Congress pounces on credit cards

The New York TimesMay 13, 2009 

  • In nearly two days of Senate debate so far this week, not one senator stepped forward to defend the card companies or blame consumers who had run up substantial credit card debt for causing some of their own problems. Sen. Tom Coburn, R-Okla., did slow the bill on Tuesday, but to make a point on an unrelated issue, the ability to carry guns in national parks, not on credit cards.

    The popularity of tighter restrictions on credit card issuers has certainly not been lost on the White House, where internal polls show near universal support for new rules.

    Obama called for a crackdown on credit card companies in his radio address last weekend and is expected to emphasize the need for industry changes on a visit to New Mexico on Thursday. Democrats have gone on the attack against lawmakers who have opposed the changes or even been unwilling to state their position on an issue that cuts across demographic lines.

    "The numbers are just off the charts," Sen. Richard J. Durbin of Illinois, the No.2 Senate Democrat, said on Tuesday.

— Congress has reached its limit with the credit card industry.

Swamped by consumer complaints about excess fees, sudden interest rate increases, indecipherable fine print, debt-ridden college students and a deluge of solicitations for even more credit, lawmakers are racing to put new restrictions on card companies, seizing on an issue with overwhelming popular and political appeal.

Banks and credit card companies have been able to fend off similar efforts in the past, particularly with help from powerful lawmakers from Delaware and South Dakota, where large credit card operations providing thousands of jobs are based. While he was a senator from Delaware, Vice President Joe Biden was an important industry ally.

Biden is now in the White House, which has decided to embrace the effort to rein in credit card companies. President Barack Obama will press for passage of legislation later this week on a swing through the West.

Changing the tune

Lawmakers say the industry's time has come, particularly since consumers are being hit with new fees and higher interest rates during an economic slowdown when they most need the flexibility provided by the cards, what Sen. Carl Levin, D-Mich., described as a "double whammy."

"We like credit cards; they are valuable vehicles for many people," said Sen. Christopher J. Dodd, D-Conn., the chairman of the Senate banking committee and author of the measure now being considered by the Senate. "It's when these vehicles are being abused by the card issuers at the expense of the consumers that we must step in and change the rules."

The growing momentum behind the credit card crackdown was in marked contrast to the Senate decision last week to bow to the banking industry and reject a plan to allow bankruptcy judges to restructure mortgages of struggling homeowners. The difference shows that lawmakers see public antagonism to credit card companies as running deep enough to offset even such a powerful lobbying interest.

The Senate bill does not cap or freeze interest rates, as some advocates have said is warranted. But it goes further than a measure already easily passed by the House in imposing an array of new restrictions on credit card companies.

The restrictions

The Senate measure would prohibit companies from raising interest rates on existing balances unless a card holder was 60 days behind, and then would require the rate to be restored to its previous level if payments were on time for six months. Consumers would have to be notified of rate increases 45 days in advance. Companies would not be allowed to charge late fees if they were late in processing a payment.

Statements would have to be mailed 21 days before payment was due. It would be more difficult to provide cards to those under age 21. Rates on new accounts could not be increased within the first year, and promotional rates would have to be in force for at least six months. Gift cards would have to be good for at least five years.

Banking industry officials acknowledge that credit card companies are squarely in the sights of Congress and the White House. They warn that making restrictions too tight could dry up lending for consumers and small businesses that rely on the cards.

"We know in the end they are going to pass very tough legislation," said Edward L. Yingling, president of the American Bankers Association.

"We just hope they don't go overboard."

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