1.This Act may be cited as
the Credit Card Safety Star Act of
2009
.
2.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.
3.Truth in Lending
Act AmendmentsThe Truth in
Lending Act (15 U.S.C. 1601 et seq.) is amended by inserting after section 127A
the following new section:
127B.Credit card
safety star rating system
(a)In this section—
(1)the term agreement means the
terms and conditions applicable to an open end credit plan offered by an issuer
of credit;
(2)references 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
Department of Education;
(3)the term
Safety Star System means the credit card safety star rating system
established under this section; and
(4)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)
(1)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)The
Board shall consult with the Comptroller of the Currency, the Office of Thrift
Supervision, and the Federal Deposit Insurance Corporation in issuing rules to
implement the Safety Star System.
(c)Elements of
Safety Star SystemThe 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)
(1)The lowest level of safety for an open end credit plan
shall be indicated by a 1-star rating.
(2)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)Each
variation of a term in an agreement shall be worth 1 point or −1 point, as
applicable.
(2)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)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)payments are
applied to the highest interest rate principal first;
(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)security deposits
and fees for credit availability (such as account opening fees or membership
fees)—
(A)are limited to 10
percent of the initial credit limit during the first 12 months; and
(B)at account
opening, are limited to 5 percent of the initial credit limit, and requires any
additional amounts (up to 10 percent) to be spread evenly over at least the
next 5 billing cycles;
(10)the terms of the
agreement are disclosed in a form that requires at or below an 8th grade
reading level;
(11)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;
(12)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;
(13)a copy of the
agreement and all supplementary materials are easily available to the
cardholder online; or
(14)a substantial
positive financial benefit would be provided to the consumer, as determined by
the Board in accordance with subsection (h).
(g)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)interest is
accrued on new purchases between the end of the billing cycle and the due date
when a balance is outstanding;
(7)the terms of the
agreement are disclosed in a form that requires a reading level that is above a
12th grade reading level;
(8)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;
(9)a late fee may be
imposed within 2 days of the payment due date;
(10)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;
(11)the issuer
charges interest on transaction fees, including late fees; or
(12)there would be a
negative financial impact on the interests of the consumer, as determined by
the Board in accordance with subsection (h).
(h)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)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)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,
shall automatically give rise to a 1-star rating for such open end credit
plan.
(k)No points if
terms are required by lawIf 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)
(1)Certification
to the BoardEach 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)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)
(A)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 verificationsA 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 violationsAny 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)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 BoardNot 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 requiredThe 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 ratingsIn 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)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 BoardThe 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)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)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)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)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 standardsOnce 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.
.
4.Safety Star
Advisory Commission
(a)There
is established the Credit Card Safety Star Advisory Commission (in this section
referred to as the Commission
).
(b)
(1)Review of the
credit card Safety Star System and annual reportsThe 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 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 reviewedThe 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
CommissionIf 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)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 reviewsThe 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)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 CongressFor 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 requirementsWith 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 consequencesBefore 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)
(1)The Commission shall be composed of 15 members
appointed by the Comptroller General of the United States, in accordance with
this section.
(2)
(A)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)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)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)
(A)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)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)
(A)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)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 ChairpersonThe 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)The
Commission shall meet at the call of the Chairperson.
(d)Director and
staff; experts and consultantsSubject 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)
(1)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)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 informationThe Comptroller General shall have unrestricted
access to all deliberations, records, and nonproprietary data of the
Commission, immediately upon request.
(4)The Commission shall be subject to periodic audit by the
Comptroller General.
(f)Administrative
and support servicesThe Comptroller General shall provide such
administrative and support services to the Commission as may be necessary to
carry out this section.
(g)Authorization
of appropriationsThere are authorized to be appropriated to the
Commission, not more than $10,000,000 for each fiscal year to carry out this
section.