Senator Chris Dodd (D-CT), Chairman of the Senate Committee on Banking, Housing, and Urban Affairs, today introduced comprehensive legislation to improve credit card billing, marketing, and disclosure practices.  The Credit Card Accountability, Responsibility and Disclosure Act (the C.A.R.D. Act) is aimed at stopping credit card practices that drag consumers into staggering amounts of debt, and too often harm, rather than help, the ability of American families to move up the economic ladder. 

“Credit cards can be a valuable financial tool for millions of Americans.  When used wisely, and on fair terms, credit cards can help families better position themselves to pursue financial goals such as owning a home or financing higher education for their children.  Unfortunately, however, credit cards too often pose a potential to harm consumers rather than help them.  Confusing, misleading, and in some cases predatory practices have become standard operating procedure for some in the credit card industry.

This is particularly troubling in today’s economic environment, where consumers are increasingly unable to pay their credit card bills due to rising gas and food prices, skyrocketing health care costs, and a mortgage crisis that has robbed many families of another financial resource – their home equity or, worse yet, their homes.

“Americans do not deserve to be pushed down the economic ladder by credit card companies.  It’s wrong, it’s unfair, and it must end. The CARD Act will protect Americans by bringing an end to wrongful credit card practices and helping to provide consumers with a fair chance to secure economic security in their futures.”

Senator Dodd launched an examination of the credit card industry within days of becoming Chairman.  At a January 2007 hearing, Dodd put the industry “on notice,” cautioning card issuers to avoid practices that are deceptive, misleading and predatory. While some companies heeded Dodd’s call, too few changed their policies and behaviors. The CARD Act will strengthen the credit card industry’s regulation and oversight, and prohibit unfair and deceptive practices such as universal default and double-cycle billing.

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SUMMARY

“THE CREDIT CARD ACCOUNTABILITY RESPONSIBILITY AND DISCLOSURE ACT”

The CARD Act

Strengthens Credit Card Industry Regulation and Supervision

• Requires banking regulators to evaluate the policies and procedures of card issuers to ensure compliance with card requirements and prohibitions;

• Improves data collection related to rates, fees, and profits;

• Provides each federal financial regulator with the authority to prescribe regulations governing unfair or deceptive practices by banks and savings and loan institutions.

Prevents “any-time, any reason” Increases in Interest Rate and Terms

• Prevents credit card issuers from increasing interest rates on cardholders in good standing for reasons unrelated to the cardholder’s behavior with respect to that card (universal default ban);

• Prevents issuers from changing the terms of a credit card contract for the length of the card agreement (ban on unilateral changes to card agreements);

• Allows customers who close their accounts to pay under the terms existing at the time the account is closed;

• Requires interest rate increases to apply only to future credit card debt.

Requires Fairness in Application of Card Payments

• Requires payments to be applied first to the credit card balance with the highest rate of interest, and to minimize finance charges;

• Prohibits issuers from setting early morning deadlines for credit card payments. 

Protects the Rights of Financially Responsible Credit Card Users

• Prohibits interest charges on debt paid on time (double-cycle billing ban);

• Prohibits late fees if the card issuer delayed crediting the payment;

• Requires credit card statements to be mailed 21 days before the bill is due rather than the current 14;

• Requires that payment at local branches be credited same-day.

Prohibits Exorbitant and Unnecessary Rates and Fees

• Prohibits the charging of interest on credit card transaction fees, such as late fees and overlimit fee;

• Prohibits issuers from charging a fee to allow a credit card holder to pay a credit card debt, whether payment is by mail, telephone, electronic transfer, or otherwise;

• Prevents issuers from multiple over-limit fees for exceeding a card limit, and allows such fees only when a cardholder’s action, rather than a fee or finance charge, causes the limit to be exceeded;

• Requires issuers to offer consumers the option of operating under a fixed credit limit;

• Requires issuers to lower penalty rates that have been imposed on a cardholder after 6 months if the cardholder commits no further violations.

Provides Enhanced Disclosures of Card Terms and Conditions

• Requires cardholders to be given 45 days’ notice of any interest rate increase;

• Requires issuers to provide disclosures to consumers upon card renewal when the card terms have changed;

• Requires issuers to provide individual consumer account information and to disclose the period of time and total interest it will take to pay off the card balance if only minimum monthly payments are made;

• Requires full disclosure in billing statements of payment due dates and applicable late payment penalties. 

Ensures Adequate Safeguards for Young People

• Requires issuers soliciting to persons under the age of 21 to obtain an application that contains: the signature of a parent, guardian, or other individual who will take responsibility for the debt; proof that the applicant has an independent means of repaying any credit extended; or proof that the applicant has completed a certified financial literacy course;

• Limits prescreened offers of credit to young consumers by prohibiting consumer reporting agencies from furnishing reports in connection with firm offers of credit that are not initiated by consumers under age 21.  Allows consumers who are at least 18, but not yet 21, to choose to receive such solicitations.          

Studies:

Interchange Fees: Requires the GAO to study the impact of interchange fees on consumers and merchants, specifically their disclosure, pricing, fee and cost structure.

Credit Card Safety Rating Commission:  Authorizes the GAO to establish a Commission to determine if a rating system may enable card customers to better asses: the level of safety of credit card agreements; the impact of credit card transparency of various rating system policy options.

Favorable Reaction to the Credit Card Accountability, Responsibility and Disclosure Act (the C.A.R.D. Act)

Senator Carl Levin (D-MI):

“With all the economic hardship facing folks today, from falling home prices to rising gasoline and food costs, it is more important than ever for Congress to act now to stop credit card abuses and protect American families from unfair credit card practices.  The Dodd bill is the strongest credit card bill yet in this Congress, and I am very proud to be a cosponsor.  It adds important protections to the Levin-McCaskill bill, which was based on investigative hearings into unfair credit card practices conducted by the Permanent Subcommittee on Investigations.”

Senator Robert Menendez (D-NJ):

“Too many Americans have to worry every time they swipe their credit card if a trap door will open underneath them.  These days, when people are paying more for gas, more for food, more for many basic services and are putting those costs on their credit cards, these unfair credit card practices can have a devastating impact. More and more, the credit card situation is beginning to look like the beginning of the foreclosure crisis. I am proud to work with Chairman Dodd to make things fair between credit card companies and cardholders and to prevent a mounting problem from taking another hit on a struggling economy.”

Senator Ron Wyden (D-OR):

“American families already burdened with high oil prices, sky-rocketing food costs, and a sub-prime mortgage mess don't need credit card companies piling on more financial problems through policies that are unfair and anti-consumer.  Credit card debt is a crisis in this country. Senator Dodd's efforts will go a long way toward the ultimate and critical goal of making credit card companies more accountable and consumers more aware of what these companies slip into their agreements.”

Senator Claire McCaskill (D-MO):

"As Americans try to get out of credit card debt, the credit cards companies are tilting the playing field in their favor. It's time that we fight for Americans to be treated fairly when it comes to the enormous debt that many of them are facing.  For example, common industry practices take advantage of consumers by hiking interest rates for things like taking out a new credit card or spending close to your credit limit. If we’re not careful, credit card debt could very easily become the next sub-prime mortgage crisis."

Congressman Barney Frank (D-MA):

“Senator Dodd’s new credit card bill is further recognition that middle class Americans are fed up with abusive practices, and I look forward to reviewing the details of Senator Dodd’s proposal.  I appreciate the effort of Senator Dodd, along with the work of Senator Levin, Congresswoman Maloney and the Federal Reserve and the Office of Thrift Supervision, to give Americans a break on their credit cards.”

Congresswoman Carolyn B. Maloney (D-NY):

“Credit card industry abuses have become more pronounced in this troubled economy as more families turn to their credit cards to help pay bills, buy groceries, and make ends meet.  It’s clear that America’s credit cardholders need - and deserve - relief now.  By the time the Fed gets around to finalizing its regulatory proposals, countless more cardholders could be facing sky-high interest rates that will bury them in mountains of inescapable debt.  I applaud Chairman Dodd for crafting a great bill, and look forward to working with him to deliver swift and meaningful credit card reform to American consumers.”

Elizabeth Warren, Leo Gottlieb Professor of Law, Harvard Law School:

“Senator Dodd says it is time to change the rules of the credit card game.  For everyone who has been tricked or trapped by a credit card agreement that is impossible to understand, this is powerful news.  The CARD Act could save families more than a billion dollars each year by cutting out the most unfair of the penalty fees and sky-high interest rates.  Families need this help, and I am proud to stand behind Senator Dodd’s efforts to provide it.”

Jeannine Kenney, Senior Policy Analyst, Consumers Union:

"Even the most sophisticated, careful and responsible consumer can be trapped by credit card companies' unfair and abusive practices. Fundamentally, this bill stands for a very simple proposition that every American expects credit card companies to abide by--a deal is a deal. The Credit CARD Act prevents card companies from changing the rules in the middle of the game--by jacking up interest rates for card holders in perfectly good standing for any reason, or no reason at all, and applying that rate to their existing balances. 

“This tactic isn't just unfair, it can be financially devastating: minimum monthly payments can skyrocket, burdening families already struggling under a faltering economy; and the total cost of that debt and the time to pay it off can soar, driving them deeper into debt. It's time for these practices to end.

“We applaud Chairman Dodd for his leadership and courage in tackling these abuses head-on today, when the red flags are waving. Congress should move quickly to enact this important measure before a true crisis hits.”

Lauren K. Saunders, Managing Attorney, National Consumer Law Center:

“Credit card companies lure consumers in by offering low interest rates they have no intention of keeping.  The CARD Act ends bait and switch tactics by prohibiting retroactive interest rate hikes on purchases you’ve already made.”

Edmund Mierzwinski, Consumer Program Director, U.S. PIRG:

"For too long, the bank regulators’ “anything goes” deregulatory philosophy has given credit card companies a license to steal. Senator Dodd’s CARD Act will grant students and others critical new protections against these unfair practices in the credit card marketplace.”

Stephen Lerner, assistant to the President and director of the Private Equity Project, Service Employees International Union:

"Working families are the favorite targets of big banks and credit card issuers, paying more each year in unreasonable fees and credit card interest.  SEIU will fight alongside Congress and Senator Chris Dodd to put a stop to the worst abuses."

Travis B. Plunkett, Legislative Director, Consumer Federation of America:

“The Consumer Federation of America commends Chairman Dodd for offering comprehensive legislation to stop credit card companies from hitting consumers with unwarranted interest rate hikes and outrageous fees. As the economy worsens, these traps and tricks are pushing more families closer to the financial brink.”

Linda Sherry, Director of National Priorities, Consumer Action:

“This is a strong consumer protection bill of the magnitude and scope we would expect from Chairman Dodd's leadership.  It carries a number of landmark protections, including a much needed ban on unilateral changes to card agreements-a brutally unfair practice which no cardholder, no matter how responsible, can avoid.”

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