Op-Ed: Credit Card Reform Moving Through Congress

Reform is in the air, much to the chagrin of credit card companies. In addition to the recent rule changes enacted by the Federal Reserve, President Obama has made plain his desire to soon have a credit card bill he can sign into law on his desk.

President Obama, according to a May 14, 2009, LA Times article, “called on Congress to send him a bill by Memorial Day that would curb what he described as abusive credit card practices.” The House was able to come to an agreement, passing their version of a credit card reform bill on April 30, 2009. However, as reported by Reuters on May 14, 2009, the Senate is not moving quite so quickly. The factors that contributed to a slowing of progress of the Senate version of the bill offers significant insight into what many believe is a problematic aspect of the legislative process in the United States. Credit card lenders, as should be expected, are rallying against reform efforts and, according to some, rushing to take financial advantage of the time left before new, consumer-friendly regulations restrict their profit potentials. The House Bill Passed With A Bipartisan Majority As reported by the Queens Gazette on May 6, 2009, “the House of Representatives resoundingly passed her Credit Cardholders' Bill of Rights reform measure,” doing so on April 30, 2009, “by a 357- to-70 vote with a strong bipartisan majority.” The original bill addressed such standard consumer complaints as hidden fees and unfair interest rate hikes. However, according to a story published in the Washington Independent on April 30, 2009, “several consumer-friendly amendments were added during floor debate,” such as “provisions installing a six-month minimum window on teaser rates,” as well as consumer protection rules like “requiring card holders to opt-in to overdraft programs before companies could charge fees for going over established credit limits.” The House version of the bill, like the changes in credit card regulations enacted by the Federal Reserve in December of 2008, would not go into effect right away if it became law. If the House's bill is the version that makes it to the president's desk, and does so during the summer, then it will go into effect about the same time as the Federal Reserve changes, in July of 2010, as explained by a May 4, 2009, ABC News report. One exception, according to an article published by the Arizona Daily Star, is the House version's “requirement of notice before interest rates are increased, which goes into effect in 90 days,” if that version becomes law. Senate Bill Held Up By... Guns? The Senate's version of credit reform doesn't seem to be moving through quite as quickly. While similar to the House bill, there are some differences, and of course, there is some wrangling on credit card reform details, something that is to be expected. One such detail, for example, according to a May 14, 2009, Reuters report, has to do with an amendment “that would allow retailers and restaurants to give customers a discount if they paid by cash, check or debit card.” Provisions of the Senate bill include such things as making a 45 day notice mandatory for credit card companies to raise interest rates, disallowing the practice of double cycle billing and that of increasing interest rates on retroactive rate increases, except under specific and clearly stated circumstances, and limiting sub-prime credit card fees. However, wheeling and dealing over the specifics of credit card reform isn't the only thing slowing the Senate bill. Some use the term riders and others use the term piggybacking to describe a practice that many find to be detrimental to the American system of legislation – the tagging on of completely unrelated amendments, proposals, and pieces of legislation to bills. For example, as reported by Brian Johnson on May 16, 2009, “the senate is attempting to piggyback an amendment that allows people to carry firearms into national parks – sponsored by Tom Coburn (R-OK).” According to a CNNMoney.com report dated May 14, 2009, with a 67-29 vote, the Senate was able to make this totally unrelated bit of legislation a part of their credit reform bill. This is totally inappropriate and should be illegal. It undermines focus on the primary bill, and runs the risk of forcing lawmakers who would vote for the main bill to vote against it because of their view on the completely unrelated legislation attached to it. Furthermore, we've reached a point where lawmakers rarely even bother to read the bills they pass, often containing hundreds of pages. Often a variety of add-ons, tucked neatly away in a thousand page bill, slip through unnoticed by the majority. Allowing the insertion of irrelevancies to bills that, in all probability, are not read in full by those voting upon them is yet another blow to the fundamental principals of our system of government. Credit Card Companies Rally Against Bill, Make Hay While Sun Shines Predictably, the Associated Press recently reported that “bankers are pushing back against a bill that would prohibit arbitrary credit card rate hikes and make it harder for people under 21 to get a card,” saying that the reforms would make credit less available to the consumer “at a time when Americans need it most.” Credit card companies say that the new restrictions will force them to cut credit limits and increase interest rates. In fact, rates have been drifting upwards, even for those with good credit histories, and credit limits have also been being decreased for these people, as well as for those with lesser credit histories. Consumer advocate groups and some financial industry experts claim that credit card companies are taking advantage of the grace period before the new Federal Reserve regulations take effect to make the most of the rate increases and such that will no longer be allowed under the new restrictions they will face. The Obama administration has said that it would like to be able to sign a credit reform bill into law by Memorial Day. However, credit card reform isn't going to save the American consumer. What needs to occur is a fundamental change in the American view of personal finance, credit, and debt. The high interest debt choking so many consumers is often consumptive debt – non-essential consumer purchases funded by credit and debt, rather than saving up for wants. With or without credit card reform, consumers that spend more than they can afford on things they don't need, that take on debt that is consumptive, rather than productive, and enter into financial agreements they don't understand or don't take the time to run the numbers on, are still going to find themselves in financial trouble, scrambling to find ways to reduce debt.