[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
THE CREDIT CARDHOLDERS' BILL OF RIGHTS:
PROVIDING NEW PROTECTIONS FOR CONSUMERS
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON FINANCIAL INSTITUTIONS
AND CONSUMER CREDIT
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
SECOND SESSION
__________
MARCH 13, 2008
__________
Printed for the use of the Committee on Financial Services
Serial No. 110-100
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41-731 PDF WASHINGTON DC: 2008
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HOUSE COMMITTEE ON FINANCIAL SERVICES
BARNEY FRANK, Massachusetts, Chairman
PAUL E. KANJORSKI, Pennsylvania SPENCER BACHUS, Alabama
MAXINE WATERS, California DEBORAH PRYCE, Ohio
CAROLYN B. MALONEY, New York MICHAEL N. CASTLE, Delaware
LUIS V. GUTIERREZ, Illinois PETER T. KING, New York
NYDIA M. VELAZQUEZ, New York EDWARD R. ROYCE, California
MELVIN L. WATT, North Carolina FRANK D. LUCAS, Oklahoma
GARY L. ACKERMAN, New York RON PAUL, Texas
BRAD SHERMAN, California STEVEN C. LaTOURETTE, Ohio
GREGORY W. MEEKS, New York DONALD A. MANZULLO, Illinois
DENNIS MOORE, Kansas WALTER B. JONES, Jr., North
MICHAEL E. CAPUANO, Massachusetts Carolina
RUBEN HINOJOSA, Texas JUDY BIGGERT, Illinois
WM. LACY CLAY, Missouri CHRISTOPHER SHAYS, Connecticut
CAROLYN McCARTHY, New York GARY G. MILLER, California
JOE BACA, California SHELLEY MOORE CAPITO, West
STEPHEN F. LYNCH, Massachusetts Virginia
BRAD MILLER, North Carolina TOM FEENEY, Florida
DAVID SCOTT, Georgia JEB HENSARLING, Texas
AL GREEN, Texas SCOTT GARRETT, New Jersey
EMANUEL CLEAVER, Missouri GINNY BROWN-WAITE, Florida
MELISSA L. BEAN, Illinois J. GRESHAM BARRETT, South Carolina
GWEN MOORE, Wisconsin, JIM GERLACH, Pennsylvania
LINCOLN DAVIS, Tennessee STEVAN PEARCE, New Mexico
PAUL W. HODES, New Hampshire RANDY NEUGEBAUER, Texas
KEITH ELLISON, Minnesota TOM PRICE, Georgia
RON KLEIN, Florida GEOFF DAVIS, Kentucky
TIM MAHONEY, Florida PATRICK T. McHENRY, North Carolina
CHARLES A. WILSON, Ohio JOHN CAMPBELL, California
ED PERLMUTTER, Colorado ADAM PUTNAM, Florida
CHRISTOPHER S. MURPHY, Connecticut MICHELE BACHMANN, Minnesota
JOE DONNELLY, Indiana PETER J. ROSKAM, Illinois
ROBERT WEXLER, Florida KENNY MARCHANT, Texas
JIM MARSHALL, Georgia THADDEUS G. McCOTTER, Michigan
DAN BOREN, Oklahoma KEVIN McCARTHY, California
DEAN HELLER, Nevada
Jeanne M. Roslanowick, Staff Director and Chief Counsel
Subcommittee on Financial Institutions and Consumer Credit
CAROLYN B. MALONEY, New York, Chairwoman
MELVIN L. WATT, North Carolina JUDY BIGGERT, Illinois
GARY L. ACKERMAN, New York TOM PRICE, Georgia
BRAD SHERMAN, California DEBORAH PRYCE, Ohio
LUIS V. GUTIERREZ, Illinois MICHAEL N. CASTLE, Delaware
DENNIS MOORE, Kansas PETER T. KING, New York
4PAUL E. KANJORSKI, Pennsylvania EDWARD R. ROYCE, California
MAXINE WATERS, California STEVEN C. LaTOURETTE, Ohio
RUBEN HINOJOSA, Texas WALTER B. JONES, Jr., North
CAROLYN McCARTHY, New York Carolina
JOE BACA, California SHELLEY MOORE CAPITO, West
AL GREEN, Texas Virginia
WM. LACY CLAY, Missouri TOM FEENEY, Florida
BRAD MILLER, North Carolina JEB HENSARLING, Texas
DAVID SCOTT, Georgia SCOTT GARRETT, New Jersey
EMANUEL CLEAVER, Missouri GINNY BROWN-WAITE, Florida
MELISSA L. BEAN, Illinois J. GRESHAM BARRETT, South Carolina
LINCOLN DAVIS, Tennessee JIM GERLACH, Pennsylvania
PAUL W. HODES, New Hampshire STEVAN PEARCE, New Mexico
KEITH ELLISON, Minnesota RANDY NEUGEBAUER, Texas
RON KLEIN, Florida GEOFF DAVIS, Kentucky
TIM MAHONEY, Florida PATRICK T. McHENRY, North Carolina
CHARLES A. WILSON, Ohio JOHN CAMPBELL, California
ED PERLMUTTER, Colorado KEVIN McCARTHY, California
DEAN HELLER, Nevada
C O N T E N T S
----------
Page
Hearing held on:
March 13, 2008............................................... 1
Appendix:
March 13, 2008............................................... 71
WITNESSES
Thursday, March 13, 2008
Ausubel, Lawrence M., Professor, Department of Economics,
University of Maryland......................................... 24
Baer, Gregory, Deputy General Counsel, Regulatory and Public
Policy, Bank of America........................................ 18
Finneran, John G., Jr., General Counsel, Capital One............. 22
Franke, Carter, Marketing Executive, JPMorgan Chase.............. 25
Ireland, Oliver I., Partner, Morrison & Foerster................. 27
Levitin, Adam J., Associate Professor of Law, Georgetown
University Law Center.......................................... 20
Porter, Katherine M., Associate Professor, The University of Iowa
College of Law................................................. 29
Warren, Elizabeth, Leo Gottlieb Professor of Law, Harvard Law
School......................................................... 16
APPENDIX
Prepared statements:
Brown-Waite, Hon. Ginny...................................... 72
Castle, Hon. Michael N....................................... 74
Ausubel, Lawrence M.......................................... 76
Baer, Gregory................................................ 91
Finneran, John G., Jr........................................ 101
Franke, Carter............................................... 105
Ireland, Oliver I............................................ 108
Levitin, Adam J.............................................. 117
Porter, Katherine M.......................................... 140
Warren, Elizabeth............................................ 153
Additional Material Submitted for the Record
Maloney, Hon. Carolyn:
Letter from the National Small Business Association, dated
March 11, 2008............................................. 164
Campbell, Hon. John:
GAO Report entitled, ``Credit Cards, Increased Complexity in
Rates and Fees Heightens Need for More Effective
Disclosures to Consumers,'' dated September 2006........... 165
Castle, Hon. Michael N.:
``Table 4: Revenues and Profits of Credit Card Issuers in
Card Industry Directory per $100 of Credit Card Assets''... 279
Price, Hon. Tom:
Wall Street Journal article entitled, ``Freedom Means
Responsibility,'' by former Senator George McGovern, dated
March 7, 2008.............................................. 280
``Credit Controls: 1980''.................................... 282
Levitin, Adam J.:
Slide show presented at hearing.............................. 313
THE CREDIT CARDHOLDERS' BILL
OF RIGHTS: PROVIDING NEW
PROTECTIONS FOR CONSUMERS
----------
Thursday, March 13, 2008
U.S. House of Representatives,
Subcommittee on Financial Institutions
and Consumer Credit,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 10:05 a.m., in
room 2128, Rayburn House Office Building, Hon. Carolyn B.
Maloney [chairwoman of the subcommittee] presiding.
Members present: Representatives Maloney, Watt, Ackerman,
Sherman, Moore of Kansas, Waters, Green, Clay, Scott, Cleaver,
Bean, Davis of Tennessee, Hodes, Ellison, Klein, Perlmutter;
Biggert, Price, Castle, Capito, Feeney, Hensarling, Garrett,
Neugebauer, Campbell, McCarthy of California, and Heller.
Ex officio: Representatives Frank and Bachus.
Also present: Representative Udall.
Chairwoman Maloney. I call this hearing to order, and I
thank everyone for being here, particularly my ranking member,
Judy Biggert.
I would first like to ask unanimous consent that Mark
Udall, who is not a member of this committee, be allowed to sit
on the panel and be allowed to ask some questions. Is there any
objection?
Hearing none, it is so ordered.
My colleague, Ms. Biggert, has requested 15 minutes per
side, and that is fine with our side. And I am pleased that our
chairman, Barney Frank, is with us.
Before we start, I want to inform the committee that there
have been fairness concerns raised about having consumers
testify this morning without a waiver that allowed their credit
card issuers to respond publicly. In the interest of having the
fairest hearing possible, I have decided to postpone the first
panel to a future date.
We do have our witnesses here, and they are ready to
testify. They are seated here. They have traveled from across
the country to be here. However, in order to have a discussion
that entirely focuses on the substance and not on process, we
are doing everything we can to accommodate any concerns that
have been raised. It is my hope that between now and a future
date, we can get consumer witnesses here so that the committee
can hear real world examples of how this credit card bill would
help consumers.
First of all, I would like--
The Chairman. Would the gentlewoman yield?
Chairwoman Maloney. Yes, I would.
The Chairman. I appreciate the chairwoman of the
subcommittee making that accommodation. I just want to say, as
Chair of the committee, it has been and will be our policy that
no testimony will be given in any context in which there cannot
be a full and free response. So I appreciate the chairwoman
accommodating us on that, and as we go forward, that will be
the context in which it happens.
Some aspects of this process are new to us, new to a lot of
us. We don't always get everything--you don't always see all
the implications the first time. There has been no bad faith
involved, in my judgment, on anybody's part. And this will give
us time to comply with what I would assume was a universally
accepted principle that all debate should be conducted in fully
fair terms.
I thank the gentlewoman.
Chairwoman Maloney. First of all, I am delighted to welcome
our witnesses to the first of two legislative hearings on H.R.
5244, the Credit Cardholders' Bill of Rights, which I
introduced with Chairman Frank last month and which we are glad
to say has over 82 cosponsors to date, including many members
of this committee.
Credit cards may represent the single most successful
financial product introduced in our country in the last 50
years. They have given consumers unprecedented convenience and
flexibility in both making purchases and in managing their
personal finances.
Over 75 percent of the adult population in America have
credit cards. Credit cards have become a necessity of daily
life without which it is almost impossible to travel, make non-
cash purchases, or do daily business.
But with that great success, with that huge growth, with
that necessity, comes shared responsibility. The credit card
industry has been clear about the responsibility imposed upon
consumers: Make your minimum payments on time and stay under
your limit. But what about the reciprocal responsibility of
card companies? What about the responsibility to stick to the
terms of the deal that the customer agreed to?
Cardholders who pay at least the minimum payment on time
every month and don't go over their limit expect that, in
return, they can count on the card companies not imposing rate
hikes or penalty fees. They don't expect the rate on money they
already borrowed to go up dramatically, with no notice. They
don't expect their monthly payments to double and triple,
sending them further and further into debt.
But almost every card agreement allows the card company to
do just that. And a cardholder who makes one late payment, even
if the reason has been that they were at the hospital, will
soon find that their previous history of on-time payment for
years and years doesn't make any difference, that one late
payment can increase their rates, in some cases substantially.
Even cardholders who are financially responsible and do
their very best to meet their obligations fall victim to rate
hikes that are unexplained, totally out of proportion,
irreversible, inescapable, and which drive them deeper and
deeper into debt.
Recently Chairman Bernanke testified to this committee that
the Fed was going to use its unfair and deceptive practices
authority to regulate the very same abuses my bill goes after
because, he said, their authority to regulate disclosure was
not enough.
Ranking Member Biggert asked him, and I quote, ``What would
consumers need to know to make informed decisions?'' And he
responded, and I quote, ``They need to know the interest rate
and how it varies over time and what that means to them in
terms of payments.'' Well, how can a responsible consumer know
their interest rate and what their payments will be if the
interest rate changes for any time, any reason, and is applied
to their existing balances?
This bill aims to bring back some balance to the playing
field. It attempts to put some of the responsibility for fair
dealing back on the card companies and give cardholders the
tools they need to control their finances and make sure they
can pay back their debts responsibly.
It puts an end to any time/any reason repricing, stops
issuers from raising rates on existing balances of cardholders
who make their payments on time, and gives all cardholders
faced with any rate increase the ability to stop borrowing more
and pay off their loan on the terms that they agreed to.
We seem to have forgotten that a credit card agreement is
just that, an agreement. When the terms change--and the
interest rate is the most important term for most customers--
cardholders should have a chance to say no to the new deal and
pay off the loan they have at the terms that they originally
agreed to.
USA Today called this, and I quote, `` a sensible bill and
much-needed reform.'' Unlike other proposals before Congress,
our bill does not set price controls. It does not set rate caps
or limit the size of fees. I believe that our bill is a much-
needed correction to a market that has gotten wildly out of
balance.
I have always believed that responsible access to credit is
critical to our economy, and that access to appropriate credit
should be as broad as possible consistent with the safety and
soundness of the financial system. I believe in free market
solutions, but the free market only works when consumers have
the information they need and the ability to make informed
choices.
I think our bill will help cardholders and issuers exercise
their shared responsibility and promote a sounder economy. And
I look forward to the testimony of our witnesses.
I now recognize my good friend, Ranking Member Judy
Biggert.
Mrs. Biggert. Thank you. Thank you, Madam Chairwoman. I
made a mistake, and I would ask unanimous consent to increase
the time to 20 minutes per side.
Chairwoman Maloney. Whatever the ranking member wants.
Mrs. Biggert. Thank you.
Chairwoman Maloney. And I yield as much time as she may
consume.
Mrs. Biggert. Thank you.
The Chairman. If the chairwoman would yield, don't be
setting any bad precedents here with that.
[Laughter]
Chairwoman Maloney. No, sir. Okay, Mr. Chairman.
Mrs. Biggert. Thank you, Madam Chairwoman, for holding this
hearing on your bill today. Despite our differences on the
specifics of the bill, I have no doubt that the chairwoman
herself believes that she has the best interests of the
consumers at heart, and I believe that we all do. The borrowers
need transparency. They need to know what the terms of their
contract are simply, clearly, and reliably. And on this I agree
with Chairwoman Maloney.
There are a number of us in the room today who remember
when there was only one credit card, the Diners Club card in
the 1950's, a rare commodity for a few lucky individuals. A
couple hundred customers used the cards at restaurants that
were part of the card program.
Within a short time, the card evolved into a travel and
entertainment card, and was issued only to high-income, highly
creditworthy individuals who could immediately pay off their
entire bill balance upon receipt of the card. Let's not forget
that not much more than 2 decades ago, interest rates were
capped by State regulation. Card issuers charged borrowers a
sizeable annual fee. And if you didn't pay off the entire
balance each month, you faced a 20 percent fixed income rate.
No matter what your income or creditworthiness, it is hard
for young people today to believe it, but that is what credit
cards were like in the early days, prizes that were won by
people who, when you think about it, didn't especially need
them.
We don't want to go back to those days, so fast forward to
today. Innovation, technology, competition, and reduced
regulatory restrictions on interest rates have meant that
Americans of all income levels, ages, and walks of life have
access to credit cards and much, much cheaper credit cards.
According to the Federal Reserve data, about three-quarters of
American families have at least one credit card.
Would everyone in this room with a credit card please raise
their hand?
[Show of hands]
Mrs. Biggert. It is obviously a popular financial tool. But
my goal is to ensure that everyone who wants and likes their
credit card is not hurt today in this weakened economy or
tomorrow in an improved economy by the problems of a few
customers or abuses of a few issuers. We must first do no harm.
That having been said, do I believe that each and every
cardholder is completely happy with his or her credit card? Of
course not, no more than every cable TV subscriber or utility
company customer is completely happy with their service.
But unlike customers of those companies, credit card
borrowers have thousands of cards to choose from. They have
greater access to credit, access to cheaper credit, and access
to financial education and counseling on financial matters.
The success story of credit cards, I think, is often
overlooked. Credit card loans can be used for emergencies,
holiday shopping, paying bills, taking vacations, buying books
for school, and starting a business. You can even buy a cup of
coffee at Starbucks with a credit card.
Unfortunately, the credit card success story does not bring
us here today. What brings us here today are the problems that
some borrowers may have with their credit card companies and
some practices that should be changed.
As for the facts, I am pleased that Congress tasked the
experts at the Federal Reserve under the Truth in Lending Act
and Federal Trade Commission Act with the job of gathering
empirical evidence on all consumers and credit cards.
Two weeks ago, Federal Reserve Chairman Bernanke testified
before this committee that the Fed is writing regulations to
update disclosures and notices as well as rules to address
unfair and deceptive practices. He anticipates a final release
of both sets of rules later this year.
I am inclined to reserve judgment on the bill, H.R. 5244,
until we hear the results of what we in Congress authorized the
Fed to undertake, its revision of Regulation Z, which is the
culmination of 4 years of intensive expert review utilizing
consumer focus groups and other sound methodology as opposed to
anecdotal evidence.
Do consumers need improved and more helpful disclosures? Do
they need information so that they have the tools to make more
informed decisions about choosing a credit card, about their
card, or borrowing altogether? Finally, what is the best way to
address these matters? Is it through education, legislation,
regulation, self-regulation--in other words, letting the
marketplace and competition work for the consumer--or is
updating disclosures and cracking down on unfair and deceptive
practices the answer?
I must say that after reviewing data studies and testimony,
at this time it appears that regulation and education should at
least be among the first steps. Should Congress step in on that
basis and preempt the Fed? I'm not sure that is the answer.
But with that, I look forward to hearing from today's
witnesses and I yield back.
Chairwoman Maloney. The Chair recognizes Chairman Frank--
and thanks him for his leadership on this issue and so many
others--for as much time as he may consume.
The Chairman. I thank the chairwoman. I admire the energy
she has put into this.
I would say to my friends in the industry, it is a busy
morning, and if you want to know whether this is a serious
legislative effort, look at the membership. I am the chairman,
so I am always here when there is a full committee hearing.
Sometimes I am by myself; sometimes there are only one or
two people; sometimes I have all the Republicans and not many
Democrats; sometimes Democrats and not Republicans. Frankly,
even by ethnicity, the turnout may vary depending on the issue.
You have the most broadly representative membership of this
committee. This is an issue that counts.
For better or worse, credit card practices have engaged the
interest of America's middle class. And this is an issue that
has an impact with them. They are more capable of voicing their
opinions than some other sectors of our economy, so you should
know this is a serious issue.
It is also manifested, and the gentlewoman from Illinois
mentioned regulation. I am interested to note that two of the
financial regulators are in fact engaged in this now. When
Chairman Bernanke testified before us a few weeks ago at the
Humphrey-Hawkins hearing, he said something I hadn't heard in
my 28 years in this body, a Chairman of the Federal Reserve
Board uttering the words, ``consumer protection.'' It had not
happened since 1981. I have been at every one of the meetings.
And he is, as you know, in the process of talking about
regulations with regard to credit cards that go beyond
disclosure, that go beyond the Truth in Lending Act into
substance.
Similarly, I have been very pleased to see Mr. Reich, the
Director of the OTS, going forward with promulgating a code of
unfair and deceptive practices and including some very specific
things here. And part of the reason for that is--and, you know,
you get sometimes the consequences of what you wish for.
Many of the bank issuers of credit cards were successful in
persuading the Comptroller of the Currency and the Office of
Thrift Supervision to preempt a great number of State laws so
that in many cases there are--well, not in many cases--there
are virtually no State consumer protection laws that would be
bank-specific that apply to the credit card issuers who are
national banks.
I had differences with that on its own. But it was clearly
a problem because it left a vacuum. And the vacuum in
regulation, we ought to be clear: Nature may abhor a vacuum,
but the people who used to be regulated are kind of fond of it.
We now have the need for the Federal regulators to step in
and fill part of the vacuum that they created. Both the OTS and
the Federal Reserve are doing this, and the Federal Reserve's
authority covers all the other bank authorities.
Finally, I would say that I believe the gentlewoman's bill,
which I am glad to cosponsor, makes some very important
distinctions. It does not set rates. We are not in the rate-
setting business. There are people here who would set rates,
and I think, frankly, there is a lot of support in this body
and in the other body for setting rates.
We are not setting rates. We are saying, however, and I
think this is one of the guidance principles, that
retroactivity is a bad idea. My friends in the business
community have generally been very staunch in pointing out the
unfairness of retroactivity.
I urge them to realize that this is a principle that covers
both sides of this equation. And retroactive impositions on
borrowers, that is, things affecting balances already incurred,
violate the principle of retroactivity. We need to deal with
that.
I would also advise them--I am not sure, you are a
consultant, and given the ethics rules, I never will be because
it is too much trouble later on--but if I were in the business,
I would be cognizant of the unhappiness.
I mean, there are people in America who are convinced that
you have a personal algorithm for each of us that lets you know
when to send the bill so we are least likely to be able to pay
it on time. You know when we are sleeping and you know when we
are awake and you know when we are on vacation and you know
when there may not be somebody checking the mailbox. I know it
is not true, but if I were in that position, I would be unhappy
if people thought that.
So I urge you to cooperate with us. We are not setting
rates. We are not going to alter your ability, I hope, if this
bill goes through to do things going forward with a lot of
notice. But there is a good deal of unhappiness there.
And the final thing I would say is this: Obviously, the
competitive model is an important one. This is a committee that
I think on both sides has shown its support for the free market
system. But given the number of credit card issuers, we don't
have an equal competitive situation. You cannot rely here
wholly on the market for the kinds of things we are talking
about. And that is why I think this legislation should go
forward.
Thank you, Madam Chairwoman.
Chairwoman Maloney. Thank you.
The Chair now yields 4 minutes to the distinguished ranking
member of the full committee, Representative Bachus.
Mr. Bachus. Thank you, Chairwoman Maloney, for holding this
hearing on your legislation which would restrict certain credit
card industry practices. Whenever our committee considers bills
of this magnitude, legislation that has the potential to
significantly restructure a market that has benefitted hundreds
of millions of American consumers and businesses, Members must
fully understand the consequences, both intended and
inadvertent, of our actions.
Over the past 30 years, Americans' use of credit cards to
conduct their everyday financial transactions, as well as
address unexpected financial emergencies, has exploded. The GAO
has reported that Americans now hold more than 690 million
credit cards. So I will assume, when Ms. Biggert asked people
to raise their hand if they had a credit card and two-thirds of
the people raised their hand, I would assume the other third
weren't listening.
[Laughter]
Mr. Bachus. Because I think we all have a credit card, or
two or three.
The GAO also found that between 1980 and 2005, the amount
that Americans charged to their credit cards grew from an
estimated $69 billion per year to more than $1.8 trillion,
quite an increase.
While the legislation covers a wide range of industry
practices, at its core it is an attempt to impose limitations
on creditors' ability to offer their products according to the
risk posed to the individual consumers. As with any government
intervention in the free market, the bill presents a real
danger of restricting the range of products and services that
credit card issuers currently offer, which could result--and I
believe will result--in cutting off credit to some and raising
the price of credit for all.
Consumers could see increased minimum payments, reduced
credit limits, and less access to credit cards. And some would
say that is good. But here in America, we let people make those
choices, not normally the government.
The current economic uncertainty and the banks' need to
preserve capital in the face of significant mortgage-related
losses has already combined to reduce the amount of credit
available to consumers and small businesses. That is the
complaint we hear most often, is lack of credit, lack of
availability of credit. We hear almost no complaints of too
much credit from consumers. No matter how well-intended, ill-
conceived legislation could make a serious credit crunch far
worse.
Now, we can all share stories where someone has had a
problem with a credit card or difficulty as a result of using a
credit card. With 690 million credit cards, there would have to
be problems. But think a minute if we suddenly took 200 million
of those credit cards away, or 300 million. I believe that
would present problems and difficulties for the American people
also.
And that may be what we are talking about. We may be
talking, in this bill, about limiting the number of Americans
who will be offered credit cards and will certainly increase
the amount. Precipitous congressional action could be
particularly counterproductive at a time when the Federal
banking regulators are near completion of far-reaching
proposals on the very same issues that H.R. 5244 seeks to
address.
Chairwoman Maloney. The Chair grants the gentleman an
additional minute.
Mr. Bachus. I thank you. Two weeks ago, Chairman Bernanke
updated the committee on the status of the Federal Reserve's
forthcoming revisions on Regulation Z for credit card
disclosures. Everyone agrees that disclosures regarding the
terms and conditions of credit card products are too complex.
The Fed's Regulation Z revisions, once finalized, will go a
long way towards alleviating consumer confusion and helping
credit card customers make informed choices.
To complement its rewrite of Regulation Z, the Fed
announced last month that it will soon exercise its authority
on the Federal Trade Commission to write regulations to root
out unfair and deceptive acts or practices in the credit card
industry. These proposals from the Fed will be based on
extensive consumer testing as well as the Fed's 40 years of
experience.
Chairwoman Maloney. The gentleman's time has expired.
Mr. Bachus. I thank the chairwoman for the extra time.
Chairwoman Maloney. Thank you.
The Chair yields 2 minutes to Congressman Ackerman.
Mr. Ackerman. Thank you, Madam Chairwoman, for your
leadership on this issue.
There is little doubt that providing consumers access to
credit is a critically important component of our economy,
particularly now, as our economy may have already tipped over
into a recession. With the sputtering economy, Americans across
the country are becoming more dependent upon their credit cards
to pay their bills and sometimes to just put food on their
tables.
But with practices such as any time/any reason pricing, pay
to pay fees, universal default, restrictions on paying off high
balances, and I could go on and on, the consumer credit market
seems to be unfairly weighted against credit card customers.
Indeed, as the ramifications of relaxed underwriting
standards and unrealistic repayment terms within the mortgage
industry threaten millions of homeowners and our economy as a
whole, I believe we in Congress must ask the question: Is
practically universal access to credit under the present
conditions and practices truly beneficial to our economy? Or,
if we continue along the path of permitting credit card
companies to keep pushing the bounds of sound credit practices,
will we soon find ourselves in another credit crisis?
It strikes me that with all the fees and stipulations
attached, with eye-bursting fine print, credit cards are
becoming like the carefully fine-tuned products of the tobacco
industry. They have just enough nicotine in them to get you
hooked, but not enough to kill you, at least not right away.
Ensnarled by unfair and unsound credit practices, American
consumers find themselves suffering through years of mounting
debt, increasing interest rates, and for many, financial ruin.
It is my contention that credit card users deserve the
right to know, with sufficient notice, that their interest rate
is increasing. And they deserve an explanation as to why.
Credit card users deserve the right to decide how a bill
payment is applied to their account if they have multiple
outstanding balances.
Credit card users deserve the right to pay their bills on
time in whatever manner they may choose without being charged
extra. And furthermore, I believe it is critically important to
the health of our economy to grant credit card customers these
rights as well as the others included in H.R. 5244 as soon as
possible so that we may prevent the second--
Chairwoman Maloney. The gentleman's time has expired.
Mr. Ackerman. I thank the chairwoman for her leadership.
Chairwoman Maloney. Thank you. The Chair recognizes
Congressman Garrett for 2 minutes.
Mr. Garrett. I thank the Chair for holding the hearing
today, and I welcome all the witnesses and appreciate your
coming and the testimony that we are about to hear from you.
You know, as we move now into the 21st Century, the
financial products that become available to us are rapidly
changing and expanding at the same time. Credit cards, as
others have said already, really do provide an essential
service to millions of Americans.
The ability to establish credit, borrow money, has
basically become fundamental to our economy. So whether it is
buying a new washing machine or, as I just had to do, putting a
new transmission in your car, or maybe, as some other people
do, use your credit cards to start a home business, literally
start up from scratch, they allow us to finance needed goods.
It also allows us to pay it over time, and also, through some
of the credit card companies, to track those costs as well on a
monthly, quarterly, or at the end of the year basis.
Unfortunately, we have heard a number of instances in news
stories--like in today's paper; I guess they must have known
you all were going to be here--and some from constituents as
well where folks feel that they have maybe been misled or just
didn't understand what they were getting into with these cards.
But I think there are really probably a lot more stories
out there that are left untold that aren't in today's paper of
how credit cards have significantly helped people through some
of their tough times, and also helped those people who are
trying to start a business.
So I think we need to sit back and wait a little bit and
hear and consider. As we push to address the concerns of some
of the consumers who have been negatively impacted, we can't
really overreact and wind up eliminating credit for those
people or raising costs for the creditworthy Americans who
really do rely on credit cards for their daily lives.
We are in tough economic times right now. We hear talk of
recession. We hear talk of credit tightening. So if we pass
legislation that prevents issuers from beginning to price for
risk, I am afraid we will either tighten the credit market on
the riskier borrowers or drive up prices on the rest of
Americans.
And I would just advise this committee to do what the
chairman of the committee has done with regard to SOX, and to
step back where another entity, in this case the Federal
Reserve, is taking action on it. Let's see how--
Chairwoman Maloney. The gentleman's time has expired.
Mr. Garrett. --they deal with it before we act
precipitously.
And with that, I yield back.
Chairwoman Maloney. The Chair recognizes Congressman Moore
for 2 minutes.
Mr. Moore. Thank you, Chairwoman Maloney, for convening
this hearing and for your leadership in calling attention to
this important issue which affects millions of Americans.
Like many of the members on this committee, I have heard
concerns from consumers about a lack of clarity from credit
card issuers in explaining account features, terms, and pricing
on their accounts. I believe it is very important that we take
the necessary steps to improve disclosures and protect
consumers from unexpected fees or rate increases.
I also know that our Nation is experiencing a significant
credit crunch at this time and that credit cards remain a
lifeline for millions of Americans who would otherwise be
unable to pay for basic services to meet their daily needs.
That is why I believe we must take a careful, measured approach
in addressing this very important issue to ensure that nothing
we do here in Congress has unintended consequences for the
marketplace or for the consumer.
I practiced law for 28 years before I came to Congress, and
for 12 of those years, I served as a district attorney. In that
time, I learned that there are at least two sides to every
story, and sometimes many more. The best legal and policy
decisions, I believe, are made when we have all the facts
before we make a decision, and all the information is on the
table.
Again, I thank the witnesses for being here today. I look
forward to hearing your testimony and to talking to you about
this issue further in the future. Thank you, Madam Chairwoman.
Chairwoman Maloney. The Chair recognizes Congressman Price
for 3 minutes.
Mr. Price of Georgia. I thank the Chair, and I thank you
for holding this hearing. I want to thank the ranking member
for her tireless work on this effort as well. I want to thank
all the witnesses.
I read an article last week by former Senator George
McGovern--yes, Senator George McGovern--who wrote in the Wall
Street Journal that, ``The real question for policymakers is
how to protect those worthy borrowers who are struggling
without throwing out a system that works fine for the majority
of its users.''
We all support more clear and transparent disclosure. There
is no doubt about it. And I don't have any doubt that the
legislation that we are discussing today was written with a
desire to help borrowers who use credit cards.
However, not allowing for pricing for risk individually
will mean a higher cost of credit for every single American. In
fact, not allowing pricing for risk individually I believe to
be a form of price controls.
The proposed bill also dictates how card companies must
treat the payment of multiple balances at different interest
rates. This will mean American borrowers, all borrowers, can
say goodbye to low introductory interest rate offers and
balance transfers.
If this legislation were to become law, credit card issuers
would no longer offer these products. Some of us remember when
interest rates for credit cards were 18 to 20 percent; that was
all you could get. Those days will return, I would suggest, if
this legislation is adopted.
Fortunately, we don't operate in a bubble. We can learn
lessons from our friends in the United Kingdom, where the
Office of Fair Trading ordered credit card providers to halve
penalty fees by setting a maximum charge. An article in the
Daily Telegraph then said that several companies reintroduced
annual fees, a practice that is minimal in the United States
due to the individually risk-based pricing.
We can also look back to our own history. In 1980,
President Carter imposed price controls. In 1990, an analysis
of that by the Federal Reserve in Richmond said that we learned
three lessons from that: One, they may not deliver the desired
results; two, they may have unintended and unforeseen adverse
effects; and three, polices may tempt policymakers to impose
credit controls again despite unfortunate previous experiences
with such policies. The translation of that is: Americans lost
the opportunity for the credit.
It would be wise for us to learn from our experience in
1980. Again, as Senator McGovern pointed out so eloquently, the
nature of freedom of choice is that some people will misuse
their responsibility and hurt themselves in the process. We
should do our best to educate them, but without diminishing
choice for everyone else.
Madam Chairwoman, I have a copy of Senator McGovern's
complete op-ed, and I commend it for everybody's reading, and
also ask unanimous consent that it be included in the record.
Chairwoman Maloney. Without objection, it is so ordered.
Mr. Price of Georgia. And I will close, finally, with the
quote that I began with from Senator McGovern's article, and
that was, ``The real question for policymakers is how to
protect those worthy borrowers who are struggling without
throwing out a system that works fine for the majority of its
users.''
I yield back the balance of my time.
Chairwoman Maloney. I now recognize Congresswoman Waters
for 2 minutes.
Ms. Waters. Thank you, Madam Chairwoman.
Let me start by saying that I am proud to be an original
cosponsor of H.R. 5244, the Credit Cardholders' Bill of Rights.
This legislation is long overdue in light of some of the
outrageous billing practices that have spread through the
credit card industry recently.
Contrary to the claims of the credit card and banking
industry, H.R. 5244 is a measured response to these practices.
I will say, however, that you are indeed brave, Madam
Chairwoman, for taking on these lucrative practices of such a
powerful industry.
As chairwoman of the Subcommittee on Housing and Community
Opportunity, I have certainly felt their wrath in the context
of the foreclosure crisis. I have heard many of the same ``the
sky is falling'' arguments about why even the most modest
regulation can drive up the price of credit unacceptably. I
don't buy it, and I am glad you, Madam Chairwoman, don't
either.
Indeed, I think the practices of the credit card industry
may even be more troubling in some ways than those in the
subprime mortgage market. Some have referred to the subprime
adjustable rate mortgages at the heart of the mortgage crisis
as exploding mortgages because of the substantial rate resets
that occur after 2 or 3 years. But at least it was apparent to
a borrower that the rate would increase even if the loan
originator failed to do due diligence on its long-term
affordability absent significant appreciation in the price of
the house in question.
By contrast, I think we could label credit card agreements
landmine loans because it is not at all clear to consumers if,
how, and when their interest rates are going to increase. And
yet increase they do, for many reasons.
I join with the chairwoman in believing they should either
ban outright, or significantly limit such a so-called universal
default, where companies can penalize a cardholder for payment
behavior that has nothing to do with their particular card.
Similarly, on-time payment is no guarantee against additional
fees being imposed through double-cycle billing.
Finally, the companies do their best to complicate what
timely payment is, often--
Chairwoman Maloney. The gentlewoman's time has expired.
Ms. Waters. Thank you very much. I yield back the balance
of my time.
Chairwoman Maloney. The Chair recognizes Congressman Castle
for 2 minutes. And I thank him for his work in a bipartisan way
with the many meetings and roundtable discussions that we had
leading up to this bill. Representative Castle.
Mr. Castle. Thank you, Madam Chairwoman. And while I have
an open mind about reform, I also think it is very important to
keep some basic facts in our subsequent discussions in
perspective.
We are a nation with about 225 million credit-active
Americans. According to the Federal Reserve, around 640 million
credit cards are in circulation in this country. The Fed
published a report a few years ago that said the average
American consumer has 5 credit cards; and 1 in 10 consumers has
more than 10 credit cards in their wallet. I have seen a study
that shows that most consumers keep their credit cards a
minimum of 7 years, and frequently much, much longer.
My point is this: Consumers overall are a pretty savvy
group. If they find a good deal, they stick with it. If they
find a bad deal or are treated poorly, they drop that product
or service in a heartbeat.
Since the overwhelming majority, about 90 percent of the
public, pays its credit card bills on time, I worry that well-
intended legislative efforts might go too far, especially since
the finally updated version of Federal Reserve Regulation Z
will address many of the provisions included in H.R. 5244. And
it is scheduled for release soon.
Chairman Bernanke, at our most recent hearing which he
attended, when discussing the unfair and deceptive practices,
he indicated that other steps are going to be announced in the
next couple of months that would pertain to this as well.
Let me be clear so our witnesses and the public can have a
better appreciation for all that the Federal Reserve has done
relative to these soon-to-be-released regulations. The
professional staff of the Federal Reserve has put out for
comment several different consumer-tested ideas related to
credit cards that were developed in part with the help of
consumer focus groups. They have been very deliberate in their
approach to these issues, and have gone so far as hiring
consumer focus groups to test proposed disclosure and billing
ideas.
Subsequently, as this process has unfolded, the Fed has had
to review over 2,500 comments from banks, consumers, consumer
groups, lawyers, and so forth concerning these issues and
proposed solutions. All this work will come to an end later
this year, and I would prefer to see what final changes are
proffered by the Fed before pursuing any legislative proposals.
Madam Chairwoman, our economy is struggling. And while I
want to do everything I can to make certain consumers are dealt
a fair hand and our financial services industry thrives, I look
forward to the testimony today and the important work the
Federal Reserve will release later this year.
I yield back the balance of my time.
Chairwoman Maloney. The Chair now recognizes Congressman
Hodes for 1.5 minutes.
Mr. Hodes. Thank you, Madam Chairwoman. I am happy to be
here at this hearing. And I have taken a relatively restrained
approach so far to this issue. I am not yet a cosponsor on the
bill because I am interested to hear what the representatives
here have to say and what the testimony divines.
I will say I am here with--I brought a document which is a
slightly redacted bill that I got from Bank of America. I would
ask unanimous consent that after my remarks, this be included
in the record, Madam Chairwoman.
This bill shows a charge to me of $16.50, and says it was a
purchase and adjustment. But of course, it was a late fee. And
the late fee was because I posted the payment that was due on
the 22nd of February--apparently it wasn't received till the
23rd. So I was charged $15. And then $1.50 on top of that is
the minimum finance charge. And the front of the bill shows
that my annual percentage rate for the billing is 47.37
percent. What a surprise to me.
Then when I turned the bill over on the back and read
through the small print, I found that my payment due date can
change any time at the whim of the company. And I found that
interesting because the discussion that I had with my wife
prior to this billing period was, let's get our bill in on time
and make sure we send it early--
Chairwoman Maloney. The gentleman's time has expired.
Mr. Hodes. --in order to make sure that we don't get hit
with these kinds of payments. So I will be very interested to
hear the testimony from folks about these kinds of practices.
Chairwoman Maloney. The gentleman's time has expired.
Mr. Hodes. Thank you, Madam Chairwoman.
Chairwoman Maloney. The Chair now recognizes Representative
Hensarling for 2 minutes.
Mr. Hensarling. We are here today to consider H.R. 5244, a
distinctly anti-consumer piece of legislation. I believe the
bill begins to turn back the clock to an era where there was
little competition, and a third fewer Americans had access to
credit cards. And those that did paid the same high universal
rate regardless of whether they paid their bills on time.
I fear the bill represents another assault on personal
economic freedom, and will certainly exacerbate the credit
crunch that threatens our economy already. Instead of attacking
risk-based pricing and competition, we should be celebrating
it.
Since credit card issuers have adopted risk-based pricing,
interest rates have fallen substantially. We have seen the
virtual disappearance of consumer-hated annual fees and a
flowering of fringe benefits, from cash back to product
protection to free plane tickets, just to mention a few. And I
also note that credit cards are a vital tool for our Nation's
26.8 million small businesses, and so testifies the SBA.
Now, I don't come here today to defend all credit card
companies and all of their practices. In fact, when I have not
liked terms, both my wife and I have changed credit cards. And
there is one particular company that we refuse to do business
with. But competition has allowed this. And so I come here
today to defend economic liberty, risk-based pricing, consumer
empowerment, and a competitive marketplace.
We should all know the terms of the credit cards that we
have. If we don't, I suspect either: One, we were misled by a
credit card company, in which case there are existing legal
recourses, like Regulation Z and the Fair Credit Reporting Act;
two, maybe we tried to read the terms but we couldn't
understand them because of misguided government mandates that
gave us voluminous disclosure written in legalese, as opposed
to effective disclosure written in English; and three, maybe we
just didn't bother to read the terms, and have nobody to blame
but ourselves.
I fear again that if we adopt the provisions of this, too
many Americans will either be denied credit or see their credit
card costs skyrocket, and no longer be able to pay for the
bills they need in their everyday lives.
Chairwoman Maloney. The gentleman's time has expired.
Mr. Hensarling. I yield back.
Chairwoman Maloney. The Chair recognizes Congressman Green
for 30 seconds.
Mr. Green. Thank you, Madam Chairwoman. With 30 seconds,
let me just say that I am eager to hear from the witnesses that
we have assembled. I too have received many comments from
persons concerning things that are happening in the industry.
And I will yield back some time to you, Madam Chairwoman.
Thank you.
Chairwoman Maloney. The Chair recognizes Congressman
Neugebauer for 2 minutes.
Mr. Neugebauer. Thank you, Madam Chairwoman.
I would just make a couple of points here. I think when we
saw a number of people raise their hands a while ago who have
credit cards, I think we have to understand what credit card
credit is. One, it is unsecured credit. Basically, it is
unsupervised credit. And it is unrestricted credit for most of
us.
So I would be interested--and I am not going to do this to
you, but we saw how many hands that were raised that have
credit cards. But I wonder how many hands would raise if I
said, could you call a family member today and say, would you
loan me $15,000, unsecured, and they asked you, what are you
going to do with it, and you said, well, I really don't know,
but I might go to Las Vegas. Might buy my wife a new--
And so what it is is these lending institutions are taking
on an unsupervised, unsecured position. And there are things
built into those credit card contracts that encourage good
behavior, and there are things that are built into them that
discourage poor behavior, because basically they are basically
depending on just the desire of the person holding that card to
pay that card back.
I think what we have seen and will hear is a lot of people
are confused. And the question is, today, are we trying to come
up with some kind of consumer protection? And what are we
actually trying to protect the consumer from? And I would say--
Chairwoman Maloney. The gentleman's time has expired.
Mr. Neugebauer. That was 2 minutes?
[Laughter]
Chairwoman Maloney. Yes. Yes, it was. It was a quality 2
minutes. Thank you.
The Chair recognizes Congressman Scott for 1 minute and 30
seconds.
Mr. Scott. Thank you so much, Madam Chairwoman. This is
indeed an important hearing, a very timely hearing. We are a
credit card nation, and have been for some time.
But this issue is so important now because of the subprime
mortgage meltdown. Folks are now using their credit cards just
for the basic essence of survival. Many are even paying their
home mortgages on credit cards.
So this is very timely. There are issues of major concern
that I think we need to address. One of major importance is
universal default. I think we need to more clearly look at that
for an example. I think also we have to look at stopping credit
card companies from making--voluntarily changing the rates on
their own.
And in that regard, I think I ought to take a minute to
give a tip of the hat to Citigroup, who is already making those
changes because they see it as being unfair to the consumer.
I am also very concerned about one major issue: After a
customer has paid off all their fees, overdraft and the like,
why is it so difficult to close the account? When all the debt
is paid, why are additional fees added on when there isn't even
any money in the account, and the customer has further
requested that it be closed?
There are a number of very serious practices that the
industry is doing that certainly need to be stopped. And those
of you in the industry who are voluntarily moving in this
direction certainly need to be commended.
But we have a very serious issue. It is a timely issue. And
we must look at it with as clear a jaundiced eye as we possibly
can. The consumers across America are expecting this committee
to do it. I look forward to your testimonies.
Chairwoman Maloney. Thank you. And finally, the Chair
recognizes Congressman Udall for 1 minute.
Mr. Udall. I thank the chairwoman for letting me sit in on
this important hearing. And I would ask unanimous consent that
my entire statement be included in the record.
And if I might, I just want to acknowledge a fellow
Coloradan, Susan Wones, who came all the way here to testify,
and she will not be able to do so. She has a very important
story to tell us about the treatment she has received from her
credit card company, and I hope at some point she will be able
to be heard because, after all, this is about Americans who are
using credit in their daily lives.
I want to commend the chairwoman for holding this hearing,
and I know we are all going to look forward to working to bring
fair and real reform that makes sense for consumers and the
credit card companies alike. Thank you again, Madam Chairwoman,
and I will yield back any time I have remaining.
Chairwoman Maloney. That concludes our opening statements.
I would like to note that everyone has 5 days to put their
opening statements in the record.
I would now like to recognize our distinguished panelists.
We will begin with Ms. Elizabeth Warren, who is the Leo
Gottlieb Professor of Law at Harvard Law School. She will be
followed by: Greg Baer, deputy general counsel, regulatory and
public policy, Bank of America; Adam J. Levitin, associate
professor of law, Georgetown University Law Center; John
Finneran, general counsel, Capital One; Lawrence Ausubel,
professor, Department of Economics, University of Maryland;
Carter Franke, Marketing Executive, JPMorgan Chase; Oliver I.
Ireland, partner, Morrison & Foerster; and Katherine M. Porter,
associate professor, the University of Iowa College of Law.
Thank you all for coming. Each of you will be recognized
for 5 minutes. Your entire testimony will be part of the
official hearing record. So please begin, Ms. Warren, and thank
all of you for coming here and preparing your testimony today.
STATEMENT OF ELIZABETH WARREN, LEO GOTTLIEB PROFESSOR OF LAW,
HARVARD LAW SCHOOL
Ms. Warren. Madam Chairwoman, thank you for the opportunity
to join in this discussion.
We are here today to consider modest changes to the rules
governing credit cards. In fact, we are here to discuss banning
practices that many responsible lenders have already renounced.
As a result, much of this discussion is about ensuring that all
lenders follow best practices, practices that permit
profitability for issuers and safety for customers.
We are not here to regulate credit cards. This is not a
hearing to discuss interest rate caps, fee regulation, or any
restraint on free and competitive markets. And, contrary to
some of the frenzied lobbying claims, we are most certainly not
here to engage in price-fixing.
Instead, this is a hearing about tricks and traps that
undermine a competitive market. Lenders employ thousands of
lobbyists, lawyers, marketing ad agencies, public relations
firms, statisticians, and business strategists to help them
maximize their profits.
Customers need a little help, too. They need some basic
protection to be certain that the products they buy meet
minimum safety standards. Personal responsibility will always
play a critical role in dealing with credit cards. But no
family should be brought low by schemes designed to prey on the
unwary.
I want to speak for just a minute about the importance of
credit card reforms in a time of economic uncertainty. The
crisis in the subprime mortgage market has served as a bitter
reminder of what can happen when lending terms are not
transparent.
When lenders are careless in screening their customers,
when customers are unable to evaluate fully the risks
associated with borrowing, the result is a series of risky
loans, raising the eventual specter of high levels of default
and economic upheaval.
The events of recent months have reminded us we are all in
this economic boat together. Credit markets affect everyone,
and high risk lending can have an impact on prudent lenders and
people who never borrow. Without careful regulation to support
prudent lending, we face an increased risk that a credit card
bubble will further destabilize both families and the larger
economy.
Nearly half of all credit cardholders missed payments in
2006, the latest year we have data on. This makes them obvious
targets for the most aggressive and unfair tactics. Sending in
a payment that arrives one day late can cost a family an
average of $28, when the cost to the company is measured in
pennies.
Under the rubric of universal default, customers have been
hit with huge increases in interest rates, customers who have
scrupulously met every single term of their credit card
contracts. Anxiety has become a constant companion for
Americans struggling with debt.
Listen to these numbers: Today, one in every seven American
families is dealing with a debt collector. Forty percent of
families worry whether they can make their payments every
month. One in five Americans is losing hope, saying they expect
to die still owing on their bills.
Credit card contracts have become a dangerous thicket of
tricks and traps. Part of the problem is that disclosure has
become a way to obfuscate rather than to inform. According to
the Wall Street Journal, in the early 1980's, the typical
credit card contract was a page long. By the early 2000's, it
was more than 30 pages long.
The additional language was designed in large part to add
unexpected and incomprehensible language that favors the credit
card companies. H.R. 5244 begins to clear a path through this
tangle.
All-purpose cards generated $115 billion in revenues in
2006. Profits were a handsome $18.4 billion, a 45 percent jump
from the year before. There is, of course, no breakdown in the
interest and fee categories to explain how much of the industry
revenue came from universal default, double-cycle billing, and
other unscrupulous practices. But it is possible to gain some
sense of the need for such tricks and traps by noting the
number of highly profitable card issuers who have publicly
renounced such practices.
Companies should be commended for moving in the right
direction on credit card terms. It is now the task of this
committee to move their less ethical competitors into similar
practices. Congresswoman Maloney and Chairman Frank and the 39
cosponsors have taken an important first step toward ending
practices that put both families and markets at risk. They
deserve our thanks and our support.
[The prepared statement of Professor Warren can be found on
page 153 of the appendix.]
Chairwoman Maloney. I thank the gentlelady. We now have 82
cosponsors. And we appreciate very much your testimony.
Mr. Baer.
STATEMENT OF GREGORY BAER, DEPUTY GENERAL COUNSEL, REGULATORY
AND PUBLIC POLICY, BANK OF AMERICA
Mr. Baer. Good morning, Chairwoman Maloney, Ranking Member
Biggert, and members of the subcommittee. My name is Greg Baer,
and I am deputy general counsel at Bank of America. I
appreciate the opportunity to present our views today. Let me
say a few words about risk-based pricing at Bank of America,
and then turn to H.R. 5244.
Risk-based pricing is first employed when we receive an
application from a consumer and consider FICO score and general
credit history. That information is useful, but as the years go
by, the original information tells us less and less about the
risks we are running. But our ongoing experience with the
customer tells us quite a lot. We use that information to
reprice in two ways.
First, at Bank of America, we default reprice a customer if
the customer violates his contract with us by going late or
over limit not once but twice within a 12-month period.
However, not all customers who hit our default triggers are
necessarily repriced. We look at these customers individually
and determine whether the default truly indicates higher risk.
Second, when we see that a customer is exhibiting other
risky behavior, such as maxing out credit lines or defaulting
on other loans, we may seek to charge the customer a higher
rate. But the customer always has notice and choice. The
customer can simply decline the higher rate and repay the
existing balance under the old rate.
The only thing we ask the customer to do in return is to
stop making additional charges on the card. This notice and
choice is of course the distinction between risk-based pricing
and universal default, a practice in which Bank of America has
never engaged.
I should note that our experience shows that nothing makes
customers angrier than an increase in the interest rate. We
have seen evidence of that today. At Bank of America, where our
goal is to make a credit card customer a mortgage, a deposit,
and a retirement savings customer, we have all the more reason
to keep our customers satisfied. Thus, looking at our 2007
portfolio, the overwhelming majority of customers--nearly 94
percent--had the same or lower rate than they did at the
beginning of the year.
So why would we ever raise rates? First, because for these
customers we are confident that we bear real increased risk.
Rigorous testing shows that our models are extraordinarily
predictive of consumer behavior.
Furthermore, when we reprice customers, we find that many
manage their credit more wisely, making larger monthly payments
and paying down their debt faster. Thus, a higher interest rate
not only allows us to earn income to compensate for greater
risk, it can actually reduce the risk we are managing.
There is a third type of repricing known as any time/any
reason repricing generally done when market interest rates rise
or an issuer is not earning a sufficient return. Because we use
risk-based pricing, we believe that Bank of America has been
less likely to have to use this type of repricing.
Now let me turn to H.R. 5244. We are very concerned that
this bill would significantly hinder our ability to price the
risks of lending, and would result in less credit being made
available to creditworthy borrowers, with generally higher
prices for those who do receive credit. Let me highlight two of
the concerns described in my written testimony.
First, H.R. 5244 would prohibit risk-based repricing of
existing debt at any time, even with notice and choice. It is
important to note that in the great majority of cases, we learn
about an increase in a customer's risk after the customer has
run up a large balance, not before. Thus, the risk lies in that
existing balance, not in future charges.
Second, in addition to letting them opt out of risk-based
repricing, H.R. 5244 would provide customers the ability to opt
out of default repricing, that is, allow customers to breach
their credit agreement but suffer no consequence for it. The
bill thereby would take significant steps to reduce the
customer's incentive to manage credit wisely.
Recent experience suggests that this course is not a wise
one. There is general consensus that a major cause of the
mortgage crisis was an originate-to-distribute model where some
participants in the system had incentives to externalize risk.
A clear lesson of the past year has been that both lenders and
consumers suffer when lenders do not sufficiently consider
risk.
Before closing, I would like to react to some testimony
suggesting that the credit card industry is not competitive on
price and does not risk-base price. We find this difficult to
understand. For example, we have a team of approximately 30
associates who engage solely in new account marketing,
constantly evaluating new competitive strategies. They offer a
variety of products with different interest rates, features,
and benefits to see how they do.
In 2007, we sent out approximately 111 million test pieces
in over 500 tests, of which 36 million were price tests, trying
to see how changes in rate can affect market share. The same
competition occurs for existing customers. We fight for balance
transfers through promotional rates and other offers.
Customers often call us to inform us of an offer from a
competitor at a lower rate than they are paying us, and our
associates have discretion to match those rates when
appropriate. And even when customers call in for reasons
unrelated to rate, our associates check to see if they have
balances with competitors, and offer them price incentives to
transfer those balances.
In short, any legislation premised on this industry not
being highly competitive on price and terms would be based on a
false premise.
That concludes my remarks. I look forward to answering any
questions that you might have.
[The prepared statement of Mr. Baer can be found on page 91
of the appendix.]
Chairwoman Maloney. I thank the gentleman for his
testimony, and note that both Ms. Warren and Mr. Baer pointed
out in their testimony that many credit card companies do not
engage in universal default and some of the other abuses that
we are trying to correct in this legislation.
And Mr. Levitin.
STATEMENT OF ADAM J. LEVITIN, ASSOCIATE PROFESSOR OF LAW,
GEORGETOWN UNIVERSITY LAW CENTER
Mr. Levitin. Madam Chairwoman, members of the subcommittee,
I am pleased to testify today in support of the Credit
Cardholders' Bill of Rights. I am here to address a major
argument put forth by the credit card industry against any form
of regulation, namely that it would dissipate the benefits of
so-called risk-based pricing.
Credit card issuers contend that since the early 1990's,
they have engaged in risk-based pricing and that risk-based
pricing has benefitted creditworthy consumers in the form of
lower costs of credit and subprime consumers in the form of
greater availability of credit. Card issuers argue that any
regulation of their billing practices would negate the benefits
of risk-based pricing.
It is important that the subcommittee understand that there
are three problems with the card industry's risk-based pricing
story. First, credit card pricing is, at best, only marginally
risk-based. Credit cards have an astounding array of price
points--annual fees, teaser interest rates, base interest
rates, balance transfer interest rates, cash advance interest
rates, overdraft advance interest rates, default interest
rates, late fees, overlimit fees, balance transfer fees, cash
advance fees, international transaction fees, telephone payment
fees, and so on. I think I missed a few.
Of this multitude of fees, only a couple--base interest
rates and late fees--have any relation to consumers' credit
risk. And even then, it is not narrowly tailored. Most issuers
offer only a couple tiers of pricing for base rates and late
fees. But consumer credit risk does not come just in sizes
large and small.
The majority of credit card pricing has no relation to
cardholder risk whatsoever. Instead, the pricing is a function
of the card issuer's ability to load on fee after fee after fee
to customers who are locked into using the card because of high
costs in switching cards.
Not surprisingly, as the graph I have up shows, there is
virtually no difference in the average effective interest rate
for platinum cards, gold cards, and standard cards, even though
these cards are issued to consumers with very different credit
profiles. Viewed as a whole, credit card pricing is not risk-
based. It only reflects risk on the margins.
The second problem with the risk-based pricing story is
that it cannot be connected to lower costs of credit for
creditworthy consumers. It is far from clear that overall
credit costs have declined, much less that any decline could be
attributed to risk-based pricing, since the early 1990's.
Credit card pricing has become a game of three-card Monte.
Card pricing has shifted away from the up-front visible price
points, like annual fees and base interest rates, and shifted
to back-end fees that consumers are likely to ignore or
underestimate.
For example, even as base interest rates have fallen, a
host of new fees have sprouted up, and other fees, like late
fees and overlimit fees, have soared. According to the GAO,
from 1990 to 2005, late fees have risen an average of 160
percent and overlimit fees have risen an average of 115
percent. For creditworthy consumers, many credit card costs
have risen since the advent of risk-based pricing.
The one credit card price point that has declined for
creditworthy consumers are base interest rates. This decline,
however, is not attributable to risk-based pricing. Instead,
virtually the entire decline is attributable to the decline in
card issuers' cost of funds. The net interest margin, displayed
on the graph, is the spread between the card issuers' cost of
funds and the base interest rate at which they lend.
This rate has remained basically static since the early
1990's, indicating that base interest rates have declined at
roughly the same rate as the cost of funds. In other words, the
decline in base rates is due to the decline in issuers' cost of
funds, not risk-based pricing.
Even if credit card pricing were actually risk-based in a
meaningful way, there is no evidence that connects it to lower
pricing for creditworthy consumers. The third problem with the
risk-based pricing story is that there is no evidence that
connects it to greater availability of credit for subprime
consumers.
The availability of credit for subprime consumers has grown
since the early 1990's, but this is a function of
securitization rather than of risk-based pricing. Several years
ago, Alan Greenspan told the Senate Banking Committee that,
``Children, dogs, cats, and moose are getting credit cards.''
It is hard to reconcile a story of risk-based pricing with
cards being issued to toddlers and pets.
The greater availability of credit is instead a function of
securitization. Securitization increases lenders' lending
capacity and lets them pass off default risk onto capital
markets. Securitization, not risk-based pricing, is the
explanation for growth in lending to subprime consumers.
Even if credit card pricing were truly risk-based, and even
if it had the benefits claimed by the card industry, nothing in
the Credit Cardholders' Bill of Rights implicates the risk-
based pricing model. The Cardholders' Bill of Rights is about
banning abusive and manipulative billing tricks, nothing more
and nothing less. It does not regulate interest rates or fee
amounts, and it leaves card issuers with at least five ways of
accounting for risk.
Because the practices banned by the Cardholders' Bill of
Rights are at best incidental to issuers' profitability, we
should not expect to see the result in higher costs of credit,
or lower availability of credit, or affect asset-backed
securities markets.
Instead, this legislation will help clarify credit card
pricing, which is a prerequisite for an efficient, competitive
market. H.R. 5244 will help consumers and will make for a fair
and more efficient credit economy, and I strongly urge Congress
to pass it into law.
[The prepared statement of Professor Levitin can be found
on page 117 of the appendix.]
Chairwoman Maloney. Thank you.
Mr. Finneran?
STATEMENT OF JOHN G. FINNERAN, JR., GENERAL COUNSEL, CAPITAL
ONE
Mr. Finneran. Thank you, Chairwoman Maloney, Ranking Member
Biggert, and members of the subcommittee. I want to thank you
for inviting me back to testify before the subcommittee, this
time about pending credit card legislation.
This subcommittee has played a constructive role in
identifying problems that consumers have had with their credit
cards. Capital One has been a willing and active participant in
the dialogue about how to improve on the remarkable value
delivered to millions of American consumers by credit card
products.
With respect to the practices that have been central to the
debate, Capital One has worked diligently to establish a high
standard of customer sensitivity. We do not engage in any form
of universal default repricing. We have never done two-cycle
billing.
We have a single clear penalty repricing policy. We will
impose a penalty rate on a consumer only if the consumer pays
late twice, by 3 days or more, in a 12-month period with
respect to that specific card. We will provide the customer
with a prominent warning on the billing statement after the
first infraction. In many cases, we choose not to reprice the
customer even if the customer pays us late twice in the 12-
month period. If a customer is repriced but pays us on time for
12 consecutive months, we will take that customer back to the
prior rate. This unrepricing is automatic.
We have supported the Federal Reserve's proposed 45-day
notice for penalty repricing, and have gone beyond the Fed's
proposal to urge that customers be given the opportunity to
reject any repricing, close the account, and pay down the
outstanding balance at the old rate over time. We provide our
customers notice and the ability to opt out of overlimit
transactions.
Across our entire portfolio of customers, more than 30
million, we work very hard to provide important notices in
plain English that capture their attention at critical moments.
We do so because we believe, as Chairman Bernanke said to this
committee, that cardholders must understand the terms under
which they are borrowing and be empowered to manage their
credit wisely, as the overwhelming majority of our customers
do.
Capital One has never been a voice for the status quo. We
have long advocated for changes in the way credit cards are
marketed to consumers. We believe that the banking regulators
have the statutory authority right now to implement an advanced
consumer choice regime that effectively solves the most
critical credit card problems identified by this committee with
minimal risk of oversteering or unintended consequences.
Toward that end, we have led the industry in recommending
that consumers have clear, conspicuous 45-day notice and the
right to opt out of all types of repricing. And we believe that
such a regulatory initiative may be on the horizon.
But, Madam Chairwoman, we also believe that it is unwise,
especially at this time, to enact broad legislation that sets
payment formulas in statute, redefines critical product
features, and limits the tools of risk management for consumer
credit. Capital One must therefore oppose H.R. 5244, and we do
so for three fundamental reasons.
First, the legislation sets multiple statutory limits on a
lender's ability to price for the cost of credit. For example,
under the heading of eliminating double-cycle billing, the bill
actually redefines the concept of grace period and arbitrarily
expands the degree to which all issuers, even those who don't
engage in double-cycle billing, must extend credit interest-
free. Other provisions of the bill also raise the specter of
price controls.
Second, the consequences of so sweeping a bill would be to
force the industry to raise the cost of credit for everyone,
even those who present less risk of default to the lender, and
reduce the availability of credit for those consumers who
present a greater risk of default.
Third, this result would be exactly the wrong policy
prescription, particularly in this economic environment. As the
mortgage crisis has unfolded, we have had a progressive
tightening in the credit markets, and many believe we are near
or in a recession.
To ease the impact of a slowdown on our economy, the Fed
has aggressively lowered the Federal funds rate, and Congress
has passed a bipartisan stimulus package. H.R. 5244 could
significantly counteract the positive effects of both of those
policy initiatives. Madam Chairwoman, that would be especially
unfortunate since the regulators, those policymakers uniquely
positioned to evaluate the complex and dynamic credit card
industry, are poised to address all of the issues targeted by
H.R. 5244.
Under its new Regulation Z rule, the Fed proposes a 45-day
notice period for all types of repricing. The new rule also
offers improved disclosure requirements for payment allocation,
minimum payment, and interest rates. And that is just a partial
list.
Equally importantly, Chairman Bernanke has confirmed before
this committee that the Fed will supplement its Reg Z rule with
new credit card rules under its UDAP authority. It seems likely
that those rules will go to the core of the committee's
concerns. We believe that such rules may provide the best,
safest, and most direct road to reform.
Capital One has publicly called for balanced, reasoned
change that can be implemented quickly, would improve
disclosure, and enhance customer choice. We have also sought to
work cooperatively with you and the committee. Though we must
respectfully disagree about the impact of H.R. 5244, I want to
thank you again for the opportunity to express our views.
[The prepared statement of Mr. Finneran can be found on
page 101 of the appendix.]
Chairwoman Maloney. And thank you very much for your
testimony.
Mr. Ausubel?
STATEMENT OF LAWRENCE M. AUSUBEL, PROFESSOR, DEPARTMENT OF
ECONOMICS, UNIVERSITY OF MARYLAND
Mr. Ausubel. Chairwoman Maloney, Ranking Member Biggert,
and members of the subcommittee, my name is Lawrence Ausubel,
and I am a professor of economics at the University of
Maryland. I am honored by the invitation to appear before you
today.
Credit card debt poses a common pool problem. Since it is
not secured by any collateral, and since recoveries will be
allocated pro rata under bankruptcy, each card issuer is
motivated to try to collect from the common pool, and the
attempt to collect by one issuer may pose a negative
externality to others.
When a consumer becomes financially distressed, each credit
card lender has an incentive to try to become the first to
collect. A useful explanation of penalty interest rates and
universal default clauses is that each issuer is seeking to
maximize its own individual claim on this common pool of debt.
To the extent that the financially distressed consumer is
still able to repay any debt, a high penalty rate, such as 29.9
percent, takes advantage of the situation and provides
incentives for this issuer to be repaid in front of other
lenders. And to the extent that the consumer repays no debt,
the high penalty rate maximizes the issuer's nominal loan
balance, and therefore the issuer's pro rata share of
recoveries following bankruptcy.
Since every credit card issuer has this unilateral
incentive to charge a high penalty rate, the likely outcome is
inefficiently high penalty rates. As such, this common pool
problem may be viewed as a market failure, yielding scope for
Congress to intervene in useful ways.
Universal default clauses arise in similar fashion. Each
issuer individually has the incentive to impose penalty pricing
when a consumer misses a payment to somebody else in order to
collect first from the common pool. This prisoner's dilemma-
like game has the result that all issuers impose universal
default, but no issuer is any better off if all have it than if
none have it.
Indeed, they may all be made worse off; an overextended
consumer suffering a setback is often best dealt with by
relaxing the terms of the loan and giving the consumer an
opportunity to get back on his feet. Instead, penalty pricing
and universal default create an explosion of finance charges
from which it is difficult for the consumer to emerge.
Given the current turmoil in credit markets and in real
estate, additional pressure on consumers from credit card debt
would be particularly unfortunate. Such pressures could be
reduced if the proposed bill becomes law in a timely fashion.
While it is almost axiomatic that consumers who have
triggered penalty rates are greater risks than consumers who
have not, I am unaware of any empirical evidence that the
magnitude of higher rates bears any close relation to the
magnitude of enhanced risk. Quite to the contrary; it is
evident from other aspects of credit card pricing that the
levels of many fees are based more on the relative
insensitivity of consumer demand than on any particular
relation to cost.
Good examples are the 3 percent surcharges recently imposed
by most issuers on credit card transactions made in foreign
currencies, the $39 late fees imposed irrespective of the
number of days payment is late, etc.
As part of my written statement, I have included a new
paper, co-authored with Professor Amanda Dawsey of the
University of Montana, developing an economic model of the
issue. While our analysis is very preliminary and incomplete,
the penalty interest rate appears to be higher under universal
default, and the higher interest rate appears to exceed the
enhanced credit risk associated with missing a payment.
A second result is that the probability of full repayment
after missing a minimum payment is lower under universal
default.
Third, it appears that social welfare is frequently lower
with universal default than without it.
Separately from these issues, let me briefly observe that
any time/any reason repricing would appear to be detrimental to
competition in the credit card market. This conclusion comes
from standard considerations in industrial organizations, such
as search costs and switch costs.
How can a consumer comparison shop if all he is told about
future pricing is, we may change your APR and fees ``based on
information in your credit report, market conditions, business
strategies, or for any reason?'' That is a quote from the
current Bank of America disclosure.
Thank you.
[The prepared statement of Professor Ausubel can be found
on page 76 of the appendix.]
Chairwoman Maloney. Thank you.
Ms. Franke?
STATEMENT OF CARTER FRANKE, MARKETING EXECUTIVE, JPMORGAN CHASE
Ms. Franke. Madam Chairwoman, and members of the committee,
good morning. My name is Carter Franke and I am a senior vice
president at JPMorgan Chase. I am proud to represent today the
20,000 Chase card service employees who serve the needs of more
than 100 million Chase card customers each and every day.
Chase believes that building solid customer relationships
is the best approach to long-term success in the credit card or
in any industry, and we have worked to deepen those
relationships for a number of years.
Last year we articulated before Congress and in many other
venues our belief that the appropriate use of credit cards
involves a shared responsibility between banks and their
customers. We said that credit cardholders need to use their
cards responsibly, only purchasing what they can afford, never
exceeding their credit limits, and making their payments on
time.
For banks like Chase, our responsibilities include the need
to listen and respond to customer needs, to communicate clearly
about our products, to make sure customers understand the terms
of our agreement, and to go further by helping them live up to
those terms.
That is why early last year we developed our Clear & Simple
program, to make sure that customers have clear information and
to help simplify their relationship with us. Clear & Simple
provides tools that help customers manage their accounts and
use those tools and therefore virtually eliminate the
possibility of ever paying a penalty fee.
Also last year, after listening to our customers, we
decided to make a major policy shift. As of March 1st of this
year, we no longer use credit bureau information to initiate a
reset of a customer's rate with us. We very much appreciated
your announcement applauding our change, Madam Chairwoman. We
believe that both in principle and practice, we share your
concerns for consumers who use credit cards.
However, in order to avoid the unintended consequences of
higher interest rates and decreased access to credit for
consumers, we believe that great caution must be exercised in
the process of turning these concerns into complex new
legislation.
Even though Chase does not engage in a number of the
practices the bill would prohibit--for example, two-cycle
billing and bureau-based repricing--we do believe that the
overall impact of the legislation would be to lessen our
ability to price according to the individual risk profile of
our customers, which is the bedrock of the competitive credit
card industry today.
Study after reputable study, including those by the GAO,
the Federal Reserve, and just last month by the Congressional
Research Service, have concluded that the ability to measure
and price according to individual risk has significantly
lowered average interest rates and brought credit cards to
millions of Americans who could not have gotten them 15 years
ago.
While the bill has the admirable goal of protecting
consumers, it seeks to do so through complex, expansive rules
and restrictions that would micromanage the banks' ability to
charge or change interest rates based on indicators that we
know significantly raise a customer's risk of default. At
Chase, for example, we know that 30 percent of customers who
are late twice in one year will eventually default on their
loans, an expensive process that raises cost for other
customers.
Without the ability to mitigate risk, banks will have to
reduce the number of people they are able to make loans to,
depriving many families access to mainstream credit and
possibly driving them to subprime markets where interest rates
are exorbitant.
We believe that the Federal Reserve Board's process to put
more information and greater control in the hands of consumers,
combined with a commitment to ban practices that are unfair or
deceptive, is preferable to the legislation currently under
discussion, and that Congress should let the Fed's process
continue to determine its effectiveness.
In summary, let me quote Chairman Bernanke, speaking to the
committee several weeks ago: ``Onerous regulations that create
reductions in credit availability unconnected with the issues
of disclosure would be a negative in the current environment.''
That is our point.
We are concerned that this bill would reduce the
availability of credit at the very time when Congress is doing
all it can to increase credit availability and stimulate the
economy.
Thank you very much, and I look forward to your questions.
[The prepared statement of Ms. Franke can be found on page
105 of the appendix.]
Chairwoman Maloney. Thank you very much.
We have been called for two votes, and there are 8 minutes
left in the vote. I did want to note that Chase did voluntarily
incorporate some of the best practices that were in our Bill of
Rights, and we congratulate you for that, and Bank of America,
too, for those actions.
But we are going to break now for two votes, and we will be
right back. Thank you so very, very much, and I apologize for
this inconvenience.
[Recess]
Chairwoman Maloney. The hearing will be called to order.
Will the witnesses please take their seats, and we can resume
in a few moments with Mr. Oliver I. Ireland.
STATEMENT OF OLIVER I. IRELAND, PARTNER, MORRISON & FOERSTER
Mr. Ireland. Chairwoman Maloney, Ranking Member Biggert,
and members of the subcommittee, I am a partner in the
Washington office of Morrison & Foerster. I was an Associate
General Counsel at the Federal Reserve Board for over 15 years.
And I have worked on credit card issues since 1975. I am
pleased to be here today to discuss H.R. 5244, the Credit
Cardholders' Bill of Rights Act of 2008.
The current credit card disclosure regime has not kept up
with the market. Recognizing this, in June 2007, the Federal
Reserve Board proposed a comprehensive revision to the credit
card provisions of its Regulation Z that address many of the
issues raised by H.R. 5244.
In addition, the Board is exploring additional credit card
issues under its unfair and deceptive acts and practices
authority. It is premature to address credit card practices in
legislation until these initiatives are completed, probably
later this year.
The regulation of consumer credit is highly technical, and
the risks from acting on inadequate information or simply
imperfect drafting are significant. Unfortunately, I believe
that H.R. 5244 reflects some of these problems.
H.R. 5244 may lead to increased rates and reduce credit
availability. For example, H.R. 5244 would limit risk-related
increases in APRs on existing balances, would prolong the
payoff of these balances, limit changes in terms generally, and
require 45 days' advance notice and an additional 90-day opt-
out period for rate increases.
The Federal Reserve Board's proposal is far simpler. It
would require 45 days' prior written notice before increasing
rates that applies to both changes in terms and default
pricing. These prior notices in the Board's proposal would give
a cardholder ample opportunity to seek a better rate elsewhere.
In addressing double-cycle billing, H.R. 5244 appears to
mandate grace periods that are not now provided for and to
outlaw current interest rate calculation practices that are not
considered to be double-cycle billing. Under the Board's
proposal, double-cycle billing would continue to be disclosed
in solicitations and account opening disclosures. If this does
not fully address concerns, additional disclosures could
address the issue without outlawing unrelated practices.
H.R. 5244 would require pro rata allocation of payments to
balances that are subject to different rates, thereby
discouraging low promotional rates that can help customers to
change accounts when their rates on existing accounts are
increased. Under the Board's proposal, credit card issuers
would be required to make a new payment allocation disclosure
for discounted cash advance or balance transfers. This
disclosure could be broadened to other circumstances where
different rates apply to different unpaid balances.
H.R. 5244 would require statements to be sent at least 25
calendar days before the due date, a 75 percent increase over
current Regulation Z requirements. This would discourage grace
periods or require higher rates to address lost income. The
Board's proposal would improve disclosures on due dates, cutoff
times, and fees for late payments, and therefore, I think,
addresses the issue.
I think H.R. 5244's impact could go beyond consumer credit.
Significantly, America's small businesses, which account for
over 50 percent of the domestic workforce, rely heavily on
credit cards. Over 77 percent of small businesses use credit
cards to pay business expenses, and nearly 30 percent use cards
to help finance their business operations. Not only is H.R.
5244 likely to affect rates and availability of credit for
consumers, but it is also likely to raise rates and reduce the
availability of credit for small businesses.
Finally, a significant source of funding for credit cards
is derived from asset-backed securities. In an environment
where market confidence has been shaken, any market perception
that the risk profile of credit card receivables is changing
could lead to a reduced access to this source of funding for
card issuers that would require issuers to further tighten
credit standards and raise rates.
Thank you for the opportunity to be here today. I would be
happy to answer any questions.
[The prepared statement of Mr. Ireland can be found on page
108 of the appendix.]
Chairwoman Maloney. Thank you so much for your testimony.
And our final witness is Ms. Porter.
STATEMENT OF KATHERINE M. PORTER, ASSOCIATE PROFESSOR, THE
UNIVERSITY OF IOWA COLLEGE OF LAW
Ms. Porter. Madam Chairwoman and members of the
subcommittee, my testimony explains two key benefits of
enacting H.R. 5244. First, it would provide Congress with
timely, reliable, and complete data about credit card markets.
Currently, such information is virtually nonexistent. The
second focus of my testimony is explaining the innovative and
important ways that this bill would empower consumers to
responsibly use their cards.
As Members of Congress, you work to ensure that our laws
promote sound financial behavior and encourage positive
economic growth. Effective lawmaking about credit cards
requires knowledge, yet Congress and other agencies have almost
no information about the actual functioning of credit card
markets.
Even the most powerful regulators or investigative
agencies, like the OCC or GAO, cannot reliably answer basic,
key questions about how American families use credit cards. How
many households pay overlimit fees each month? What is the
average actual interest rate charged to a revolving account
balance?
Similarly, very little is known about the profit structure
of credit card issuers. Without such information, it is
impossible to guard against a credit bubble and to ensure
appropriate underwriting. Congress cannot rely solely on the
card industry, consumer advocates, academic researchers, or
Federal agencies to provide the necessary data.
Such information will be at best only partially complete
and at worst perhaps self-serving or unreliable. Without the
legal mandate for data contained in H.R. 5244, Congress cannot
fully understand and monitor credit cards, despite their
powerful role in our economy.
This bill would dramatically improve knowledge by gathering
data on the types of transactions that incur fees or
specialized interest rates by measuring how many cardholders
pay such fees or rates and by documenting how issuers earn
their revenue.
Armed with such data, Congress and Federal regulators can
monitor the economic wellbeing of American families and the
financial stability of card issuers. Congress needs timely and
comprehensive data to regulate effectively. Enacting H.R. 5244
would give you such information, allowing you to assess whether
our credit card policies need further reform.
H.R. 5244 takes a moderate approach. At its core, this bill
is about ensuring that consumers who try to use their cards in
a responsible manner are able to succeed. It empowers
cardholders to avoid default and to honor the terms of their
card agreements. This bill would encourage responsible card use
in at least three ways.
First, it would commit consumers to set a firm limit for
their cards. Issuers would have to honor these limits, and
could not charge an overlimit fee if they extended additional
credit in contravention of a consumer's express desire. Helping
consumers stay within their credit limits is a sound financial
practice that reduces the risks to consumers and issuers.
The bill also limits issuers to imposing an overlimit fee
only one time in a billing cycle. Issuers can manage their risk
by refusing to authorize transactions that would exceed the
bill. The law would merely prevent companies from churning
overlimit fees for profit if they voluntarily take on
additional risk.
The bill also would reward consumers who do not overspend
after exceeding the limit because such consumers could only be
penalized for two subsequent months after initially exceeding a
limit.
The bill also empowers consumers to pay their credit card
bills on time by creating standardized billing practices.
Consumers who have the means to pay on time and intend to do so
should be able to succeed in that goal, and not be tripped up
by confusing and varying rules. The bill proposes a uniform
rule that payment is timely if received by 5 p.m., and would
prohibit issuers from imposing a late fee if a consumer could
show the payment was mailed 7 days before the due date.
The final way the bill promotes consumer responsibility is
its requirement that the most vulnerable consumers pay the up-
front costs of obtaining a card. Subprime cards typically have
very low credit limits of $250. Half or more of this amount is
normally subsumed with fees charged at account opening. An
annual fee, a program fee, an account setup fee, and a
participation fee are all common.
If such fees exceed 25 percent of the total credit limit,
the bill would require the consumer to pay these fees before
the card may be issued. This would prevent vulnerable, high-
risk consumers from becoming trapped with an inappropriate card
they cannot afford.
By empowering consumers to stay within their credit limits,
by helping them succeed in paying on time, and by ensuring that
consumers can afford the high fees of their cards, H.R. 5244
would promote financial responsible practices that would
benefit everyone.
[The prepared statement of Professor Porter can be found on
page 140 of the appendix.]
Chairwoman Maloney. Thank you very much for your testimony.
We literally just received an endorsement letter from the
National Small Business Association in support of the
legislation, and I would like unanimous consent to place it in
the record, along with various newspaper editorials in support
of the bill.
Thank you. Thank all of you. And one of the provisions--
actually, Ms. Porter touched on it--that is in this bill that I
like very much because it is simple and I believe it is very
needed, as she testified, and it is the last provision
requiring better data collection.
We have had trouble getting basic data. For example, I
would like to ask the issuers and Mr. Ireland and anyone else
who would like to comment: How much revenue do card issuers
make from each of the billing practices that H.R. 5244 directly
regulates? Would any issuer like to comment?
Mr. Baer. I will just say that I don't have that data.
Chairwoman Maloney. You don't have it? Well, then, I think
it is fair to ask, then: How can you say that the bill will
have a negative impact on your profits if you don't have the
data?
Mr. Baer. Chairwoman Maloney, I think our central concern
with the bill is less directed directly to profits but more
just the ability to put into practice the risks that we measure
and see in the marketplace. In fact, one could argue that the
effect of the bill will simply be to change the way banks and
issuers make profits. But our central concern is whether we can
price for risk for customers who are exhibiting higher risk.
Chairwoman Maloney. Well, does any other issuer have a
comment on this, of having the data? No one? Mr. Ireland? Any
academic? No one wants to comment? Mr. Ausubel?
Mr. Ausubel. The only comment that I would make is that the
last time that I was privy to such things, Visa, the
organization, collected such numbers, aggregated them over all
issuers, and distributed it to their members, including Bank of
America. The title of the document at the time was the ``Visa
Profitability Analysis Report,'' and it gave breakdown
according to finance charges versus fees.
Chairwoman Maloney. Well, thank you. Mr. Levitin?
Mr. Levitin. I do not have direct knowledge of the
profitability of issuers for any of these practices myself.
However, I would bring to the committee's attention that I
recently saw a resume from a senior vice president at HSBC, and
one of the lines on her resume was that she previously worked
at MBNA, which is now part of Bank of America, and she had
headed up their risk-based repricing initiative.
The resume boasted that this initiative brought in $52
million of net income before tax to MBNA. What I think is
interesting about it is that this resume did not phrase this in
terms of, we were just covering loss. Instead, this was seen
as--this was being boasted as, I am making the bank more
profitable, that this is a profit center rather than just
hedging against risk.
Chairwoman Maloney. Well, in response to Mr. Baer's
testimony that they were just pricing for--looking at risk-
based pricing. And I really would like to ask, based really on
the testimony that you gave, Mr. Levitin, where you said that
toddlers and pets are issued credit cards, and certainly many
parents complain to many of us that their teenagers and college
students are getting credit cards--but seriously, what evidence
is there that pricing is based on risk and that it is done with
any competence?
Senator Levin held a compelling hearing earlier this
Congress in which he made a good case that credit card
companies increase rates with no basis in fact. He had
witnesses who had multiple rates from the same cardholder. And
how do multiple rates for the same cardholder show any
reflection of the risk of the cardholder?
Again, I ask any issuer or Mr. Ireland or any academic to
respond.
Mr. Baer. Chairwoman Maloney, I would like to respond, I
guess, to the toddlers and pets point, as I think it represents
a fundamental misunderstanding of the difference between
marketing and credit extension at issuers.
We send out millions of pieces of mail, obviously, in order
to market our credit cards. We purchase lists in order to find
out who we should be marketing to. That may mean that we end up
sending a marketing solicitation, for example, to a toddler.
Say, for example, a toddler signs up on the Carolina Panthers
Web site as a fan. If we have a Carolina Panthers card, we may
send that toddler a card, even more likely if the toddler lies
about his or her age.
That is not to say, however, that toddler is ever granted
credit. The toddler would have to send in an application. That
application would ask for their age. And then once the
application was received, we would check on that toddler's
credit score. We would pull a bureau report, we look at their
credit history, and we would see that they had no credit
history.
So although that toddler or pet might get a mailer, there
are really three reasons they would not get a card: First,
because it is illegal; second, because they have no credit
history and are unlikely to repay; and third, especially with
the pets, we find that they have trouble pulling the cards out
with their little paws.
[Laughter]
Chairwoman Maloney. But then to the more serious point: How
do multiple rates for the same cardholder show any reflection
of the risk of the cardholder? That was a point that was made
in the Levin hearing and other hearings, and that is made
really by individuals to our offices.
Mr. Baer. I will let the other issuers have a turn as well.
But I think that is reflective of the competition in the
industry. A given customer might receive a better rate as a
result of a promotion, which again we are trying to take market
share from a competitor.
If the customer is part of an affiliate group--for example,
a Panthers fan or a member of the National Education
Association or a medical practice group--that affiliation might
get them a better rate. So it is really a reflection of
competition that we will offer different rates based on how
someone qualifies for a solicitation. But I will let others
talk as well.
Chairwoman Maloney. Would anyone else like to comment
before--
Mr. Ireland. Just a short comment, Chairwoman Maloney. The
analysis of risk is an attempt to predict future behavior, and
that is necessarily imprecise. And I would be kind of surprised
to see multiple issuers, for example, agreeing 100 percent on
the risk of any individual person who wasn't in bankruptcy or
wasn't, at the other end of the scale, in super-prime
territory.
The question is not, it seems to me, whether that works all
the time. The question ought to be: Is that a good idea, and
should people be doing that? And I think, economically, pricing
for risk is a very sound principle and is a key to market
economies.
Chairwoman Maloney. Well, the question was on the same
cardholder having different cards with the same issuer with
different rates. I guess another way of asking it is: What data
do any issuers have to support the argument that repricing is
based on risk? Anyone? Any comments from anyone?
Ms. Franke. I would be glad to respond to that, in that we
would love to share with the committee, for furthering the
education of everyone, the statistical probability that we see,
which is difficult to discuss in detail here. But again, we
would be more than happy to share that information that is
indicated by the reasons that a customer goes into default with
one of our credit card companies.
And we can assure you that there are indications that a
customer is more risky, which will lead us to make a pricing
change. And at Chase, we only reprice a customer now if they do
not live up to the terms of their agreement with us. And we can
show you indeed that if a customer defaults on their agreement
with us, that their risk has increased and that we need to take
an appropriate price change to cover that risk.
Chairwoman Maloney. Mr. Ausubel? And then my time is
expired.
Mr. Ausubel. The point that I think is worth emphasizing is
that there is no reason under economic theory that you would
expect that the issuer is simply going to assess the exact
amount of extra risk and then price equal to that amount.
Suppose you have a customer whom you believed had a 5
percent extra probability of default. But suppose your model
told you that you could raise their rate by 10 percent and they
probably wouldn't leave you. Then you will do it. They are not
interested in simply coming up with the number and then setting
their price equal to the cost.
Chairwoman Maloney. Yes. That was the point that was made
in Ms. Warren's testimony earlier.
Would you like to augment?
Okay. Ms. Biggert.
Mrs. Biggert. Thank you, Madam Chairwoman.
I would like to continue a little bit on this risk issue.
Let's say we have--and maybe, first of all, Ms. Franke, because
you said you don't include FICO scores or anything as far as
looking at somebody's credit. But let's say somebody has had a
card with one of the issuers for a long time.
One of the cardholders has an income of $45,000. They have
just defaulted on a car loan. They have defaulted on three
other cards. And they have not paid their mortgage in 3 months.
And the other person has maybe--could be the same amount of
money, but let's say they have a higher income and they have
one card, and they always pay the full balance on time.
Do you think that the risk of the customer paying back the
card, the one who has defaulted and had all the problems, do
you think that risk stays the same? Does it go up, or does it
go down?
Ms. Franke. We would believe that risk was greater with a
customer who has indicated a difficulty in meeting their
obligations.
Mrs. Biggert. But you are saying then that that should not
be taken into account, whether to raise the interest rate?
Ms. Franke. We are saying that at Chase, we believe that
the best way for us to deal with our customer is to limit our
pricing actions to those things that the customer understands
would cause them to be in default with us. And that is missing
a payment, exceeding their credit limit, or writing us a check
that does not have sufficient funds.
I do believe, however, that as a statistical indicator,
that risk would be increased if someone is significantly in
default on other obligations.
Mrs. Biggert. But you would just keep them on the--as long
as they paid your card, there is no--
Ms. Franke. That is correct. At Chase we believe that we
can adequately manage the risk based upon their behavior with
us.
Mrs. Biggert. Okay. Mr. Ireland, would you comment on that?
Mr. Ireland. Well, I would like to go back just a moment to
Congresswoman Maloney's example because it shows, I think, part
of the difficulty with the bill.
If I am a card issuer and I give multiple cards to the same
person and my system is working right, I ought to be charging
them the same rate on different cards, I think. I think the way
the bill works, as I read the language of the bill where you
make changes going forward based only on the performance of
that account, that the bill would actually create a situation
where it is much more likely that you would be charging the
same cardholder different rates on different accounts because
you couldn't consider the performance in another account for
the individual account. And to the extent that is viewed as a
problem, it aggravates that problem.
Mrs. Biggert. Thank you.
Mr. Baer, what would you do with do with the two separate
cases?
Mr. Baer. Sure. I think it is worth noting here that,
again, there are two different ways where customers primarily
get repriced. One is through trigger-based default repricing.
At Bank of America, we will only do that based on two types of
events, late or overlimit, not bounced check; and we will only
do it, again, if they do it twice within a 12-month period. And
even then, we do an individualized risk assessment.
But I think it is fair to say that is how most people get
repriced across the industry, is by default repricing. We
also--and this is one of the reasons we can be more forgiving
with respect to default repricing--we also do look at someone
who is, as you described, defaulting to other issuers.
Again, 94 percent of our customers for 2007 ended up with a
lower or the same rate as at the beginning of the year. But
there were a percentage of customers--I think it was actually 2
to 3 percent--who we risk-based repriced because of behaviors
such as defaulting with other issuers, maxing out their credit
lines.
Again, we hesitate to do that because this is a competitive
market and we don't want to lose customers and they don't like
it. But in those cases, we feel there is genuine risk that
merits that repricing. And I think to Ms. Franke's point, I
mean, our numbers show that if you identify that group of
people with those risks, they actually default at a 50 percent
higher rate than our average customers.
So that again to us demonstrates the predictability of the
models and the fact that this is legitimate risk-based pricing.
Mrs. Biggert. What about the customer who always pays the
minimum balance, never pays off any of it? Doesn't that
exponentially raise the--well, the monthly payments go that it
compounds interest at such a high rate that eventually they are
just going to run into their credit limit.
Mr. Baer?
Mr. Baer. First let me stress that is an unusual case. I
think we have looked at our numbers, and we have only about 1
percent of our customers who are paying only the minimum
payment for, I think, 6 months in a row. So that is very
unusual behavior.
And I think most of our customers--in fact, you could say
99 percent of our customers--understand that the responsible
way to manage credit is not just by making the minimum payment
every month. So that is certainly a risk flag.
But I think when you look at the way that we model, it
would be unusual for someone--perhaps even rare--for someone to
be repriced on a risk basis solely because they are making
minimum payments. It is generally going to take a lot more than
that.
Mrs. Biggert. Would you be happy if the Fed acts to solve
the issues of concern? Does it matter to the issuers whether
the regulators make changes or Congress?
Mr. Ireland?
Mr. Ireland. Well, my experience is that in technical areas
like this, the regulators will go in with a scalpel and do it
more precisely and with less error. And I think one of the
debates that has been going on here is how to separate out what
some people consider inappropriate practices from dealing with
legitimate risks. And I think that the regulators have--are
better equipped to do that than the Congress is.
Mrs. Biggert. Ms. Franke?
Ms. Franke. We believe that the regulatory process should
be allowed to continue, and that it will accomplish a great
deal of what the legislation is attempting to accomplish.
Mrs. Biggert. Mr. Finneran?
Mr. Finneran. Yes, Congresswoman. We agree that the Fed has
all the power. And in fact, they are three-quarters of the way
through addressing a lot of these issues in their proposal to
revamp the disclosure rules on Reg Z. And again, with the
latest comments by Chairman Bernanke, they are going to take it
further and consider taking action under their unfair and
deceptive acts and practices authority with respect to some of
the problems that we have been talking about here with the
committee.
Mrs. Biggert. Mr. Baer?
Mr. Baer. The same.
Mrs. Biggert. And Ms. Warren, would you think that could be
solved by regulation?
Ms. Warren. Well, the problem is, I think, as we heard,
they haven't regulated. If you have regulators whose principal
responsibility is to ensure the profitability of the banks
rather than to protect the customers, then we end up with the
circumstances we have that Chairman Frank started with.
And that is we don't hear the words ``consumer protection''
spoken by a Federal Reserve Chairman for just about 27 years.
And I don't think we can afford to go another 27 years of
letting the banks make up the rules on what kinds of credit
card practices they want to engage in.
Mrs. Biggert. But when he said in the testimony this time,
it was consumer protection.
Ms. Porter?
Ms. Porter. I would just echo Ms. Warren, that he said
consumer protection. And he may be the Federal Reserve Chairman
for another year or 2 years or 3 years or 4 years, but our
Congress is charged with making laws that endure and stand the
test of time, and with balancing the rights of consumers and
regulators.
The Federal Reserve's primary responsibility is to ensure
the stability of the banking system. I am glad that Chairman
Bernanke is going to also embrace, for the first time in
basically my lifetime, the obligation to use the unfair and
deceptive practices authority.
Mrs. Biggert. Well, these regulations will be out at the
end of this year, so I think that will be an issue that will be
taken care of by then.
I yield back.
Chairwoman Maloney. Mr. Watt?
Mr. Watt. Thank you, Madam Chairwoman, and thank you for
this hearing because I think this is a complicated area and the
need for hearings on the bill extremely important.
Let me just deal with one thing about the variation changes
in payment dates, particularly for people like me who pay bills
only once a month. When somebody changes my payment date, it is
a major, major problem.
Is there some business justification for that? I think all
three of the representatives of companies here testified that
your company doesn't do it. That is a different question. But
is anybody prepared to make a business case, a justification
case, for being able to just change a payment date?
Mr. Baer. I guess I would make more of a calendar case than
a business case. For us, as I understand it--and this gets down
into the weeds--we basically try to keep a 30-day cycle. But it
is--and it ideally would be the first business day of one month
to the first business day of the next. The problem arises,
though, that you have Saturdays and Sundays, and we don't have
them come due on Saturdays and Sundays. Same for holidays.
So depending on what month you are in, how many days there
are in the month, depending on how many holidays there are in
that month, it is going to move around a little bit. But we
certainly don't try to move it around--
Mr. Watt. I understand. That is not the question I am
asking. I am asking, is there some real overwhelming business
justification for having the right to change a date, a payment
date, arbitrarily? Well, ``arbitrarily'' is a bad word, but to
change a payment date?
Mr. Baer. Again, I think the only reason our payment date
would move around, other than as you might expect it, is for
the reason I have given. But otherwise, we don't do that.
Mr. Watt. All right. Let me see if I can zero in on this
Visa report that Mr. Ausubel talked about.
What year did that cover? Do you remember?
Mr. Ausubel. It was getting published annually, and it may
still exist.
Mr. Watt. So is that something you could get access to and
provide to the committee to help us evaluate the relative
benefits that are coming from late payment fees or other kinds
of fees versus interest rates?
Mr. Ausubel. My assumption is that you would have to make a
formal request to a bank that is a member of Visa or a request
to Visa itself.
Mr. Watt. Bank of America is a member of Visa. So is that
something you all could get access to and provide to the
committee?
Mr. Baer. I don't know about the particular report, but we
are certainly happy to work with the committee and get that
kind of information if it is available.
Mr. Watt. On this issue of fees versus rates, the obvious
appearance to the whole world is that the credit card industry,
everybody in it, is making a lot of money on fees versus rates.
Is that the case or--I mean, you know from your own personal
bank's experience surely how much you are making on fees versus
actual interest, don't you?
Mr. Baer. Yes. No, I don't know the exact--
Mr. Watt. I am not asking you the exact amount. But you are
making a profit on late fees, aren't you?
Mr. Baer. Actually, if you look at the amount that we gain
in late and overlimit fees, it is a fraction of the amount that
we lose in credit losses. So our late and overlimit fees are--
I'm just guessing--
Mr. Watt. But credit losses are supposed to be priced by
interest rates, aren't they?
Mr. Baer. Well, that is what I am saying, is--
Mr. Watt. I mean, isn't that the risk-based that--am I
missing something here? The risk-based analysis is supposed to
get you to a rate that covers credit losses. Isn't that right?
Mr. Baer. Exactly, Congressman. What I am saying is that
the late and overlimit fees are not sufficient to cover our
losses. That is why we rely upon interest, including risk-based
interest, in order to recoup those losses and earn a reasonable
risk-adjusted--
Mr. Watt. I guess the question I am asking is: Should you
be relying on late payment fees to cover those before you are
relying on interest rates? You are saying you rely on interest
rate adjustments to cover those losses because late payment or
other fees don't cover them. Shouldn't it be the reverse, I
guess is the question I am asking.
Mr. Baer. Well, and again, this speaks to the competitive
market. I mean, it would be nice to be able to rely, for
example, on annual fees. But what our customers show is that
they don't like high late and overlimit fees, and they will
change issuers if we charge them. So that is why we tend to
rely more on interest. There may be other dynamics at work, but
I think that is one.
Mr. Watt. My time is up--5 minutes goes so fast--and I have
a whole list of questions. But I will yield back.
Chairwoman Maloney. Mr. Ausubel had his hand up. Did you
want to make a comment on his testimony?
Mr. Ausubel. I think, to give a fairly direct answer to the
questions that Mr. Watt was asking, there is no doubt in my
mind that issuers have erected an array of policies meant to
induce consumers to accidentally miss payment--for example,
delaying the mailing of statements, and giving a fairly short
time for them to send checks in.
I, myself, was subject--I paid a bill one day late last
month and was assessed a $38 late fee and a finance charge of
around $40.
Mr. Watt. I think that has happened to every single one of
us at one time or another, including myself in the last month.
So I don't think there is any dispute about that, which is one
of the things that troubles people. And it was as a result of a
change in the payment date. That is what is troubling to
people, I think.
So I personally don't have any problem with assessing risk
and charging interest based on that assessment of risk. But I
think what is troubling here to a lot of people is that the
interest rate that is being charged is really not reflective of
anything any more because, to the extent that risks are being
covered, they are really being covered, as Mr. Baer said,
primarily by late payment fees rather than having an interest
rate that factors in the actual risk that is being taken.
So I am sorry, Madam Chairwoman. I had already yielded
back.
Chairwoman Maloney. I thank the gentleman. That is an
important point, and as you know, the bill sets a specific pay
date and a specific time so that people will not be tripped up
in the future.
Mr. Castle?
Mr. Castle. Thank you, Madam Chairwoman.
Let me start by asking for unanimous consent to submit a
chart that shows revenues and profits of credit card issuers
and a card industry directory for $100 credit card assets. And
this was done in October of 2006. It reflects 2004, and it is
GAO's, ``Credit Cards: Increased Complexity in Rates and Fees
Heightens Need for More Effective Disclosures to Consumers,''
sort of in response to your earlier question about some of the
numbers which I have. You may want to examine it.
Chairwoman Maloney. Without objection, it is so ordered.
Mr. Castle. This is sort of an unusual panel as I sit here
and listen to you and read your testimony. Unfortunately, I had
to be out while most of you spoke. Generally speaking, the
banking institutions represented here seem to have much better
practices, if not excellent practices, in this area, and
perhaps some of these changes we are talking about have already
been made by many of your institutions.
There is some disagreement about the best methodology of
regulating, and I am going to try to examine this because I am
concerned that we are jumping ahead of both Regulation Z and
the unfair and deceptive practices policies which the Federal
Reserve is getting ready to make public in the next couple of
months, at least according to what Chairman Bernanke told us
when he was here.
I tend to agree with what Mr. Ireland said, that regulators
may balance interests more precisely and are better equipped to
do it than we are on some subjects. I worry about broad
legislative proposals when perhaps a better way to protect
consumers could be done by regulation in a more precise way.
So let me just start, Mr. Ireland, by asking you: Does the
Federal Reserve Board have sufficient authority to rewrite card
disclosures to address current concerns?
Mr. Ireland. Yes.
Mr. Castle. And Ms. Porter, you mentioned that you are
concerned this has gone on for years without regulation. I
think we all share that concern. I don't think anyone up here
thinks that we shouldn't be doing this. It is a question of how
we are going to do it.
But have you factored in that they are looking closely at
Regulation Z and what they have said about the unfair and
deceptive practices at the Federal Reserve?
Ms. Porter. I think that it is possible that a Federal
regulator could attempt to correct many, although not all, of
the practices covered in H.R. 5244. But those regulations are
more easily changed, and the fundamental focus of the Federal
Reserve has not been on ensuring consumer protection.
And indeed, the Federal Reserve, unless it acts--has
authority to supervise certain kinds of banks. But it also has
authority to implement Regulation Z. But its past actions for
the last 30 years have emphasized disclosure, disclosure,
disclosure. And many of the provisions that H.R. 5244 would ban
are not related to disclosure.
Mr. Castle. Well, you can't--I mean, I would imagine, like
me, you would like to see all this before we go too far. I
mean, I just--you may be right about what you are saying. I
don't know. But I am sort of curious as to what is going to be
in Regulation Z and what is going to be in this unfair and
deceptive practices report that they are going to give so we
can determine if what you are saying is correct. It may well
be, but I think that is something that we need to do.
Mr. Ireland, can the consumers avoid the fees that many
have complained about here today?
Mr. Ireland. I think generally the answer is yes. If the
consumers understand their accounts, pay attention to their
accounts, and deal with them carefully, I think they can avoid
the fees. I personally cannot recall incurring one of those
fees, so it is at least possible for somebody to do that. And I
charge on my credit card in preference to any other means of
payment because of additional rights I get in terms of claims
and defenses under the Truth in Lending Act.
Mr. Castle. Did you say you personally can't recall
incurring any of those fees just now?
Mr. Ireland. That is correct.
Mr. Castle. You are probably the only person in this room
who hasn't incurred any of those fees somewhere or other.
The credit card industry believes that the legislation
before us, as I understand it, is inflexible and micromanages
things in a way that is likely to increase interest rates for
everybody else and reduce the availability of credit.
Could any of the credit card companies indicate
specifically what you are concerned about?
Mr. Finneran. Yes. There were several provisions, I think,
that were mentioned in our various testimony. One was
redefining the grace period, which extends for all consumers an
interest-free period where there would be no interest at all
charged with respect to the loans that are made under credit
cards. This changes the existing practices quite dramatically.
I believe another provision was the requirement that
payments be allocated in a particular order, which again is a
change from most of the practice and indeed something that at
least we have found that consumers fully understand and have
shown themselves capable of taking advantage of many of the
offers that the competitors in the marketplace make.
And I believe Mr. Ireland had a few other provisions that
he mentioned as well.
Chairwoman Maloney. The gentleman's time has expired.
Mr. Castle. Thank you.
Chairwoman Maloney. Unless, Ms. Franke, did you want to
make a comment on this?
Ms. Franke. I was just going to make one comment, which was
I would like to add to the point of the consumer enjoying the
benefit of low rate offers that we do today through what we
call balance transfers. And I do think, if we are not permitted
to allocate those payments to the lowest rate, you will see
those offers eliminated in the market. And we would be able to
tell you that the consumer would be very disappointed if that
were to happen.
Mr. Castle. Thank you. Thank you, Madam Chairwoman.
Chairwoman Maloney. Mr. Ackerman?
Mr. Ackerman. Thank you, Madam Chairwoman.
This whole thing is really a real mess. And the comfort
level of consumers is not improving any, from what I can see,
except for some people maybe around the margins, depending on
which credit card company they might be dealing with.
But one of our colleagues who expressed some concern
earlier in saying that he was concerned about supporting this
legislation because it would--and I will quote him--he said he
``feared too many Americans would be denied credit'' if we
reined in some of the vagaries and uncertainties that consumers
face fathoming this.
To quote the Pope when he spoke at Gdansk to the boatyard
workers, ``Be not afraid.'' They will find you and they will
give you credit. If you can't afford a house, if you have lost
your job, if you can't verify your income, there are people
marketing that they are going to buy you a house if you sign on
the dotted line.
There is no way that you are not going to get offers of
credit. Last calendar year, these are solicitations to me and
my wife. That is last calendar year. At the end of the year, we
moved. I can't tell you what that does. But one of the things
it does is it triggers everybody--as soon as you pay off a
mortgage or apply for a new mortgage, every credit card company
sees you in the crosshairs and you start getting more and more
notices.
I don't know how they found us so quickly. I couldn't
change my address on the GPS, and I got to the mailbox at my
new place and I had credit card offers up the wazoo. The
interesting thing is I get some and my wife gets some,
sometimes from the same institution, offering us different
rates on identical word for word until you get to the rate
part. And if we are both on the hook for the same card, I don't
know how that works.
My mom has been gone for 10 years. They found her now at my
new address, and you should see: Her credit rating is better in
the past couple of years than it was for her whole entire life,
there are so many offers.
And if you take a look at the confusion that these things
have, it is absolutely astonishing. I mean, you could pick one
out of the pile and read the back of it, with asterisks and
swords and notes and crosses and everything else you could
imagine. And you could actually read it verbatim one night at
the comedy club and walk away with first prize. It is
astonishing.
It is a time for raising hands, I guess, earlier in the
meeting. And I mean, there are people--I try to understand
these and I try to read it to see if there is a good deal
because I like a good deal when I can get one. I don't find it
very often.
But sometimes it is hard to understand what I have to pay
in these great deals that are advertised all over the envelope
in 12 different colors and things. And the zero is always the
biggest thing on the thing, both on the envelope and in
iridescent colors and what have you.
But to figure out what it means and to find out what you
are really paying is befuddling. Even if you are a Congressman
who has been elected 13 times, are on the Financial Services
Committee, taught mathematics, was an investigative reporter,
and thought he was an educated consumer, not knowing half as
much as any of you on the panel, can't figure out in 5 minutes
what he would be paying if he borrowed $1,000 on a promotion
that ended in 3 months, except if you paid one of the checks
that they give you with your name already printed on it so it
is really easy to get into this thing.
And then you take out a cash advance a month later on the
same $1,000. You pay half of it by the date the thing expires.
With category A, B, C, and D on the back, how much in real
interest would you be paying if there is a 3 percent
transaction fee up front?
And if any of you sitting there are representing a credit
card company, I have your notice in here because I read who you
are. So everybody is represented and then some. So if anybody
would answer the question that I just posed, I will bring the
pile to you, pick out one. You can use a calculator and tell
me, at the end of 13 months, what your real interest rate would
pay or how much in dollars you are paying. You have the balance
of my time. Anybody?
Mr. Levitin. I can't tell you the balance. But you know
what? It doesn't matter because even if I could calculate that,
there is probably an any time/any reason term change in there.
Mr. Ackerman. Yes.
Mr. Levitin. That means whatever I calculate could be
wrong.
Mr. Ackerman. So even if you were a much better consumer
than me or any other consumer and really understood the
legality, the fact that they all say, for any reason, if you
didn't pay--if you defaulted on your Sears card and didn't pay
for your socks--that is not stocks; that is socks--that your
whole life starts to change on all the credit that you have
been issued that you have ever had and all the cards that you
had.
So it really doesn't matter because any time, any place,
anywhere, and for almost any reason, as long as you get
notified--and notified, my goodness, what we have done
requiring notification and privacy. You get three or four
notices for each one of these every year as to the privacy. You
can't keep up with the reading. And your eyesight doesn't get
better.
It is a real mess. The question I have, and everybody seems
to think that for the most part, Regulation Z is a good thing--
the question is: What good is all this disclosure if all the
disclosure does is tell you the ways that your credit card
company can screw you, but it does it in bolder print or puts
it in a box? What good is the disclosure? Anybody?
Chairwoman Maloney. Any comments?
Mr. Ackerman. We need more witnesses or I will yield back
the balance of my time.
Ms. Franke. I would say that the disclosure--
Mr. Ackerman. I am sorry. Pull your microphone over.
Ms. Franke. Excuse me. The disclosure helps the consumer to
make an informed decision. It is a highly competitive industry.
The disclosure will allow the customer to understand what
product they are buying and what features they want to select.
[Laughter]
Mr. Ackerman. People are chuckling up here and back there.
It seems that the disclosure is a further attempt to obscure
and obfuscate what you are trying to figure out.
Chairwoman Maloney. And they always have the any time/any
reason tied to it.
Mr. Ackerman. Mr. Ausubel?
Chairwoman Maloney. Okay. Mr. Ausubel, and then we must go
to Mr. Garrett.
Mr. Ausubel. Another example that would support what you
are saying is double-cycle billing. As I understand it, there
are proposals--
Mr. Ackerman. I paid one payment 2 months ago, left New
York, came back to Washington, and had to race back home
because my wife said we had another bill and it was going to be
late.
Mr. Ausubel. There are these proposals to disclose better
double-cycle billing. Now, if you are going to do your hand-
raising question, how many people could sit down with a
calculator and compute double-cycle billing? Or, for that
matter, how many people really know what double-cycle billing
is in the United States? What good would disclosing do?
So my read of the regulatory history is that the regulators
have been lax in enacting consumer protections except under the
threat of legislation. So if I am hearing now that some
regulations will be promulgated under the threat of
legislation, it tells me you need legislation.
Chairwoman Maloney. The gentleman's time has expired.
Mr. Garrett?
Mr. Ackerman. Let me just say something. I didn't mean to
embarrass anybody here or any of the companies because you are
among the better that are represented. Thank you.
Chairwoman Maloney. Thank you.
Mr. Garrett?
Mr. Garrett. I thank the panel and I thank you for the
opportunity.
Just on the closing notes over here, I presume, just as in
your contracts there is any time/any reason that you may make
those changes, there is an any time/any reason that I as a
customer can just void this contract--or not void this
contract, but pay my bill and, in essence, be out of it.
But again, as I said at the very beginning, I appreciate
your testimony. I really have found it all interesting from all
sides. Mr. Levitin, I really found yours quite interesting. I
will be reading through it a little more so I can follow it
all. But everyone here, I do appreciate it.
This issue here with credit cards is really part of a
larger issue that I referenced before, and that is the overall
economic issue and the recession and the problems that we face
right now. So I am going to digress for just a moment to face
that larger issue. And we have Mr. Baer here that I want to
throw out this question from.
We are having a tougher time with credit markets and
toughening in the credit lending in general. Can you give me
your thoughts, your two cents, if you will, on the potential
for banks to issue something called covered bonds to address
this issue?
My understanding is this is something that is already going
on over in Europe. It is akin to what we do over here with the
GSEs. It might be a way to open up some of the market and
provide more flexibility and get the credit going again. And it
does so, if I understand it correctly--and I will close on
this--it does so in a way that keeps it with the banks, keeps
more adjustability by the banks, and keeps the capital
requirements there with the banks, if I am understanding it
correctly. But correct me if I am wrong.
Mr. Baer. Sure, Congressman. I think you have it correct.
Covered bonds are actually a $2 trillion market in Europe. They
are a primary, maybe the primary, means by which mortgage
finance is financed in Europe. Yet in the United States, there
have only actually been two issuers, we being one of them, who
have gone to market. And there is a legal, almost technical
legal obstacle, which I will get to.
Mr. Garrett. Yes.
Mr. Baer. But basically, the way cover bonds work is it is
issued by a bank under its own name, so in that way it is like
straight corporate debt. However, in the event that the issuer
fails, there is a cover pool of mortgages that stay on balance
sheet but that are identified as collateral in the event of
failure.
That makes this a very high credit quality issuance because
you not only have the bank's name but then, in the event of
default, you have the cover pool. It is important to understand
it is different from asset-backed securities because with an
asset-backed security or mortgage-backed security, you are
looking to the underlying mortgages to generate the cash flows.
But here you are looking to the bank to make the payments just
the way it would on corporate debt. And you are only looking at
those mortgages in the event of insolvency.
Furthermore, unlike ABS, the issuer is required to refresh
that pool of mortgages and always keep current, non-prepaid,
non-defaulted mortgages in that pool. So it is a very high
credit quality issuance.
The only obstacle that we have seen to a large, potentially
huge market in the United States around this is the question
about what happens in the event of an issuer default,
particularly with respect to a 90-day automatic stay that
occurs in the event of a receivership in the United States.
This question is largely up to the FDIC, and I know
Chairman Bair has indicated that she is taking the lead in
looking at this issue. I think other regulators--I note
Secretary Paulson mentioned it today--have also looked at it.
But we understand the FDIC has this under advisement and is
considering whether some guidance in this area would
potentially yield a potentially very large source of credit for
mortgages.
Mr. Garrett. Okay. At the beginning of your comments, there
were impediments to implementing going forward with this. It is
over at the FDIC. Is there anything that we need to be doing--
first, doing what we are doing here, having a hearing on it in
more detail? And second, is there something congressionally,
legislatively, that we should be looking at, or is that just
all over there?
Mr. Baer. Well, in Europe, and I think as of this month in
the U.K. to the extent it is not part of Europe, there is a
legislated covered bond program that is--these bonds are issued
pursuant to legislation which the market takes as a good
associate that they will continue to receive payments in the
event of a default, that is, during the resolution of the
institution, and that they can still look to that mortgage
collateral.
The FDIC could, and may want to just as an initial step,
issue regulatory guidance on that. They have a fair amount of
discretion. I won't speak for them, but they could certainly
tell you some discretion about how they would act during an
automatic stay period.
So it may be they want to take a regulatory step before a
legislative step and then decide how much legislation is
necessary. But I would defer to the FDIC with respect to those
judgments.
Mr. Garrett. And I know we have other--this is a little bit
far afield, but it is still on the credit issue. There are
other economists and professors here as well. Is there anyone
else that has a thought on it? And if not, I appreciate your
insight.
I see the chairman is not here. But does this chairman
appreciate consideration for a hearing at some point on the
topic? And there is that red light. Thank you. I didn't get
into my other--I may submit some other questions that I do have
for a couple of people. So thank you.
Chairwoman Maloney. Thank you. The Chair recognizes Mr.
Sherman, Congressman Sherman.
Mr. Sherman. Thank you, and thank you for putting forward
this bill.
I know that there is this kind of Ayn Rand model of the
universe where you have two equal parties free from government
control negotiating their independent contract. The problem you
have here is that on the issuer's side, you spend about $5
million--I am making up a number--to do the legal research, to
figure out your position, and to program your computers.
And then the consumer spends about 25 minutes of time
trying to figure out which credit card to use. And if we were
to value the time the consumer can put in by their billing rate
as a bookkeeper or whatever level of financial experience they
have, you may have $5 worth of time being invested. And then we
are told, well, this is an equal bargain, one side putting in
$5 million worth of transactions cost, the other one putting in
an amount of time worth about $5.
The banks have put forward the idea that somehow, these
oppressive provisions--and there are oppressive provisions in
some of these contracts--benefit other consumers because while
rates would be higher--
Chairwoman Maloney. Excuse me. Congressman, can you take
the chair? I am going to run and vote and keep the hearing
going so that we can conserve time.
Mr. Sherman. Okay. Sure.
Chairwoman Maloney. Thank you so much. We have been called
to one vote, but we are going to keep going.
Mr. Sherman. [presiding] So the theory is that I won't be
the victim of some sort of rate increase and that I will be the
beneficiary of it because you will give me lower rates.
Can someone tell me what is the average rate of interest
imposed today on those who have balances on their credit cards?
I mean, I tend to see it as between 15 and 20 percent. Do we
have a different number?
Mr. Finneran. I think the GAO report that was issued about
18 months ago, I believe the figure was somewhere in the 12
percent range.
Mr. Sherman. The 12 percent range? So it is--oh, I didn't
see you there.
Ms. Porter. I would just respond that the GAO report was
issued 18 months ago, and I think it is important that Congress
and regulators have more up-to-date information than that; and
also that the GAO report relied on voluntary disclosures of
only select issuers and may not be representative of the entire
industry.
Mr. Sherman. Yes. I have seen an awful lot of cards being
issued at over 25 percent. Yes?
Mr. Levitin. I believe it is also important to note that
the GAO report, I believe, did not include subprime issuances
in its population. So the number is probably inflated.
Mr. Sherman. In any case, it is hard to say that America's
consumers are somehow benefitting from wonderfully low rates
because a few of their friends may be paying more into the
system as a result of some these oppressive provisions.
One thing that isn't in the bill that I am thinking of
suggesting to the author is the idea that every credit card
statement on which there is a balance should disclose: ``Dear
consumer, if you make the minimum payment, you will be paying
this balance off for this amount of time, and you will be
paying not only the principal amount of X but a total interest
of Y. So this is how long it will take you, and this is how
much interest you are going to pay us--assuming we don't change
the rate--if you choose to just pay the minimum balance.''
Does anybody have a comment on whether that should be
included at the bottom of each statement? Yes?
Ms. Warren. Congressman, yes, I do. I think consumers want
this. I think one way we know this, that we have seen it
tested, is the State of California passed a law requiring
precisely this. And I think it gives us an insight into now our
regulatory agencies in Washington have worked.
Not only did the banks come in, the credit card issuers
come in, and ask that the bill be overturned, the grounds on
which they wanted it done was that any attempt to require them
to disclose any information about whether or not--how much it
would cost a consumer if they financed over time was preempted.
And the OCC came in not on behalf of the consumers but on
behalf of the credit card issuers to take the position that
their non-requirement of information be the standard for
requirement. And the Ninth Circuit Court of Appeals bought that
argument.
Mr. Sherman. It is rare that the Ninth Circuit--every other
circuit would have probably ruled that way. I am surprised at
the Ninth. But I will point out it does make sense to have a
single national rule. It is either good for consumers in
California and Texas, or it is bad for consumers in California
and Texas.
And what California was responding to was the total failure
to have good national standards. I mean, I am sure there are
quite a number of witnesses who could explain how burdensome it
would be to have 50 different standards of this. But sometimes
California feels the need to act when the Federal Government
doesn't, perhaps even on greenhouse gases. But that is a
different issue.
I believe my time has expired. Please proceed.
Mr. Hensarling. Thank you, Mr. Chairman. Although I have
only been here for about 6 years and not 10 or 15, I can't help
but note the irony of how people are decrying the excess amount
of credit offerings that exist in America today when I know, I
know in this very room, 10 to 15 years ago, many of these
representatives of credit card companies were hauled before
Congress because they weren't giving enough credit out to low-
and middle-income Americans. And I do wish to note that irony.
As I look at the historical record, I see where there was a
significantly fewer number of Americans who had access to
credit, and they seemingly paid a universally high rate before
the advent of competition and risk-based pricing.
I also note that approximately 20 years ago, the fringe
benefits that we see today weren't around. I know today that I
have the opportunity to get different rates, different fees,
cash back, car rental insurance, donations to my favorite
charity, frequent flyer miles, and, if I pay my bill on time, I
get an interest-free, unsecured loan from the time of purchase.
Such a deal.
The first question I have is--and anybody who has the
answer, I would be happy to hear it--how many customers paid
the highest interest rate 20 years ago, and how many pay it
today? Do we have anybody on the panel who has knowledge of
that?
[No response]
Mr. Hensarling. If not, we will move on. How many customers
might have paid no transactional cost last year? I would even
be happy with a ballpark figure. Any takers on that one?
[No response]
Mr. Hensarling. I apparently seem to be stumping the band
at the moment. Let me move--yes?
Mr. Levitin. On that one, I may not be giving you exactly
the figure you are looking for, but I can say that I have seen
data that says about 39 percent of consumers did not
consistently revolve a balance over the course of 2006.
Mr. Hensarling. So a little less than half, then, would be
your best recollection. Thank you.
I know that, not unlike a balloon, when you push in on one
side, something pushes out on the other side. When I look at--I
must admit, philosophically I have trouble with telling
informed consumers, assuming there is proper disclosure, that
somehow we are going to outlaw consensual commercial
transactions.
But when I look at history before the advent of risk-based
pricing, and I look at where we are today, it seems to be a far
improved industry. But I notice that in the U.K., they
seemingly have had a similar experience. In 2006, they decided
that credit card default fees were too high and ordered card
issuers to cut them or face legal action.
In February 2007, two of the three largest issuers in the
U.K. promptly imposed annual fees on their cardholders.
Nineteen card issuers have raised interest rates. And by one
estimate, credit standards are now so tight that 60 percent of
new applicants are being rejected.
Well, if it happened there, it seems to me that it can
happen here. Would somebody on the panel like to tell me why we
are not going to have the U.K. experience? Or does somebody
fear the U.K. experience? I have very few takers on the panel
today.
Ms. Warren. No, Congressman, I would be glad to. Part of
what you have to remember here is that they don't plan to lose
money on this. Why do you think credit card companies give zero
balance transfers? It is not because they are in the business
of giving away money. They give zero balance transfers because
they count on the fact that there will be some number of people
who won't get it right.
And that is, they will use that credit card after they got
a zero balance transfer. They will get dinged at 22 percent
interest. And every payment they make that goes into it will be
paying down the zero balance transfer.
Those are profit centers for the issuers. They are not good
deals for the customers. I would--
Mr. Hensarling. Well, I hope they are profit centers. I
don't know--
Ms. Franke. I would like to respond to that.
Mr. Hensarling. Certainly, Ms. Franke.
Ms. Franke. Because the consumer has the ability to make
the choice as to whether they want to take low cost credit or
not. When the consumer makes the decision that they want to
take advantage of a low cost credit offer, it is to their
benefit. And in the vast majority of instances, they are able
to enjoy that opportunity.
We want the consumer to be able to benefit from those
things that we put in front of them. And I think that if we
were not able to do that any longer because we were restricted
in our ability to price for risk, you will indeed see two
things happen, an increased cost of credit, and reduced access
to credit to those people who need it most.
Mr. Hensarling. With 6,000 credit cards out there, I assume
if I don't like my terms, I can reject the terms and I can go
and pick up somebody else's credit card.
Ms. Franke. That is exactly correct.
Mr. Hensarling. I see I am out of time. Thank you, Mr.
Chairman.
Mr. Sherman. Thank you. I will point out that all those
freebies you get on the credit card aren't completely free. The
merchants end up paying for those. And I just want to inform
this committee that the Judiciary Committee is thinking of
hearings on the other side of this transaction, which is the
relationship between the merchants and the credit cards. Maybe
this committee wants to get ahead of that or maybe you want to
have them take over because we don't really care about our
turf. We will see.
With that, let me turn it over to Mr. Moore to ask his
questions and to serve as temporary chair.
Mr. Moore. [presiding] Thank you, Mr. Chairman. And I have
just one question to ask, and then I am going to have to go
vote. I understand Chairwoman Maloney is on her way back and
should be here soon, but I would like to hear your answer, if
you have an answer, to this question.
A question for the credit card issuers on the panel with
regard to what is called universal default: I understand that
some issuers have voluntarily banned the use of an individual
credit score in repricing a card account. As you know, the
underlying bill attempts to ban the practice of universal
default by restricting the ability of credit card issuers from
raising interest rates based on any information other than how
the individual is performing on that particular card account.
I do have concerns about the lack of clarity that consumers
often receive regarding account features, terms, and pricing,
and I think we need to examine how to do a better job of
ensuring that consumers don't get caught with unexpected fees
or rate increases.
But I also have some concerns about how this provision
would affect businesses' ability to accurately price for risk.
Given that some of you have voluntarily taken this step, can
you explain to me what are some of the other sources of
information you look to in order to predict the risk of your
customers? And do you believe that the way the bill is
currently written, it would have any effect on those who would
offer credit in the future?
Any responders here? Mr. Baer?
Mr. Baer. Sure. As we--and I think traditionally the
understanding of universal default has been--is basically a
default that is automatic, no choice, repricing based on off-us
behavior, that is, not with the issuer. Bank of America has
never engaged in universal default.
What we do do, though, is we will reprice customers with
notice and choice if we observe an increase, a material
increase, in their risk profile. That can take various forms.
It could include maxing out their credit lines with us and
other issuers, defaulting on a mortgage, defaulting to other
issuers, and all types of behavior like that that, when you put
them together in terms of our internal modeling, demonstrate a
materially greater risk of charge-off.
Mr. Moore. Thank you. Does anyone else wish to respond to
this question?
Mr. Finneran. Sir, I would just note that I think this
really highlights one of the issues with the bill. Capital One
does not engage in universal default and handles risk based
pricing differently than Bank of America does. But I think the
key is that what Mr. Baer is saying is that they only do it
with respect to people to whom they give appropriate notice and
an opportunity to opt out, which is exactly what we have been
advocating with respect to all forms of repricing.
I think a single targeted fix that can be best done by the
Federal Reserve will address so many of the issues associated
with change in terms for customers, that is clearly the way to
go. And then you don't have to get into the nuances of trying
to define what universal default is and what it isn't.
Mr. Moore. Thank you. I am going to--Mr. Ausubel, I am
going to have to go vote. We have been told that I now have
less than 2 minutes, and I need to run over there. Mr.
Perlmutter is going to come up and take over the chair here. Is
that right?
Mr. Perlmutter. Yes, I will take the chair, and I will
behave myself.
Mr. Moore. And I won't say the real chair, the regular
chair, Ms. Maloney, should be back soon. So thank you very
much. And I will--if you care to respond, I promise you I will
look at your response later. Thank you.
Mr. Perlmutter. [presiding] And the last shall be first.
[Laughter]
Mr. Perlmutter. I always get the chance to bring up the
caboose because I have the least seniority of this entire
committee. And I just want to thank the panel. This has been an
outstanding panel, both representing the industry as well as
representing academia, that has questions about where we have
come from. And I just want to say a couple of things.
I think from my point of view, and I think one of the
professors mentioned this, or a couple, I mean, our job is to
give a broad direction and then allow the regulators to work
with the industry as to the specifics of what a universal
default is, what a double-billing cycle is, how many fees can
be charged, from late fees to annual fees and all that sort of
stuff.
I represented, just as disclosure, banks, credit card
companies. I am a consumer who has suffered, having thought he
terminated a card. Got an annual fee. Got a penalty on the
annual fee. Got penalty interest on the annual fee and the
penalty. So coming at it from both sides.
I think we have to make a decision in the broad decision.
And I think somebody said 27 years ago was the last time there
had been an effort or consumer protection was brought up. I
think the bigger question, and the one that is a moral
question, is, you know, the other side of credit is debt. And
do we want more debt?
And whether it is a biblical kind of an approach or Thomas
Jefferson or Teddy Roosevelt or whomever, in 1982, we passed
the Garn-St Germain Act. I couldn't remember the name, but our
very able staff found it for me. It basically loosened
regulations and gave the industry the ability to work in these
areas and to really control its fate and develop profit.
I think the broader question for the Congress is: Where are
we now? And there have been a number of folks up here who have
complained about a particular practice or whatever. You know,
the industry is there to earn profits for its shareholders, and
I don't think we can deny that.
But the question is--I think, Professor Warren, you said
that rates--should there be limits on rates? You said that was
off-limits. Well, I am not sure. We used to have usury laws in
this country. And I certainly don't want to see that, but I
want to give some instruction to the regulators as to, look.
Keep an eye on this. Just because there has been a
democratization of credit, is that good? From a societal point
of view, is that good? So I do have some questions, and I will
stop pontificating.
Mr. Baer, with respect to the customer has notice and
choice, which is what your testimony was, if that customer has
already run up a bill--you know, you have given him a $10,000
credit line, say, and they have now spent $5,000 against that
credit. And you now see something--either there was a default
or, if there wasn't a default, you see problems in their credit
outside.
When the customer has a notice and choice, is that what you
are saying, look, we are going to up your rate. You can leave.
You can pay this off and leave us. Is that what you mean by--
Mr. Baer. They have two choices. First, they can accept the
higher rate, which going forward will be applied to everything
they owe us because we consider this a new loan every month.
Or, alternatively, they can opt out and they can repay the
existing balance under the original rate, no questions asked.
All we ask is that they no longer use the card for new
purchases.
Mr. Perlmutter. I think a new loan every month, I think
that is an interesting approach. And it is a 30-day loan or
whatever it is. But for most people, especially as you--to the
lower income stratas or other folks who are using the credit
card for their basic stuff, they are going to be in real
trouble to be able to pay that on a 30 day/30 day/30 day.
Mr. Baer. Yes. Actually, I mean, to your larger point, I
mean, I think we would certainly agree. There are people out
there who are having trouble managing their finances and who
should be borrowing less.
The difficult question, I think, for this subcommittee and
the Congress is: Can you identify those people through
legislation first, without having an overlap effect where you
are cutting off credit to people who can repay responsibly? And
then the second very difficult question is: This bill would
only cut off credit card credit to those people. So the
question is: Would those people stop borrowing, or would they
look to payday loans, rent-to-own, installment lending, or
other types of much higher rate, much lower transparency forms
of credit?
And that is why where we come out on this is because the
credit card industry is a highly competitive one where you can
rest relatively assured that people are getting competitive
rates, and because we have the Federal Reserve coming out with
a Regulation Z that more than ever before is going to allow
informed comparison shopping, and thereby allow consumers to
take advantage of that competition--because that is a hallmark
of perfect competition; you have to have informed consumers--we
think when you put those two things together, this is a good
time to let the market continue to work, aided by a disclosure
regulation from the Federal Reserve.
Mr. Perlmutter. Professor Warren?
Ms. Warren. I just want to say one thing about informed
consumers. I think the practices that Bank of America
announces, where they say they will let people pay off over
time, is a good practice, and we want to remember that is not
the practice of all of the issuers. Many issuers say, no, the
whole $5,000 is due right now if you don't want to have to pay
the elevated interest rate.
But the question of what constitutes an informed consumer
troubles me deeply here. I listen to Bank of America describe
how well they take account of this, and they measure this, and
they weigh that, and they finally come up with a number. ``We
are not going to do something we call universal default, but we
are going to do something out there that is magic.''
I have read my Bank of America statement, and I can't
figure out how it is that they make the decision when I will be
the one who receives the next arrow through the heart, that my
interest rate has jumped from 11 percent to 29 percent.
And to describe this as a market that consumers understand,
low-priced credit that we talk about, I must have two dozen
zero balance transfer offers in the last couple of months
alone. Not one says, by the way, here is how we plan to make
money off of you on this one. And that is the hope that you
will use this credit card, not understand how the repayment is
going to work, and we will manage to suck 20 percent interest
rates out of you over the period of time that you try to pay
back this balance.
So it is fine to say we put a lot of words that are
incomprehensible in a credit card statement. But the idea that
we have consumers who are fully informed about these obscure
practices simply does not represent reality.
Mr. Perlmutter. And I would agree with that. I don't
begrudge the industry--first of all, they probably had a
lawsuit or two that has caused some of the addition of the
language. So I respect that.
I mean, I think again there has been--for the last 27 years
the conversation has been about the free market and allowing
opportunities for profit with people. And that is fine. But I
think that the conversation now has to move back to debt. Is
this something as a societal function we want more debt? And
consumer protection.
My time has expired, and I see the gentleman from Tennessee
has--oh, I am. The gentleman from California.
Mr. Campbell. Thank you, Mr. Chairman. Before I get to my
couple of questions, I would like to ask unanimous consent to
enter the GAO report entitled, ``Credit Cards Increase
Complexity in Rates and Fees.''
Chairwoman Maloney. Without objection.
Mr. Campbell. Thank you, Madam Chairwoman.
My first question is to the three representatives of the
bank's credit card issuers. Mr. Levitin showed a chart that as
far as risk-based pricing, that indicated that there was not a
lot of price difference or interest rate difference charged
based on someone's credit score, FICO score, or whatever it
might be.
Do you accept that chart? Is that correct? And if it is or
it isn't, is there a situation in credit card charging because
of what the rates are, where people with higher FICO stores,
higher credit scores, will borrow money from other places
because they can get it cheaper, and other people with lower
credit scores will tend to not pay off their credit card every
month? Any one of the three of you want to take that?
Mr. Finneran. I mean, I will try. I am sorry, I didn't
really get a chance to study the specific chart, but I can
certainly share with you our practice at Capital One. We do
differentiate based on credit score at the time of account
acquisition, and offer varying interest rates depending upon
the likelihood of those consumers to pay us back and handle
their credit appropriately.
Mr. Campbell. Do the rest of you agree with that?
Ms. Franke. I would totally agree with that, and would say
that we would love to be able to put forth the right analysis,
with enough time to do it, that would show that you would
absolutely see a decrease substantially in interest rates that
much exceeds the decrease in cost of funds over the same period
of time.
Chairwoman Maloney. Mr. Levitin? A response?
Mr. Levitin. The chart I showed is from a subscription data
source that gathers its data from card issuers directly. It is
not representing any particular issuer, so Capital One may be
different. What it is showing is a composite of the entire
credit card industry.
And while we have some of the prettiest faces in the card
industry up here saying that, you know, we don't do this
practice and we don't do that one, it is rather irrelevant
because this bill is about regulating the worst practices in
the industry. And just looking at the best actors in the
industry doesn't tell us what we need to know.
Mr. Campbell. Okay. Then my next question is to the
prettiest faces of academia, to the academicians that are up
there. There has been a lot of talk today about the ads for
credit cards, whether they are on television, whether they are
the things you get in the mail, whatever, and what would appear
to be a pretty intense competitive market for the credit card
issuers to issue credit cards and get customers on their credit
cards.
Do you all believe, when you take into account the various
cost aspects of credit cards--all of them, you know, the
initial fee, the late fees, the interest rates, the bonuses or
benefits you get--in academia, do you believe that there is
price-fixing in the credit card industry, or do you believe
that the market is working--or that there is a market in which
there is price competition? I guess first Mr. Levitin, and then
we will go to you, sir.
Mr. Levitin. Well, let's start with, I mean, different
aspects of credit card pricing. On the merchant side, I think
there is a very good argument that there is price-fixing going
on. There is major antitrust litigation about this right now
pending in the Eastern District of--
Mr. Campbell. On the merchant side relative to Visa and
MasterCard?
Mr. Levitin. Well, and also the issuers because the issuers
are part of the--or alleged to be part of the price-fixing
conspiracy as members of Visa and MasterCard. Really, Visa's
only function--
Mr. Campbell. Okay. I don't think that is subject to this
bill.
Mr. Levitin. It is not, but there is an important link,
Congressman. Merchants are the ones who finance rewards
programs, and the rewards programs are really the--it is like a
Venus flytrap. That is the honey that sucks in the flies and
then gets them into the--consumers into interest rate traps and
late fee traps and over-limit traps. And the fixing on the
merchant side encourages overuse of credit cards, that more
people come into that flytrap.
Mr. Campbell. Okay. Yes, sir?
Mr. Ausubel. The vast proliferation of offers is an
indication of high profits for every offer that is accepted. I
mean, that is the simple truth of it. If the industry were
unprofitable, 4 billion solicitations a year would not be
mailed out. And--
Mr. Campbell. But do you believe that there is price
competition between them in those offers? Do you believe that
that is one of the ways in which they are competing?
Mr. Ausubel. Here is a quick way of understanding it. There
are three or four terms of the credit card offer that consumers
understand. They understand the introductory rate. I think they
probably understand the post-introductory rate. They understand
the annual fee.
They have no notion of what double-cycle billing means.
They have no idea what any reason type thing is. They have
absolutely no idea what their penalty rate is or the terms that
would trigger it. They have no notion what happens with their
credit score in terms of increasing their interest rate. And
they don't pay attention to most of the fees.
So they compete, the issuers compete, on interest rate. But
it is very profitable because a number of the other relevant
terms are not salient, and consumers don't comparison shop.
Mr. Campbell. And I will yield back, just with a final
comment that if you look at the volume of advertising for the--
I was in the retail car business, which does lots and lots of
advertising. It is one of the smallest margin businesses out
there, just slightly ahead of food.
So I think it just indicates that it is a competitive
marketplace, and that there is business out there, and you are
looking for ways to get it. I don't think it necessarily
indicates that it is a high profitability--I mean, it is
profitable or else people wouldn't go for the business at all.
But I don't think it indicates how much, or not directly
correlates.
Sorry. I yield back, Madam Chairwoman.
Chairwoman Maloney. Thank you. And I would like to thank
the gentleman for submitting the GAO report into the record.
And I would like to note that this GAO report, as well as a
Federal Reserve report of 2005, noted that the number one
reason credit card interest rates have gone down is because the
cost of money has gone down.
I now recognize Mr. Scott.
Mr. Scott. Thank you very much, Madam Chairwoman. And
again, my compliments to you for having this hearing. It is
very, very informative and very, very timely, as I said.
I would like to ask Ms. Franke--is it Franke or Franke?
Ms. Franke. Franke.
Mr. Scott. Franke. Very good. I found your testimony to be
very, very interesting and intriguing. You said that this bill
is complex, expansive, and it restrains credit availability.
I would like for you to tell us exactly how--give us some
examples within the bill that this bill does that. And I also
want to get your opinion, and others may comment on this as
well, in light of your concerns about the bill, just how we
address this practice of universal default.
This is a major, major concern. I would like to know your
thoughts on that. And would it make sense to consider repricing
a customer's interest rate only if they default on the company
that issued the card instead of penalizing these people because
of their behavior regarding different financial commitments,
their specific history with other lenders, or information
obtained from a credit report?
And if a customer has made a late payment or goes over
their credit limit, wouldn't it make sense to ensure that a
person receives adequate notice to any changes that are made to
that customer's rate and its status? And furthermore, wouldn't
it be prudent for a credit card company to alert their
customers of changes in terms?
That, and also this one also: The concern about the clarity
of credit card agreements with regard to what little
information they are currently providing with minimum payments
and only paying the small amount each month, customers are
further penalized as the debt continues to balloon so that when
a customer logs onto their account, why can't we ensure that
the full amount is in the payment box instead of the small
minimum payment?
I feel that with this change, it may help encourage the
credit card user to pay off more of the debt or pay in full
each month. But by only making a minimum payment, say, on a
$1,000 balance, as minimum as that, for example, that can lead
to a debt that could take 15 years to pay off, if not longer.
So my point is, I wanted to point out those areas where it
is obvious there is a problem we need to address. And I wanted
you to maybe answer that in light of your own opposition to
this legislation. Can't you see some middle ground here where
we need to move to address these particular concerns?
Ms. Franke. Let me see if I can make an attempt to cover
those topics. Let me do it in a couple of ways.
First and foremost, I think we believe that there are
changes that need to be made in the credit card industry. We
believe that the regulatory actions that are being taken will
be appropriate to handle those issues. They will address things
such as disclosure, and how the customer has a keen
understanding of their relationship with the credit card
issuer.
Starting at the end with your minimum payment question, if
you were to go to the Chase Clear & Simple tools, you would
find today a minimum pay calculator. We do believe that it is
important for the consumer to be able to understand the time it
will take for them to pay off their balance if they simply make
the minimum payment.
We don't believe, however, that should be legislated, and
this is probably a longer conversation than we have to discuss
today, because of what would be required for us to display that
on each individual statement. It is quite difficult.
We do think, though, that we need to promote to the
consumer how they can easily get that information. So what is
really important is that the customer understand how long it
would take for them to pay their bill if they only make their
minimum payment. We want to make sure we provide that
information to them.
Why don't we support this legislation? To us it is very
simple. It gets to our ability to be able to price for risk. We
believe that it is critical that we are able to continue to
price for risk. And there are aspects of this bill that would
limit our ability to do that.
You asked about universal default. Universal default allows
folks to use bureau-based information that informs their
decisions as to someone who is risky. We at Chase, as we have
said many times today, no longer believe that is in our
customers' best interest. Our customers have told us that they
would prefer to understand the clear circumstances under which
we will raise their rate. And we have agreed that we will only
do that in three circumstances.
You did ask, though, about advance notice of that. Because
that is the only tool we at Chase have today to make sure that
we manage risk, it is important that we are able to take that
pricing action at the time that the customer defaults on their
agreement with us.
If we are not able to do that for 135 days, as is outlined
in this bill, it will significantly impair our ability to
manage that risk, and it will therefore limit our ability to
offer the vast majority of Americans the lowest rates
available, and to offer credit to more Americans.
So we believe that it is important that we have the
permission to price for risk and that we are able to do that in
a timely fashion.
Mr. Scott. All right. Yes, Mr. Levitin?
Mr. Levitin. I think it is important to point out that H.R.
5244 does not prohibit all use of external off-us information.
The only thing that H.R. 5244 prohibits is retroactive increase
of interest rates based on off-us behavior.
Section 2(a) of H.R. 5244 still allows issuers to increase
rates prospectively based on off-us behavior. And the existing
balance should have already been priced. That is the deal you
had with the card company when you charged a balance. It
shouldn't be able to be repriced retroactively.
Chairwoman Maloney. Thank you. And now the Chair recognizes
Mr. Bachus, Ranking Member Bachus.
Mr. Bachus. Thank you. You might be aware that there was to
be a panel preceding your panel of consumers who had various
credit card complaints. The chairman and I discussed this
yesterday when our staffs discovered that the credit card
companies, without a waiver, could not respond because
initially the hearing was going to be some consumers saying,
this is what happened to me, and we felt like that the--and he
and I agreed that the card issuers should have a right to then
respond or answer because the first panel would actually be
making charges against the companies.
We had that agreement. We had a further agreement that we
would postpone those hearings because it wouldn't be fair. And
Ms. Maloney said this in her opening statement. It would not be
fair for these customers to come, announce what had happened to
them, and not have the credit card companies have a right, if
they were going to be used as examples, to respond.
I consider that as an agreement, which was really proposed
to me. I believe if you make an agreement, you ought to keep
it. That is part of what we have talked about today, what those
agreements do. Is there a meeting of the minds?
But unfortunately, we have had a Member release a press
release detailing all the complaints that these witnesses had
and all the charges, and making them available to the press,
which really goes against the claims that--and I know the
chairman, I think, is equally chagrined, that we all agreed we
wanted a fair process where both sides could respond.
And probably the most unfair thing and the most inaccurate
thing is that some press is reporting that the credit card
companies insisted that these witnesses did not testify. And I
can tell you, as ranking member of this committee, that no
credit card company--no credit card company--did that.
So I hope in the future that when we make agreements--and I
do not think the chairman is involved in that--but I think when
we reach across the aisle in a bipartisan way and an
arrangement is proposed, that it be honored.
Ms. Warren, you are raising your hand?
Ms. Warren. Thank you. I just have a question because I am
just trying to understand this. I had never heard this before I
arrived this morning.
And the question I have is whether or not those same rules
apply to the credit card companies. We have heard a lot of
information today about how Bank of America does its risk-based
pricing. We have heard many representations about how Chase
conducts its business and what proportion of customers are
paying and what proportion of its customers are not paying, and
so on.
That is information that is not publicly available. My
testimony comes from a set of footnotes. It is all publicly
available. The same is true for Professor Levitin. The same is
true for Professor Ausubel. The same is true for Professor
Porter.
If it is a concern about whether or not people can say, all
right, if you are going to testify about something that is
private information, that information should be available to
everyone.
Mr. Bachus. No. Well, actually--
Ms. Warren. I just wanted to know, is that going to be the
new rule?
Mr. Bachus. Yes. Dr. Warren, I think you make a good
argument. Let me say this. Their practices, all the three
credit card issuers here today, they have issued their best
practices. And those practices are, in fact--and I know in your
opening statement you acknowledged that most of the major
credit card issuers are playing by the rules. In fact, you said
several major credit card companies have dropped these
practices; they should be commended. You pointed out that the
majority of credit card issuers are not guilty of these
practices.
And what we had intended to do, and what was going to
happen until this arrangement was proposed, is these witnesses
were going to testify at the first hearing, and then the credit
card companies would have been able to respond.
But because we felt it would be unfair--and no, these
credit card companies cannot talk about an individual and what
happened in an individual case without that individual giving a
waiver. And they were prepared. They were prepared to discuss
individuals if the individuals had testified and given waivers,
as we first anticipated.
Ms. Warren. And I cannot discuss the practices of Bank of
America, Chase, or any other issuer unless they make those data
available. They come here and get to engage in a game of they
show a little that reflects the best light. They come to this
hearing and testify. They have testified in front of this
committee that they do not engage in universal default, and yet
they describe a practice that many people would describe as
universal default.
Mr. Bachus. Well, now, it is not a question of that they
don't publish that. That is available to you and I both. In
fact, in preparation for this hearing, I read what their
practices were. And as you have said, you said that--you came
in and said these tricks and traps, that several major issuers
weren't doing that.
Ms. Warren. At least we don't know if they are doing them.
What we have is we have their testimony, but no revealed
information.
Mr. Bachus. I agree totally. We didn't know. And for that
reason, we were going to have five people say, this is what
they did to me. And then--
Chairwoman Maloney. Mr. Ausubel would like to testify.
Mr. Bachus. And then we were going to have--they were going
to sign a waiver, and then the credit card companies could have
said, you know, this is what happened in their case. In other
words, there would have been an accusation and a chance to
defend themselves. And that didn't happen because it was
proposed that there wasn't enough time. But that was not our
proposal.
Chairwoman Maloney. Mr. Ausubel?
Mr. Ausubel. Regardless of whether consumers are allowed to
testify or not, I think an important point that has to come
before this hearing is that just as it has been remarked that
there are, I don't know, 3 million subprime mortgages that are
ticking time bombs, there are also millions of credit cards in
circulation that have universal default clauses in them right
now, that have penalty interest rates as high as 29.99 percent
in them. And those are ticking time bombs as well.
Mr. Bachus. And let me say--
Mr. Ausubel. And you can see the contagion effect that
could have on the economy. And whether the consumers can--
Chairwoman Maloney. The gentleman's time has expired. Mr.
Cleaver?
Mr. Bachus. If I could at least respond. Professor, I will
agree we hear stories from time to time of people saying, this
is what happened. So this hearing was designed--all the things
you are talking about, this hearing was designed for five
people or six people to come before the Congress and say, as
opposed to anecdotal or somebody told me or this thing--for
them to come before us and testify, this is what happened to
me. And then the credit card companies would have--you know, we
asked them to appear and explain whether or not this in fact
happened.
And yesterday it was a consensus. In fact, the chairman of
the committee said it wouldn't be fair to do what--
Chairwoman Maloney. Reclaiming my time, we do want to focus
on substance and not on process. I now recognize Mr. Cleaver.
Mr. Bachus. This is pretty--
Chairwoman Maloney. Mr. Cleaver is recognized.
Mr. Cleaver. Thank you, Madam Chairwoman.
One of the major credit card companies sent a credit card
to Herman, Junior. He is my cousin. I wouldn't have given him a
credit card. I would have given him anything but a credit card.
He is one of the most irresponsible people I know. In fact, he
is in jail now. I hope they took the credit card before they
locked him up.
But we have almost a one point below credit--I am sorry,
savings rate in the country. Zero. Which means that we can't
borrow money domestically. And it would seem to me that we all
have a responsibility of trying to reverse that because if we
don't, we are damaging unborn generations. We all owe right now
about $30,000 on the U.S. debt, $9 trillion.
And so is there any redeeming social value in sending
credit cards to college students or people like Herman, Junior?
One of the credit card companies.
Mr. Baer. Well, I had said earlier--I don't know if you
were here Congressman--
Mr. Cleaver. I am sorry. I have been going back and forth
between two committee hearings.
Mr. Baer. I understand. Two issues. One I think is minors,
and the other is college students, because I think they are
very different cases.
With respect to minors, while they may receive
solicitations in the mail because they are on a marketing list,
that is not at all to say they will actually be granted a card.
They will still have to be verified that they are age-eligible
and that they have sufficient credit to receive a card. So it
does happen, and it is our loss because we can never finalize a
transaction, that we will solicit someone. That doesn't
necessarily mean we grant.
With respect to--
Mr. Cleaver. Excuse me, because my time is limited. So are
you saying that college students are not receiving credit cards
if they are not creditworthy?
Mr. Baer. I started by saying there is a distinction
between minors on the one hand and college students on the
other. Let me now turn to college students.
We are actually a very large lender to college students. We
consider college students potentially our best customers
because we want to take them from being a credit card customer
to a deposit customer to a home mortgage to retirement savings
50 years from now. We have no incentive with regard to college
students for them to default because that makes them dislike
us. It makes them less able to take all those other products
for us.
So what we do with college students, we have a max. We will
not lend to any college student more than $1,500. The average
line for a freshman is $500. The average line for a senior is
$1,000. What we do with college students, and I think we are
the largest lender to college students, we give them very small
lines of credit that we think they can manage.
Furthermore, we provide a phenomenal amount of financial
literacy to them in terms of education about how to manage
their credit. We do not risk-base reprice college students. We
are more lenient on all of our fees towards college students.
In other words, we set college students up to succeed when they
get a credit card from us.
Mr. Cleaver. Thank you. I am not finished, no. But there is
no requirement for the new cardholder to provide information to
the lender that he or she does in fact have a backstop in the
event that they can't make the payments?
Mr. Baer. I am not sure how exactly the credit metrics
work. But certainly they get some credit for the fact that they
are in college. On the other hand, they get very low credit
lines.
Mr. Cleaver. No, no, no, no. No. Do you require that a
college student provide information that they can in fact--they
have the financial wherewithal to make the payments? Is there a
person with a job someplace who signs off on the credit card
and declares that he or she will make the payments if the
credit cardholder cannot?
Mr. Baer. Do you mean do we require college students to
have cosigners for their credit cards? If that is the question,
the answer is no.
Mr. Cleaver. Yes. That is where I was going.
Mr. Baer. I am sorry. I misunderstood. The answer is no.
Mr. Cleaver. Yes. Sometimes I am inarticulate. One of the
things that I am concerned about is that college students do
get these cards. It is the antithesis of saving. It is, go get
in debt. You know, let's--I mean, right after 9/11, the
President said, let's go shopping.
And so we are just pushing it. Get in debt. A minus .6
savings rate in the United States. And do you think that
process of sending credit cards to students is helping the
Nation?
Mr. Baer. Well, Congressman, we think it is helping those
college students because they are being given very low credit
lines--
Mr. Cleaver. But if you have no job, even if it is 1
percent, you can't pay it.
Mr. Baer. Well, I think our experience has been that
actually, college students do not default on their credit cards
at any greater rate than our general customers.
Mr. Cleaver. I apologize for not bringing the article here.
It was about 3 months ago in the Washington Post, almost a
full-page story about a woman who did just that, received a
credit card in college. And I can't remember how much--she is
about $5- to $7,000 in debt right now. It was a full-page
story, and I am going to try and get it before you leave.
Chairwoman Maloney. The gentleman's time has expired. You
can place this information in the record. And I would like to
note that the Congressman is the author of a very thoughtful
credit card reform bill that includes credit cards for college
students.
We now recognize Mr. Feeney. Congressman Feeney.
Mr. Feeney. Thank you, Madam Chairwoman.
You know, this is a little bit of deja vu all over again
from my perspective. I remember, long before I got to Congress,
watching in the 1960's and 1970's and 1980's, the lending
industry in general being beat up because they were denying
mortgage loans, for example, to people that were considered to
have risky credit behind them.
There were even implications that some of those decisions
were made not based on profitability or risk, but based on
ethnicity or race or gender. It seems to me that when you are
chasing a profit, most capitalists, pure capitalists, anyway,
are sort of neutral in terms of where they earn that profit
from in a free society. But I suspect some of that happened.
And there was a great deal of badgering that went on for a
period of decades about how we ought to make capital more
accessible so that everybody could aspire to the American dream
of owning a home.
And as a consequence of that, oh, for the last 5 years
especially, there has been some very easy credit access to
people of risky ability to pay back. Some of that has been
through no-documentation loans. Some of that has been through
100 percent or in excess of 100 percent financing of the asset.
Some of it has been simply because there were a lot of
interested investors in getting a good return on their capital.
But now we had the subprime bubble. That is often what
happens, whether because of monetary policy we inflate the
currency or whether because the credit access caused a stock
market bubble. In 1929, it took 15 years for this country to
recover, largely because Congress jumped all over the place to
hyper-regulate and hyper-tax every productive industry in the
country, publicized a lot of formerly private utilities, and so
forth.
And I think we are going down that path. We are going to
turn a recession into a deep depression if we are not careful,
all because of the law of unintended consequences. It is not
that anybody wants to do evil to the consumers out there. It is
in the name of protecting consumers and protecting small
individuals throughout the country that we do these abuses.
I was thrilled. I think it was Congressman Price who
mentioned earlier that Senator McGovern, not known as a limited
government radical like some of us are, talked about the
forgotten man when we regulate based on a policy of how we help
half a percent or 2 or 4 percent of the population.
And what I am afraid of in this bill is that we are going
to--in the name of helping a few people, we are going to deny
access to the best available credit rates to the 95 percent of
the population who have made great use of this.
Mr. Baer, I mean, let's take the other extreme. Supposing
we just abolished credit cards in this country and everybody
had to use cash or a debit card or a check. What do you think
would be the impact on the American economy if we just took
this horrible dangerous instrument that people carry around in
their wallets with them away? We could just go to an all-cash
economy. Can you give us a rough estimate of what the impact
would be to our $13 trillion economy?
Mr. Baer. I don't think I am qualified to give a numerical
estimate. But, I mean, I would say because the vast majority of
people who use credit cards are doing so responsibly, are using
that to fund worthwhile purposes, even invest in businesses,
that would obviously be a tremendous loss.
And also, even if you abolished credit cards, as I think I
had mentioned earlier, that is not to say that people would
stop borrowing. They may start borrowing through less
regulated, higher cost, less transparent forms.
Mr. Feeney. Mr. Ausubel, if you can be brief, I will let
you--remember my question. What would be the impact on a $13
trillion economy of going to all debit cards or cash?
Mr. Ausubel. The answer that I would give is that I think
the various warnings that have been going out are rather
alarmist. I mean, for example, the Senate bill bans 3 percent
foreign transaction--
Mr. Feeney. Well, if I can--I don't mean to be impolite,
but I have 5 minutes and that is unresponsive. It may be a very
interesting collateral observation, but it is unresponsive to
the question I asked.
Look. I think we want fair and full disclosure. I think we
want economic literacy. And I wish some of the do-gooder
advocates out there who don't have their own cash on the line
making loans would be doing more to advance the cause of making
sure that every single American student got a good education in
how to protect himself and herself when they are making
financial decisions.
But when it comes down to what the risk is to our system
and what the risk is to investors and how they will respond to
over-zealous regulations, you will forgive me if I believe the
capitalists and the investors, without which we won't have any
credit when they tell me what the potential response.
All of the panelists today from the private sector have
said they don't engage in several of these practices--universal
default, two-cycle billing, and some of the other abuses.
Nonetheless, even though their competitors do and they are at a
competitive disadvantage, they think it will be foolish for the
American economy if we regulate things through congressional
legislation.
I happen to at this point buy that argument. With that, I
will yield back the balance of my time.
Chairwoman Maloney. The gentleman's time has expired. But
both Ms. Porter and Mr. Ausubel wanted to respond to his
comments, so I would like to give them that opportunity.
Ms. Porter. I can say that based on a study of five
national economies that Professor Ronald Mann did, large
national economies similar to the U.S. economy, dollar for
dollar, moving people from credit card spending onto debit card
spending, moving people from card borrowing onto non-card
borrowing, would lower the bankruptcy rate.
Chairwoman Maloney. Mr. Ausubel, do you have a comment?
Mr. Feeney. Well, now, if I can, the chairman has been
gracious enough, and I am happy to have that response. I didn't
ask about the bankruptcy rate. I asked about the effect on a
$13 trillion goods and services economy. That is--you know,
there may be some good things that happen as a result of
killing your economy. Bankruptcy--
Chairwoman Maloney. I would just say, reclaiming my time,
Congressman, no one is advocating abolishing credit cards. We
all acknowledge the important tool they are to our economy. And
as one who represents a great number of retailers, they are
absolutely essential for commerce in the district that I
represent. What we are talking about is more notice and
allowing cardholders to pay off their balances at the rate that
they agreed to.
I now recognize Mr. Davis.
Mr. Davis of Tennessee. Madam Chairwoman, thank you very
much.
As we engage in this debate and this discussion, it would
seem to me there is a reason for you folks being here today. If
everything was apple pie and a pot of gold at the end of the
rainbow, and we could find it, you wouldn't be here today. So
there is obviously something happening in the financial world
that the average person who lives in my district has complained
about.
I represent the fourth most rural residential congressional
district in America. I have the third highest number of low
wage earners and blue collar workers, who have a tough time
having health care, and paying almost $4 a gallon for gasoline
to drive to a job that just barely pays more than minimum wage,
which we raised recently. So when we talk about the issues here
today, in my district, we are engaged. We are connected. And we
do feel the pain.
I heard someone say a moment ago that credit card companies
offer credit unsupervised. I am a farm boy. When we start
moving cattle from one stall to another or from one field to
another or loading them for market, we have a little stick. On
the end of it, it has--excuse me, those who might not agree
with this--it has a little shock on the end of it. And we are
able to supervise livestock with that.
A lot of folks in my district feel like they have been
shocked by the bill that they get from the credit card
companies. I am one of those, and I will explain in a moment
why I feel that way.
I also like to ride horses, now mainly mules because they
are more safer to get on. Occasionally I put on a pair of
spurs. And when I touch that animal in the side, it is to give
supervision to that animal. A lot of my constituents back home
have felt the pain of the spur in their ribs and in their
wallet.
Now, you might not follow what I am saying, but folks back
home understand what I am saying. When we talk about high risk
credit, those in this room have done more to establish the
credit rating of most Americans than any other financial
institution in America, either good or bad. So it seems to me
real easy before you send out one of those I have heard as many
as 8 billion solicitations, all you have to do is check their
credit report and see if that is a good risk.
So really, if you are sending high risk out, it is your
fault. You should know whether or not these folks are good
credit risks or not. All you have to do is click on--get the
report, and then you are not taking much risk any more. So for
me, I don't agree with some of the statements I am hearing
today, and I do believe that it is supervised credit because we
have felt some of the stings of it back home.
When I also look at those 8 billion solicitations, or 4, I
heard earlier, but I have come to believe that it is 8 billion,
if it costs 15 cents to send those out, including the printing
and everything else and postage, you are talking about $120
million. Some folks say a trillion dollar business; some folks
say $2.3 to $2.4 trillion. I don't know what that figure is.
Perhaps collectively you all could arrive at that.
That seems like an awful lot. But I will tell you how one
of my staff members disciplines and supervises credit card
companies. When he gets one of those solicitations--and he just
told me this earlier--he takes it to the mailbox, tears it
open, folds everything else back up, and puts it in the return
envelope. And it costs 41 cents for you to get it back. So he
is doing the best he can to discipline you all.
So as we look at this thing, there are a lot of issues that
we need to talk about, a lot of questions. Everything is not
rosy. I wish it was. You provide a wonderful service. In the
late 1970's, my wife and I got our credit cards, and we cut
them up and we burned them. As I engaged in business that took
me a long way from home in 1991, I applied for credit cards.
I have two credit cards. One of those is listed on it,
since 1991. I have never paid interest on it. I have never paid
a late fee on it. I pay it off every month. I have another one
that is smaller that has absolutely aggravated and wore me out,
and that is why I feel something has to happen.
When I called one day after being here, quite frankly, on
the smaller amount that I had--it was less than $100--realized
I had not paid it and it was due the next day, I called to see
if I could pay it by phone. You can. It is $29. I owed $50-
something. It is $29. What is the late fee? $29. I am not going
to pay you over the phone. I will send it to you.
So when you tell me everything is fine and rosy, it really
is not for some of us. So what I want to do is be sure that we
work in a way to where that credit cards continue to be what
they have been, a source for individuals to be able to use to
be a consumer in this country. And that is what this hearing is
about today.
One of the questions I want to ask you is that $29 fee that
someone was going to charge me by paying by phone, how much was
that going to cost you? Because the other one I call in at the
end of every month, I do it by phone. The phone says, tell me
your card number. What is your mother's birthday? Do you want
to pay it all off or do you want to pay--so in essence, they
don't charge me anything for doing that.
But most credit card companies do. So how much does it cost
you to take that automated phone call, and how much should you
charge for it? Anyone who wants to answer that.
Ms. Franke. I can't.
Mr. Davis of Tennessee. Do you have an idea what it costs?
Ms. Franke. What I can tell you is that 98 percent of the
payments are made for free. There are many, many options to pay
your bill without ever incurring a charge. And we would always
encourage our customers to take advantage of the ways that they
can pay their bills on time without incurring any penalty fees.
And again, 98 percent of all of our payments are made for free.
Mr. Davis of Tennessee. I have a college degree. It is in
agriculture. And I am a Member of Congress. When I start
reading what is on the back of that card, before I get angry
with it, I tear it up and throw it away. I mean, I don't think
anybody reads what is on the back of those cards. We trust you.
Literally, we trust you to be fair and honest with us. And that
is what we have always done with our banks and others.
So I don't want people to start distrusting a valuable
source for us in this country. So if you could somehow maybe
talk with other folks and see if you can tell me about what it
would have cost me, had I agreed to pay the $29, what it would
cost you to charge me $29 on less than a $60 bill.
Chairwoman Maloney. Can any of the issuers answer his
question, or can any of the academics answer his question, of
how much does it cost the issuer to take a payment by phone?
Can anyone answer that in relation to the fee?
Mr. Baer. I don't know the exact amount. I do know it is
our highest cost way of accepting a payment. But I don't know
the relative cost.
Chairwoman Maloney. Could you get it back to us in writing
later after you have analyzed it?
Mr. Baer. If we have it, we will give it to you.
Mr. Davis of Tennessee. Can I--
Chairwoman Maloney. Can all of the issuers respond to his
question? Sure.
Mr. Davis of Tennessee. I would like to make an
announcement. For all folks who have credit cards and you get a
request in the mail, send them back like my staff does and it
costs them 41 cents.
Chairwoman Maloney. Yes. Would any other issuer like to
comment? Mr. Ireland first, or--okay. Then the academics. Mr.
Levitin?
Mr. Levitin. I can't speak to the issuer's overhead costs
involved in accepting a payment by telephone. But they should
be able to do it through an automated clearinghouse transaction
that would cost them 5 cents. That is 5 pennies for the
automated clearinghouse.
Chairwoman Maloney. Can anyone else answer his question?
Mr. Ireland. I would just like to comment. Automated
clearinghouse transaction, to clear the transaction once you
have formatted it and put it into the system, the interbank fee
is on the order of 5 cents.
To actually take in the transaction, link it up with the
right account, account for it, and so on in a different
environment is going to be significantly more than five cents.
I don't know what the actual numbers are, but people have said
they will bring them.
Chairwoman Maloney. Go ahead.
Mr. Ausubel. There are other nuisance fees that are much
easier to trace down the cost of. So like if you take the
foreign currency fees I think everyone at this table charges,
any transaction that is paid in foreign currency they surcharge
3 percent. That is on top of the conversion fees that Visa and
MasterCard assess. So I would say that one it is clear the cost
is literally zero.
Mr. Baer. If I may just respond?
Chairwoman Maloney. The Chair recognizes the gentleman for
an additional minute. I do want to note that Mr. Davis is the
author of a very comprehensive credit card reform bill, which
does include price limits and price fees.
Go ahead. An additional minute, in recognition of your hard
work on your own bill.
Mr. Davis of Tennessee. Okay. As you answer those questions
concerning the fees for a phone call, what does it cost you to
process me sending it in through my internet, through an e-
mail, where I actually go online and pay you online? Is there a
difference in that and an automated phone call? And if I send
you a check, in comparison for you to take the check out of the
envelope, have the folks process that and enter that, which of
the three would be the most expensive and which would be number
one, two, and three?
Mr. Finneran. I don't know the precise numbers,
Congressman. But I think in order of expense, the cheapest is
the internet because that is the most highly automated. I think
the second least expensive is through the mail, simply because
of the volume of people who actually choose to pay in that way.
And the most expensive by a fair amount, although again I
don't have the precise figure, is over the phone because few
people choose to do it that way, and you have to have the
people to take the phone call or to make sure that the
automated aspects of it work and make all the linkages that Mr.
Ireland referred to.
For Capital One, and I know probably the other issuers at
the table as well, notwithstanding some of the anecdotes that
people like to pass around regarding billing due dates, we send
our bills out a good 25 days before the due date. And we
certainly encourage and provide multiple ways for people to pay
on time. We spend a lot of time and effort to try to encourage
people to not wait for the last day.
Mr. Davis of Tennessee. I hate to interrupt you. But how
long have you had that 25 day period when you send out your
bills? Is this recently or is it--
Chairwoman Maloney. Reclaiming my time, what our bill is
approaching is all practices with all credit card companies.
Many companies have very fine practices that give a great deal
of notice, the 25-day limit, which many of my colleagues on the
other side of the aisle requested be placed in the bill.
I now recognize Mr. Clay for 5 minutes. And he will be
followed by Mr. Ellison.
Mr. Clay. Thank you so much, Madam Chairwoman.
Since no one in authority will call the current economic
straits of the country a recession or a depression, I will say
that we are in an informal recession, that is, a recession that
is felt by the millions that are losing all of their wealth,
their homes, and in many cases their families.
This has been caused by the outsourcing of jobs overseas,
the replacement of workers in this country with cheaper
laborers, the grand larceny of the housing mortgage community
and various other credit and payment schemes, criminally high
energy costs, and a few other economic burdens.
At what point will it be determined that the consumer
cannot pay all of the increases in interest rates, the
additional fees and costs associated with credit? At what point
will there be the realization that reasonable profit is better
than the destruction of the consumer base that it is depending
upon for the maximized profits that are being sought?
When will the concept of losing money stop being confused
with the concept of not meeting profit projections? And I will
start right here. When do we concede that we must start--or
that we must realize that consumers may not be able to pay all
of these bills? I will start with you, ma'am.
Ms. Warren. Congressman, I think we should be there right
now. And I will just say, I will hit just a few of the numbers.
One in every seven American families is dealing with a debt
collector. Forty percent of American families worry whether or
not they are going to be able to make their bills at the end of
the month. And the one that truly breaks my heart is that one
in every five American families says, I believe I will die
still owing my bills.
Congressman, how much worse does it have to get before we
start taking some action to clean this up?
Mr. Clay. And it is about what cost they incur now. People
trying to heat their homes, fill their gas tanks up. On top of
all of that, they are being pursued by companies wanting to
collect on the debt.
How about you, Mr. Baer? Any comment?
Mr. Baer. Sure. Obviously it is a large topic. I mean, I
would make one point, though, which is that in contrasting
credit card lending to mortgage lending, there is a rather
significant difference, which is credit card lending is wholly
unsecured lending. So there is a rather significant constraint
on our willingness to extend credit to people, namely, that if
they do not repay it, there is no car. There is no home. There
is no security at all.
And I think that is why--and you may have the wrong group
of lenders here because I think these are the lenders who are
probably managing credit the most responsibly and intelligently
and why, of course, we are interested in risk-based pricing.
But we have every incentive not to have customers paying
interest rates they can't repay or levels of debt that they
can't repay because we bear 100 percent of the loss in the
event that they don't repay. That is not to say we suffer the
anguish, the personal anguish, that they might feel in that
case, and the longer term potential bad ramifications of poor
credit. But in terms of the immediate dollar financial loss, we
feel 100 percent of it.
So you should feel some assurance that at least the issuers
here--
Mr. Clay. Okay. I appreciate the response. But when will
the concept of losing money stop being confused with the
concept of not meeting projected profits? How about that? Do
you have any response to that? There is a difference, don't you
think?
Mr. Baer. Yes. Now--
Mr. Clay. Losing money compared to projected profits.
Mr. Baer. I mean, our interest obviously is not in losing
money, and our interest is in earning a reasonable risk-based
return on capital, which in this case means lending to people
we believe can repay it.
Mr. Clay. Based on paying out bonuses at the end of the
year and making sure your values are up in the stock market and
all that. Correct?
Mr. Baer. Well, again, if our customers aren't repaying us
and we are suffering credit losses, that will not help our
stock value.
Mr. Clay. How about you, Mr. Levitin? Do you have any
comment?
Mr. Levitin. I think it is interesting what you point out
about executive compensation and bonuses, that they are very
often tied to short-term profits. And those short-term profits
are--a good way of increasing short-term profits is by
squeezing consumers through really dirty billing tricks.
You can bump up profits a little bit in a quarter, and that
beats the market's expectation by a penny, and walk away with a
large golden parachute. And certainly looking at executive
compensation practices is, I think, part of the picture here,
and making sure that they are decoupled from things like
billing practices and the profits generated by them.
Mr. Clay. Thank you so much.
Chairwoman Maloney. The gentleman's time has expired. Mr.
Ellison, and I want to congratulate his hard work throughout
four different hearings and a roundtable discussion that we had
on this with issuers.
Mr. Ellison. Well, Madam Chairwoman, I just want to thank
you. I think that your leadership in this area is tremendous.
Obviously there are powerful forces who are trying to stop us
from protecting the consumers, and I just thank you for your
courage and commitment.
How profitable is the credit card business these days, Ms.
Warren?
Ms. Warren. The most recent data we have available is that
they made about $18.4 billion in 2006. That was a 45 percent
jump over the year before. We haven't seen the 2007 data.
Mr. Ellison. $18.4 billion?
Ms. Warren. $18.4 billion with a ``B.''
Mr. Ellison. That is a lot of money. What is the percentage
of profitability? Does that term--do you understand what I am
asking you?
Ms. Warren. Yes. The revenues were about $115 billion. So
you can sort of figure it out from that one. Not bad.
Mr. Ellison. Yes. And of course, you may not know this and
we may need to come back for it. How much did the CEO at
Capital One make?
Ms. Warren. Oh, gosh. A lot more than I did.
Mr. Ellison. Yes. Does anybody know?
Ms. Warren. It is outside my range.
Mr. Ellison. Mr. Finneran, do you know that? Your CEO, how
much did he get?
Mr. Finneran. Our CEO has not taken a salary since 1997.
All of his compensation is in equity in the company, therefore
what he makes is entirely dependent upon the success of the
company.
Mr. Ellison. Mr. Finneran, how much did he get paid last
year?
Mr. Finneran. Pardon me?
Mr. Ellison. How much did he get paid last year? I am not
asking you if it was salary or--I am asking you how much
compensation did he receive?
Mr. Finneran. Well, in our most recent proxy disclosure, I
believe it was $17 million worth of equity grants.
Mr. Ellison. $17 million. And how about the CEO of JPMorgan
Chase, ma'am?
Ms. Franke. I don't know.
Mr. Ellison. You don't know that? Well, I will commend you
on being extremely well-prepared on everything else. Bank of
America?
Mr. Baer. I don't know my CEO's exact compensation, or even
his approximate compensation, for that matter.
Mr. Ellison. Mr. Baer, come on.
Mr. Baer. I don't.
Mr. Ellison. Okay. Does anybody else know?
[No response]
Mr. Ellison. You know what? In 1980, the average CEO made
about 41 times the average worker. In 2005, it was about 411
times. So it is interesting how--it is too bad folks don't know
what their boss made.
I introduced--well, let me just skip that one.
Demos has noted in a study that African American and Latino
credit cardholders with balances are more likely than whites to
pay interest rates higher than 20 percent. Why do you think
that is? Well, is it true? And why do you think that might be?
Mr. Ausubel, have you looked at this? Have you heard about
this, Professor Warren? Haven't heard about that one?
Ms. Warren. Oh, yes. No, I cited it in my testimony.
Mr. Ellison. Oh, yes. Could you elaborate on that, please?
Ms. Warren. Well, they looked at a survey of consumer
finance data. But I don't think there is any question about the
accuracy of the data.
Mr. Ellison. Right.
Ms. Warren. And they simply analyzed it by race. They also
looked at the effects on single women. They looked at family
income. And the people who are carrying the heavy burdens here
are disproportionately African American, Latino, single
mothers, and people in lower income categories.
Mr. Ellison. Professor Warren, maybe you could help me with
this. You know, I am just a simple guy, and I hear these
financial people using big words like risk-based pricing and
stuff like that. It sounds really important.
Are they basically saying that these people are riskier, so
we get to charge them more?
Ms. Warren. They may be saying that, but--
Mr. Ellison. But is that what they are saying?
Ms. Warren. But in fact, that is not what they are doing. I
mean, this is the point that Professor Levitin has really
emphasized, and I want to be sure to highlight his research on
this.
Mr. Ellison. Would you please do that?
Ms. Warren. Professor Levitin?
Mr. Levitin. Sure. Most of the overall price that you pay
on a credit card has nothing to do with your individual risk
profile. It has to do with the cost to the issuer of borrowing
money from the capital markets. It has nothing to do with
whether you are risky or whether you are going to pay on time.
Only at the very margins does it have any impact.
Mr. Ellison. Basically, the pricing reflects what they can
get from a consumer, right?
Mr. Levitin. Very much so.
Mr. Ellison. So it is pretty much about just getting money?
Mr. Levitin. This is a--as they note, it is a competitive
market and they want to squeeze every last drop of profit they
can.
Mr. Ellison. I am glad you said that about the competitive
market thing, because I was talking to somebody just yesterday,
and they told me that, well, I shouldn't worry about these
credit card practices that seem so egregious to me because if
people don't like it, they can just call somebody else.
But then have you ever tried to call a credit card company?
Could you just--Ms. Warren, Professor Levitin, have you tried
to actually talk to these people and get them on the phone to
discuss your bill?
Ms. Warren. Of course not. That is why we all laugh. That
is like the punch line to a joke, to call a credit card
company.
Mr. Ellison. Right.
Ms. Warren. But I want to make the point here even so, even
if you could reach someone, by the time you recognize most of
these things have happened to you, they have happened to you.
Mr. Ellison. Right.
Ms. Warren. This is not about understanding in advance,
golly, I have one of those cards that is going to have a new
due date on it, or that they are going to switch me every 6
months on the date that my payment is due. This is about things
that you only know you have been bitten after the teeth are
well sunk in. And then it is too late to do anything about it.
Mr. Ellison. Let me ask you this. On this issue of the
moving target of the payment date, it was pointed out to me
yesterday that, hey, we don't want to have--
Chairwoman Maloney. The gentleman's time has expired. And
the moving target date is one that we end in this legislation
that is before us today.
I would like to thank all of my colleagues and the
witnesses for your testimony today. We are moving forward with
legislation. This bill is on four previous hearings and
roundtable discussions with issuers and consumers and
academics. And the next hearing will be held on April 9th.
We look forward to passing legislation that will put into
place reforms that will enable responsible consumers to better
control their financial affairs, and will bar some of the most
abusive practices that drive responsible cardholders further
into debt. Our legislation is balanced and sensible, and I look
forward to our next hearing.
I do want to note that Members, if they have additional
questions, and my colleague Mr. Ellison, can put his additional
questions in writing to the panel. Without objection, the
hearing will remain open for additional comments and questions
for 30 days.
And again, I want to thank the witnesses and thank everyone
here. We will get your responses into the record. This meeting
is adjourned. Thank you.
[Whereupon, at 2:15 p.m., the hearing was adjourned.]
A P P E N D I X
March 13, 2008
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