3086 and H.R. 5546, the Credit Card Fair Fee Act) that they introduced in the 110th Congress. The Conyers legislation passed out of the Judiciary Committee on July 16, 2008, by a bipartisan vote of 19-16 but never came to the floor for consideration and both bills died with the end of the 110th Congress.
For more information, please contact Andrew Szente, director of government affairs, at andrew.szente@rila.org.
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