Short title

This Act may be cited as the

Credit Card Safety Star Act of 2008

Findings

Congress finds that— (1)competition in the credit card market is severely hindered by a lack of transparency, which results in inefficient consumer choices; (2)such lack of transparency is largely due to confusing terms and overwhelming information for consumers; (3)the marketplace has not increased competition based on the merits of credit cards; (4)a Government rating system that would use market forces by encouraging better transparency would increase such competition and assist consumers in making better credit card choices; and (5)such a rating system would not preclude additional regulation or legislation that may eliminate certain practices considered unfair or abusive.

Truth in Lending Act Amendments

(a)

In general

Chapter 2 of the Truth in Lending Act (15 U.S.C. 1631 et seq.) is amended by inserting after section 127A the following new section:

127B.

Credit card safety star rating system

(a)

Definitions

For purposes of this section, the following definitions shall apply: (1)

Agreement

The term agreement means the terms and conditions applicable to an open end credit plan offered by an issuer of credit. (2)

Reading grade level

Any reference to a reading grade level shall be as determined by the Board, using available measurements for assessing such reading levels, including those used by the Secretary of Education; (3)

Safety Star System

The term Safety Star System means the credit card safety star rating system established under this section. (4)

Multiple-cycle billing

The term multiple-cycle billing means the practice of calculating average daily balances over more than 1 billing cycle. (5)

Junk mail

The term junk mail means a form of disclosure that does not inform the consumer in a meaningful and significant way about changes in the contract, including small type, using separate pieces of paper for separate disclosures, and mixing disclosure materials with product advertisements. (b)

Rulemaking

(1)

In general

Not later than 12 months after the date of enactment of this section, the Board shall issue final rules to implement the Safety Star System established under this section, to allow consumers to quickly and easily compare the levels of safety associated with various open end credit plan agreements. (2)

Consultation

The Board shall consult with the Comptroller of the Currency in issuing rules to implement the Safety Star System. (c)

Elements of Safety Star System

The Safety Star System shall consist of a 5-star system for rating the terms and conditions of each open end credit plan agreement between a card issuer and a cardholder, in accordance with this section. (d)

Safety star ratings

(1)

One-star rating

The lowest level of safety for an open end credit plan shall be indicated by a 1-star rating. (2)

Five-star rating

The highest level of safety in an open end credit plan shall be indicated by a 5-star rating. (e)

Point structure for Safety Star System

(1)

Values

Each variation of a term in an agreement shall be worth 1 point or –1 point, as applicable. (2)

Star system

For purposes of the Safety Star System— (A)5-star credit cards are those with points totaling 7 points or greater; (B)4-star credit cards are those with between 3 points and 6 points; (C)3-star credit cards are those with between –1 point and 2 points; (D)2-star credit cards are those with between –6 points and –2 points; and (E)1-star credit cards are those with –7 points or fewer. (f)

Point awards

One point shall be awarded for each of the terms in an agreement under which— (1)no binding or nonbinding arbitration clause applies; (2)at least 90 days notice is provided to the cardholder if the card issuer wants to change the terms of the agreement, with the option for the consumer to opt out of the changes, while paying off their previous balance according to the original terms; (3)changes are disclosed in a manner that highlights the differences between the current terms and the proposed terms; (4)the original card agreement and all original supplementary materials are in 1 document at 1 time, and, when the card issuer discloses changes to the card agreement— (A)those materials are not in junk mail form; and (B)the changes are disclosed conspicuously, together with the next billing cycle statement, before the changes becomes effective; (5)no over-the-limit fees are imposed for the transactions approved at the time of transaction by the card issuer; (6)no fees are imposed to pay credit card bills using any method, including over the phone; (7)the card issuer has in place a system to minimize fees to the consumer that is at least as financially beneficial to the consumer as a system under which payments are applied to principal in a manner that divides the payment among the different interest rate balances proportionally; (8)interest is not accrued on new purchases between the end of the billing cycle and the due date when a balance is outstanding; (9)the card issuer does not use multiple-cycle billing; (10)with respect to a subprime, unsecured credit plan, fees are below 10 percent of the minimum allowed credit balance; (11)the terms of the agreement are disclosed in a form that requires at or below an 8th grade reading level; (12)any secondary disclosure materials meant to supplement the terms of the agreement are disclosed in a form that requires at or below an 8th grade reading level; (13)no late fee may be imposed when a payment is received, whether processed by the issuer or not, within 2 days of the payment due date; (14)a copy of the agreement and all supplementary materials are easily available to the cardholder online; or (15)a substantial positive financial benefit would be provided to the consumer, as determined by the Board in accordance with subsection (h). (g)

Negative points

One point shall be subtracted for each of the terms in an agreement under which— (1)binding or nonbinding arbitration is required to resolve disputes; (2)fewer than 30 days notice before the billing statement for which changes in terms take effect are provided to the cardholder when the card issuer wants to change the terms of the card agreement (which shall be assumed if notice of such changes is undisclosed in the agreement materials); (3)junk mailer disclosures are used to inform cardholders of changes in their agreements; (4)over-the-limit fees are imposed more than once based on the same transaction; (5)fees are imposed to pay bills by check, over the Internet, or by an automated phone system; (6)payment allocations are less financially beneficial to the consumer than a system under which payments are applied to older balances before newer ones; (7)interest is accrued on new purchases between the end of the billing cycle and the due date when a balance is outstanding; (8)the agreement allows for multiple-cycle billing; (9)with respect to a subprime, unsecured credit plan, the fees to obtain or maintain the card amount to more than 50 percent of the minimum allowed credit balance; (10)the terms of the agreement are disclosed in a form that requires a reading level that is above a 12th grade reading level; (11)any secondary disclosure materials meant to supplement the terms of the agreement are written in a form that requires a reading level above the 12th grade reading level; (12)a late fee may be imposed within 2 days of the payment due date; (13)the issuer may unilaterally change the terms in the agreement without written consent from the consumer, or the issuer may unilaterally make adverse changes to the terms in the agreement without written consent from the consumer and written notice to the consumer of the precise behavior that provoked the adverse change; (14)interest rate increases apply to already incurred debt; (15)the issuer charges interest on transaction fees, including late fees; or (16)there would be a negative financial impact on the interests of the consumer, as determined by the Board in accordance with subsection (h). (h)

Board considerations

For purposes of subsections (f)(15) and (g)(16), the Board may consider— (1)the level of difficulty in understanding terms of the subject agreement by an average consumer; (2)how such terms will affect consumers who are close to the edge of their credit limits; (3)how such terms will affect consumers who do not have a good credit score, history, or rating, using commonly employed credit measurement methods (if it creates greater access to credit by reducing safety, or by other means); (4)whether such terms create what would appear to a reasonable consumer to be an arbitrary deadline or limit that may frustrate consumers and result in excess fees or worse financial outcomes for the consumer; (5)whether such terms, or the severity of such terms, is not based on the credit risks created by a particular consumer behavior, but rather is designed to solely increase revenue through lack of transparency; (6)whether any State has sought to limit such terms or terms that are similar thereto; (7)whether provisions of State law relating to unfair and deceptive practices would prohibit any such terms, but for the national bank exclusion from non-home State banking laws; (8)whether such terms have an anticompetitive or procompetitive effect on the marketplace; and (9)such additional terms or concepts that are not specified in paragraphs (1) through (8) that the Board deems difficult for an average consumer to manage, such as terms that are confusing to the typical consumer or that create a greater risk of negative financial outcomes for the typical consumer, and terms that promote transparency or competition. (i)

Limitations

For purposes of subsection (h), the Board may not consider, with respect to the terms of an open end credit plan agreement, the profitability or impact on the success of any particular business model of such terms. (j)

Automatic rating

Notwithstanding any other provision of this section, or any other provision of State or Federal law, any open end credit plan that allows the card issuer or a designee thereof to modify the terms of the agreement at any time or periodically for unspecified or unstated reasons, or under which other accounts, or changes in the credit rating of the consumer by a third party, are used as a basis for adverse changes in the agreement (including universal default) shall automatically give rise to a 1-star rating for such open end credit plan. (k)

No points if terms are required by law

If a particular term in an agreement becomes required by law or regulation, no points may be awarded under the Safety Star System for that term. (l)

Procedures for ratings

(1)

Certification to the Board

Each issuer of credit under an open end credit plan shall certify in writing to the Board, the number of stars to be awarded, separately for each of the card issuer's agreements. Each such certification shall specify which terms in each agreement are subject to the Safety Star System, and how the issuer arrived at the star rating for each agreement based on the Safety Star System in accordance with paragraph (2). (2)

Submissions to the Board

Each agreement that is subject to a Safety Star System rating shall be submitted electronically to the Board, together with a written explanation of whether the agreement has or does not have each of the terms specified in subsections (f) and (g), before issuing or marketing a credit card under that agreement. (3)

Board verification

(A)

In general

The Board shall verify that the terms in the submitted agreement and supporting materials (such as examples of future disclosures or examples of websites with cardholder agreements) comply with the certification submitted to the Board by the issuer under this subsection, not later than 30 days after the date of submission. (B)

Avoiding duplicative verifications

A card issuer may certify to the Board, in writing, that all agreements that it markets include a particular term, or that the issuer will use certain practices (with supporting documents, including showing how future disclosures will be made) so that the Board is required to determine only once, with respect to that term or practice, how that term or practice affects the star ratings of the credit card agreements of the issuer. (4)

Misrepresentations as violations

Any certification to the Board under this section that the issuer knew, or should have known, was false or misrepresented to the Board or to a consumer the terms or conditions of a card agreement or of a Safety Star System rating under this section shall be treated as a violation of this title, and shall be subject to enforcement in accordance with section 108. (5)

Modifications by card issuers

(A)

In general

After the first annual review by the Board, mentioned in subsection (o), before implementing any new term or concept, or new way of approaching a term or concept, with respect to an open end credit plan, the card issuer shall submit the new term or concept and any supporting materials to the Board, other than with respect to an adjustment to the applicable rate of interest in an existing agreement that clearly specifies that such rate would be adjustable and under what conditions such adjustments could occur. (B)

Determination of the Board

Not later than 30 days after the date of a submission under subparagraph (A), the Board shall complete a review of the effects on safety of the subject new concept or term, and shall issue a decision on whether it affects the Safety Star System rating for the open end credit plan that will include the term or concept. (m)

Display of and access to ratings

(1)

Display of rating required

The Safety Star System rating for each credit card shall be clearly displayed on all marketing material, applications, billing statements, and agreements associated with that credit card, as well as on the back of each such credit card, including a brief explanation of the system displayed below each rating (other than on the back of the credit card). (2)

New cards required for lower ratings

In any case in which the Safety Star System rating for a credit card is lowered for any reason, the card issuer shall provide new cards to account holders displaying the new rating in accordance with paragraph (1). (3)

Graphic display

The Safety Star System rating for a credit card shall be represented by a graphic that demonstrates not only the number of stars that the credit card has received, but also the number of stars that the card did not receive. (4)

Development of graphic by the Board

The Board shall determine the graphic and description of the Safety Star System for display on materials and the back of cards for purposes of this section. (n)

Consumer access to ratings

(1)

In general

The Board shall engage in an extensive campaign to educate consumers about the Safety Star System ratings for credit cards, using commonly used and accessible communications media. (2)

Website

Not later than 12 months after the date of enactment of this section, the Board shall establish and shall maintain a stand-alone website— (A)to provide easily understandable, in-depth information on the criteria used to assign the ratings, as provided in subsections (f) and (g); and (B)to include a listing of the Safety Star System ratings for each open end consumer credit plan, information on how the issuer arrived at that rating, and the number of consumers that have that plan with the issuer. (o)

Annual review by the Board

(1)

In general

The Board shall conduct a thorough annual review (of not longer than 6 months in duration) of the Safety Star System, to determine whether the point system is effectively aiding consumers, and shall promptly implement any regulatory changes as are necessary to ensure that the System protects consumers and encourages transparent competition and fairness to consumers, including implementing a system in which terms are weighted to distinguish between different levels of safety, in accordance with the purposes of this section. (2)

Availability of results

Results of the review conducted under this subsection shall be submitted to Congress, and shall be made available to the public. (p)

Periodic review of standards

Once every 2 years, the Board shall determine whether the requirements to satisfy 2-star standards and above should be raised on the grounds that card issuers have abandoned the most unfair practices. In making such determination, the Board may not consider the profitability of business models, but may consider whether competition in the credit industry will improve consumer protection, and how the change in standards will affect such competition.

(b)

Clerical amendment

The table of section for chapter 2 of the Truth in Lending Act is amended by inserting after the item relating to section 127A the following new item:

127B. Credit card safety star rating system.

Safety Star Advisory Commission

(a)

Establishment

There is established the Credit Card Safety Star Advisory Commission (in this section referred to as the Commission). (b)

Duties

(1)

Review of the credit card Safety Star System and annual reports

The Commission shall— (A)review the effectiveness of the credit card Safety Star System under this section, including the topics described in paragraph (2); (B)make recommendations to Congress concerning such system; (C)study whether it would better protect consumers to ban some practices by creditors rather than use a rating system for those practices, including universal default, unilateral changes without consumer consent, allowing interest charges on fees, or allowing interest rate increases to apply to past debt; and (D)by not later than March 1 of each calendar year following the date of the enactment of this Act, submit a report to Congress containing the results of such reviews and its recommendations concerning such system. (2)

Specific topics to be reviewed

The Commission shall review— (A)with respect to all credit card users— (i)the methodology for awarding stars to credit cards under the Safety Star System, and whether there may be a better way to award stars that takes into account unfair or unsafe practices that remain uncaptured in the Safety Star System; (ii)the consumer awareness of the Safety Star System and what may make the system more useful to consumers; and (iii)other major issues in implementation and further development of the Safety Star System; (B)with respect to credit card users who are at or close to their credit limits, whether such consumers are being specifically targeted in credit card agreements, and whether the Safety Star System should incorporate more terms or be revised to encourage more fair terms for such consumers; and (C)the effects of the Safety Star System on the availability and affordability of credit and the implications of changes in credit availability and affordability in the United States and in the general market for credit services due to the Safety Star System. (3)

Comments on certain Board reports

(A)

Transmittal to Commission

If the Board submits to Congress (or a committee of Congress) a report that is required by law and that relates to the Safety Star System, the Board shall transmit a copy of the report to the Commission. (B)

Independent review

The Commission shall review any report received under subparagraph (A) and, not later than 6 months after the date of submission of the report to Congress, shall submit to the appropriate committees of Congress written comments on such report. Such comments may include such recommendations as the Commission determines appropriate. (4)

Agenda and additional reviews

The Commission shall consult periodically with the chairperson and ranking minority members of the appropriate committees of Congress regarding the agenda of the Commission and progress towards achieving the agenda. The Commission may conduct additional reviews, and submit additional reports to the appropriate committees of Congress, from time to time on such topics relating to the Safety Star System as may be requested by such chairpersons and members, and as the Commission determines appropriate. (5)

Availability of reports

The Commission shall transmit to the Board a copy of each report submitted under this subsection, and shall make such reports available to the public in an easily accessible format, including operating a website containing the reports. (6)

Appropriate committees of Congress

For purposes of this subsection, the term appropriate committees of Congress means the Committee on Banking, Housing, and Urban Affairs of the Senate and the Committee on Financial Services of the House of Representatives. (7)

Voting and reporting requirements

With respect to each recommendation contained in a report submitted under paragraph (1), each member of the Commission shall vote on the recommendation, and the Commission shall include, by member, the results of that vote in the report containing the recommendation. The Commission may file a minority report. (8)

Examination of budget consequences

Before making any recommendation that is likely to have a Federal budgetary impact, the Commission shall examine the budget consequences of such recommendation, directly or through consultation with appropriate expert entities. (c)

Membership

(1)

Number and appointment

The Commission shall be composed of 15 members appointed by the Comptroller General of the United States, in accordance with this section. (2)

Qualifications

(A)

In general

The membership of the Commission shall include individuals— (i)who have achieved national recognition for their expertise in credit cards, debt management, economics, credit availability, consumer protection, and other credit card-related issues and fields; or (ii)who provide a mix of different professions, a broad geographic representation, and a balance between urban and rural representatives. (B)

Makeup of Commission

The Commission shall be made up of 15 members, of whom— (i)4 shall be representatives from consumer groups; (ii)4 shall be representatives from credit card issuers or banks; (iii)7 shall be representatives from nonprofit research entities or nonpartisan experts in banking and credit cards; and (iv)no fewer than 1 of the members described in clauses (i) through (iii) shall represent each of— (I)the elderly; (II)economically disadvantaged consumers; (III)racial or ethnic minorities; and (IV)students and minors. (C)

Ethics disclosures

The Comptroller General shall establish a system for public disclosure by members of the Commission of financial and other potential conflicts of interest relating to such members. Members of the Commission shall be treated as employees of Congress whose pay is disbursed by the Secretary of the Senate for purposes of title I of the Ethics in Government Act of 1978 (Public Law 95–521). (3)

Terms

(A)

In general

The terms of members of the Commission shall be for 5 years except that the Comptroller General shall designate staggered terms for the members first appointed. (B)

Vacancies

Any member appointed to fill a vacancy occurring before the expiration of the term for which the member's predecessor was appointed shall be appointed only for the remainder of that term. A member may serve after the expiration of that member's term until a successor has taken office. A vacancy in the Commission shall be filled in the manner in which the original appointment was made. (4)

Compensation

(A)

Members

While serving on the business of the Commission (including travel time), a member of the Commission shall be entitled to compensation at the per diem equivalent of the rate provided for level IV of the Executive Schedule under section 5315 of title 5, United States Code, and while so serving away from home and the regular place of business of the member, the member may be allowed travel expenses, as authorized by the Chairperson. (B)

Other employees

For purposes of pay (other than pay of members of the Commission) and employment benefits, rights, and privileges, all employees of the Commission shall be treated as if they were employees of the United States Senate. (5)

Chairperson; Vice Chairperson

The Comptroller General shall designate a member of the Commission, at the time of appointment of the member as Chairperson and a member as Vice Chairperson for that term of appointment, except that in the case of vacancy in the position of Chairperson or Vice Chairperson of the Commission, the Comptroller General may designate another member for the remainder of that member's term. (6)

Meetings

The Commission shall meet at the call of the Chairperson. (d)

Director and staff; experts and consultants

Subject to such review as the Comptroller General determines necessary to assure the efficient administration of the Commission, the Commission may— (1)employ and fix the compensation of an Executive Director (subject to the approval of the Comptroller General) and such other personnel as may be necessary to carry out its duties (without regard to the provisions of title 5, United States Code, governing appointments in the competitive service); (2)seek such assistance and support as may be required in the performance of its duties from appropriate Federal departments and agencies; (3)enter into contracts or make other arrangements, as may be necessary for the conduct of the work of the Commission (without regard to section 3709 of the Revised Statutes of the United States (41 U.S.C. 5)); (4)make advance, progress, and other payments which relate to the work of the Commission; (5)provide transportation and subsistence for persons serving without compensation; and (6)prescribe such rules and regulations as it determines necessary with respect to the internal organization and operation of the Commission. (e)

Powers

(1)

Obtaining official data

The Commission may secure directly from any department or agency of the United States information necessary to enable it to carry out this section. Upon request of the Chairperson, the head of that department or agency shall furnish that information to the Commission on an agreed upon schedule. (2)

Data collection

In order to carry out its functions, the Commission shall— (A)utilize existing information, both published and unpublished, where possible, collected and assessed either by its own staff or under other arrangements made in accordance with this section; (B)carry out, or award grants or contracts for, original research and experimentation, where existing information is inadequate; and (C)adopt procedures allowing any interested party to submit information for the Commission's use in making reports and recommendations. (3)

Access of GAO to information

The Comptroller General shall have unrestricted access to all deliberations, records, and nonproprietary data of the Commission, immediately upon request. (4)

Periodic audit

The Commission shall be subject to periodic audit by the Comptroller General. (f)

Administrative and support services

The Comptroller General shall provide such administrative and support services to the Commission as may be necessary to carry out this section. (g)

Authorization of appropriations

There are authorized to be appropriated to the Commission, not more than $10,000,000 for each fiscal year to carry out this section.