Credit Card Companies, Banks May Succeed in Pulling New Regulator’s Teeth
Credit Card Regulation Proposals Watered Down?
Last week, this column quoted a statement made by House Financial Services Committee Chairman, Barney Frank (D-MA). Speaking about the proposed Consumer Financial Protection Agency (CFPA), he said: “My main objection to housing this critical function in the Federal Reserve has been the central bank’s historical failure to implement consumer protection as a central part of its mission and role.”
But, just days later, Senator Chris Dodd (D-CT), who’s steering CFPA-enabling legislation through the Senate, implied that he was ready to cave into Republican pressure, and override Rep. Frank’s concerns by housing the new regulator in the Fed. He told CNBC:
Where it [the CFPA] is housed, where it rents space is important, but more importantly is what authority, what power does it have, how much independence. And again, I think we’re getting a good chance for some strong bipartisan cooperation on that.
Credit Card Rates–a Story
Yesterday, the Philadelphia Inquirer ran a feature under the headline: “Why Consumers Need an Independent CFPA.” And it told the story of an academic at the University of Pennsylvania who used to have a credit card with a $15,000 limit and an eight percent rate. When the professor decided to carry a $10,000 balance over for a couple of months, the issuer doubled the rate. Of course, he protested, at which point the bank pointed to a clause in his agreement that allowed it to increase credit card rates “at any time for any reason.”
The Inquirer pointed out that this was common practice, but that it took a year for a regulator to “advise” credit card companies that it was inappropriate, and another four years for legislators actually to ban it. And the feature, written by Jeff Gelles, one of the paper’s business columnists, concluded:
Consumers need a cop on the beat: a truly independent agency that can write and enforce rules to protect families today and nip new abuses in the bud – before they sow the seeds of tomorrow’s financial catastrophes.
Credit Card Regulation and the Fed
It’s certainly true that the Fed hasn’t in the past covered itself in glory when it has attempted credit card regulation. Even its latest proposals, announced last week, have met with a decidedly mixed response.
For example, Gail Hillebrand, director of the Consumers Union’s Defend Your Dollars campaign, commented:
The Fed’s proposal will help to bring down penalty fees and stop some of the most unreasonable new fees. But it doesn’t go far enough because it does nothing to rein in penalty interest charges and lets banks wait another year before reviewing the sky high interest rates imposed on many consumers over the past year.
And the Associated Press quotes Nick Bourke, manager of the Safe Credit Cards Project at The Pew Charitable Trusts, as saying: “The Fed left a lot of leeway for issuers to determine on their own what to do.”
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