Legislation & Lobbying

Will U.S. Credit Card Crackdown Make a Major Difference?

The mortgage meltdown, which many now attribute at least in part to widespread fraudulent practices, seems to have had an unexpected effect on federal regulators. Instead of waiting for a similar disaster to develop in the consumer credit market, they are proposing tough new rules to restrict some of the practices most disadvantageous to consumers.

Ideally, from a consumer standpoint, the new rules should be imposed legislatively—as is already being proposed—rather than by the Federal Reserve and other government regulators, says a Newsday editorial.

The Credit Cardholders’ Bill of Rights, for instance, which U.S. Rep. Carolyn Maloney (D-N.Y.) is sponsoring, would amend the Truth in Lending Act to prohibit issuers from raising a credit card’s interest rate based on a consumer’s unrelated problems with other accounts, the newspaper and a congressional website point out. Sen. Christopher Dodd (D-Conn.), who chairs the Senate Banking Committee, has introduced similar legislation in the Senate.

Meanwhile, the Federal Reserve last week announced that it hopes to enact similar restrictions administratively, stunning consumer advocates. (Details of the Fed’s plan and similar proposals by other government regulators are provided in this Boston Globe article.)

“I’ve not seen anything like this out of the Federal Reserve ever,” Travis Plunkett, legislative director of the Consumer Federation of America, tells McClatchy News Service. “These problems have been coming up for a decade, and they’ve been asleep at the switch. But that’s changing. It’s a new world.”

“I think the regulators went further than anybody expected,” Ed Mierzwinski, of the U.S. Public Interest Research Group, tells a Washington Post columnist.

But it remains to be seen whether the proposed new restrictions on interest-rate hikes and unreasonable payment terms proposed by Federal Reserve Chairman Ben Bernanke will actually be enacted—and how these revised federal regulations, if they are adopted, will interact with earlier federal legislation that significantly reduced consumer debt protections, says an Asbury Park Press editorial.

“It’s unfortunate the anti-consumer elements of the rules weren’t addressed 2 1/2 years ago when Congress enacted the Bankruptcy Abuse Prevention and Consumer Protection Act, which makes it almost impossible for the average person to discharge debt,” the New Jersey newspaper writes.

Related coverage:

CNNMoney.com: “Barely surviving on credit cards”

CBS News (2007): “Congress Takes Aim At Credit Card Policies”

Wall Street Journal (sub. req.): “Banks Toughen Terms on Loans”

Reuters: “Credit card ABS solid even as delinquencies climb”

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