Democrat's Bill Sets Up Credit-Card Showdown

by Damian Paletta

Wall Street Journal
Thursday February 7, 2008 Pg D3

Democrats in Congress are pushing for new restrictions on credit-card companies in what could become a hot election-year issue.

Credit cards are a big concern in Washington because constituents often complain to lawmakers about confusing credit-card terms. The amount of credit-card debt is rising as the economy worsens, which will likely increase the volume of complaints.

The banking industry, for its part, is warning that legislative interference could make it even harder for consumers to access credit amid an overall tightening of credit markets.

Rep. Carolyn Maloney (D., N.Y.) could introduce a bill as soon as today that would require card companies to notify customers at least 45 days before increasing rates and prohibit companies from "arbitrarily" changing contract terms. It would require companies to mail credit-card tatements at least 25 days before payments are due, giving customers more room to avoid late fees.

"One of the things consumers are very disturbed about it when they have a contract on a card and their rates go up and the terms change," said Rep. Maloney, who chairs the House Financial Services Subcommittee on Financial Institutions and Consumer Credit.

Her bill has the backing of House Financial Services Committee Chairman Barney Frank (D., Mass.), and several senators also have vowed to take up the matter. The push would broaden the Democrats' consumer-protection agenda beyond the mortgage industry, where much of their energy was focused last year.

A 2006 U.S. Government Accountability Office study said there were nearly 700 million outstanding credit cards, with U.S. consumers charging $1.8 trillion on their cards in 2005.

The banking industry is already girding for a fight over possible legislation. "It impacts our ability to price our products, manage risk, and ultimately our ability to offer low-rate competitive products for consumers," said Kenneth Clayton, managing director of the American Bankers Association's Card Policy Council.

Rep. Maloney said the banking industry is exaggerating her bill's impact. "What the bill fosters is fair competition and the values of a free market," she said. "It includes no price controls, no rate caps, no fee setting, and it doesn't dictate any business models to companies."

Last year, Democrats tried to persuade bank regulators into doing more to curb credit-card industry practices, and Rep. Maloney has been working on the legislation for close to a year. Separately, the Federal Reserve has been working on new policies that would attempt to improve the disclosures card companies are required to give customers.

Borrowing from cards and other unsecured lines of credit rose an annualized 11.3% in November to $937.5 billion, according to the Fed.