Swiped! Did The Credit Card Industry Just Hijack Credit Card Reform Legislation?
The prevailing wisdom in this week’s press reports about credit card reform legislation now being debated in the Senate is that Senator Dodd’s version is stronger than the Credit Cardholders’ Bill of Rights, which passed the House easily last month. The New York Times’ Carl Hulse concluded:
[The Senate bill] goes farther than a measure already easily passed by the House in imposing an array of new restrictions on credit card companies.
Politico’s Victoria McGrane was slightly more accurate:
The compromise [between Banking Committee mates Senator Dodd and Republican Senator Richard Shelby] softened some provisions in Dodd’s original bill — which came out of committee without a single Republican vote — but still would give the industry a stronger dose of medicine than the bill passed by the House last month.
As far as they go, these reports are not inaccurate, but they tell far from the whole story. Indeed, the current version of the Dodd bill is significantly weaker than the version that was passed by the Banking Committee. Indeed, the Dodd-Shelby compromise looks very, very similar to Rep. Maloney’s bill of rights. The real story is the direction in which compromising with Senator Shelby pulled Senator Dodd. That is, in the direction of the credit card companies.
The Credit Card Accountability, Responsibility, and Disclosure Act, though an important milestone in consumer protections, exhibits the signs of the credit card industry’s powerful influence. Unlike the previous version, the bill likely to be passed by the Senate does not explicitly prohibit universal default, the practice whereby a credit card company uses information unrelated to a consumer’s credit card as the basis for increasing the interest rate. Instead, card companies are left to decide for themselves when improvements in a cardholder’s credit warrant a rate reduction. The previous version, like the House version, limit the number of over-the-limit fees – fees applied when a cardholder charges more than their card limit – that card companies can apply. This version does not.
Instead of outright prohibition of abusively high fees, the Credit Card Accountability, Responsibility, and Disclosure Act requires that fees be reasonable and proportional; the card industry, with easy access to political power, will determine what “reasonable and proportional” mean. Though the Act improves oversight of the credit card industry, the previous version required the collection of comprehensive and detailed information about an industry whose practices are at best opaque and at worst purposefully deceptive.
While compromise is necessary to the legislative process, in this case compromise seems to have been largely one-sided.