    [House Hearing, 111 Congress]
    [From the U.S. Government Publishing Office]

                       H.R. 627, THE CREDIT CARDHOLDERS'
                        BILL OF RIGHTS ACT OF 2009; AND
                       H.R. 1456, THE CONSUMER OVERDRAFT
                     PROTECTION FAIR PRACTICES ACT OF 2009

    =======================================================================

                                    HEARING

                                   BEFORE THE

                     SUBCOMMITTEE ON FINANCIAL INSTITUTIONS

                              AND CONSUMER CREDIT

                                     OF THE

                        COMMITTEE ON FINANCIAL SERVICES

                         U.S. HOUSE OF REPRESENTATIVES

                         ONE HUNDRED ELEVENTH CONGRESS

                                 FIRST SESSION

                                   __________

                                 MARCH 19, 2009

                                   __________

           Printed for the use of the Committee on Financial Services

                               Serial No. 111-17

                                   ----------

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    48-870 PDF                       WASHINGTON : 2009

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                     HOUSE COMMITTEE ON FINANCIAL SERVICES

                     BARNEY FRANK, Massachusetts, Chairman

    PAUL E. KANJORSKI, Pennsylvania      SPENCER BACHUS, Alabama
    MAXINE WATERS, California            MICHAEL N. CASTLE, Delaware
    CAROLYN B. MALONEY, New York         PETER T. KING, New York
    LUIS V. GUTIERREZ, Illinois          EDWARD R. ROYCE, California
    NYDIA M. VELAZQUEZ, New York         FRANK D. LUCAS, Oklahoma
    MELVIN L. WATT, North Carolina       RON PAUL, Texas
    GARY L. ACKERMAN, New York           DONALD A. MANZULLO, Illinois
    BRAD SHERMAN, California             WALTER B. JONES, Jr., North
    GREGORY W. MEEKS, New York               Carolina
    DENNIS MOORE, Kansas                 JUDY BIGGERT, Illinois
    MICHAEL E. CAPUANO, Massachusetts    GARY G. MILLER, California
    RUBEN HINOJOSA, Texas                SHELLEY MOORE CAPITO, West
    WM. LACY CLAY, Missouri                  Virginia
    CAROLYN McCARTHY, New York           JEB HENSARLING, Texas
    JOE BACA, California                 SCOTT GARRETT, New Jersey
    STEPHEN F. LYNCH, Massachusetts      J. GRESHAM BARRETT, South Carolina
    BRAD MILLER, North Carolina          JIM GERLACH, Pennsylvania
    DAVID SCOTT, Georgia                 RANDY NEUGEBAUER, Texas
    AL GREEN, Texas                      TOM PRICE, Georgia
    EMANUEL CLEAVER, Missouri            PATRICK T. McHENRY, North Carolina
    MELISSA L. BEAN, Illinois            JOHN CAMPBELL, California
    GWEN MOORE, Wisconsin                ADAM PUTNAM, Florida
    PAUL W. HODES, New Hampshire         MICHELE BACHMANN, Minnesota
    KEITH ELLISON, Minnesota             THADDEUS G. McCOTTER, Michigan
    RON KLEIN, Florida                   KEVIN McCARTHY, California
    CHARLES A. WILSON, Ohio              BILL POSEY, Florida
    ED PERLMUTTER, Colorado              LYNN JENKINS, Kansas
    JOE DONNELLY, Indiana
    BILL FOSTER, Illinois
    ANDRE CARSON, Indiana
    JACKIE SPEIER, California
    TRAVIS CHILDERS, Mississippi
    WALT MINNICK, Idaho
    JOHN ADLER, New Jersey
    MARY JO KILROY, Ohio
    STEVE DRIEHAUS, Ohio
    SUZANNE KOSMAS, Florida
    ALAN GRAYSON, Florida
    JIM HIMES, Connecticut
    GARY PETERS, Michigan
    DAN MAFFEI, New York

            Jeanne M. Roslanowick, Staff Director and Chief Counsel
           Subcommittee on Financial Institutions and Consumer Credit

                     LUIS V. GUTIERREZ, Illinois, Chairman

    CAROLYN B. MALONEY, New York         JEB HENSARLING, Texas
    MELVIN L. WATT, North Carolina       J. GRESHAM BARRETT, South Carolina
    GARY L. ACKERMAN, New York           MICHAEL N. CASTLE, Delaware
    BRAD SHERMAN, California             PETER T. KING, New York
    DENNIS MOORE, Kansas                 EDWARD R. ROYCE, California
    PAUL E. KANJORSKI, Pennsylvania      WALTER B. JONES, Jr., North
    MAXINE WATERS, California                Carolina
    RUBEN HINOJOSA, Texas                SHELLEY MOORE CAPITO, West
    CAROLYN McCARTHY, New York               Virginia
    JOE BACA, California                 SCOTT GARRETT, New Jersey
    AL GREEN, Texas                      JIM GERLACH, Pennsylvania
    WM. LACY CLAY, Missouri              RANDY NEUGEBAUER, Texas
    BRAD MILLER, North Carolina          TOM PRICE, Georgia
    DAVID SCOTT, Georgia                 PATRICK T. McHENRY, North Carolina
    EMANUEL CLEAVER, Missouri            JOHN CAMPBELL, California
    MELISSA L. BEAN, Illinois            KEVIN McCARTHY, California
    PAUL W. HODES, New Hampshire         KENNY MARCHANT, Texas
    KEITH ELLISON, Minnesota             CHRISTOPHER LEE, New York
    RON KLEIN, Florida                   ERIK PAULSEN, Minnesota
    CHARLES A. WILSON, Ohio              LEONARD LANCE, New Jersey
    GREGORY W. MEEKS, New York
    BILL FOSTER, Illinois
    ED PERLMUTTER, Colorado
    JACKIE SPEIER, California
    TRAVIS CHILDERS, Mississippi
    WALT MINNICK, Idaho

                                C O N T E N T S

                                  ----------
                                                                       Page
    Hearing held on:
        March 19, 2009...............................................     1
    Appendix:
        March 19, 2009...............................................    51

                                   WITNESSES
                            Thursday, March 19, 2009

    Albin, Sheila A., Associate General Counsel, Office of General
      Counsel, National Credit Union Administration (NCUA)...........    11
    Braunstein, Sandra F., Director, Division of Consumer and
      Community Affairs, Board of Governors of the Federal Reserve
      System.........................................................     8
    Clayton, Kenneth J., Senior Vice President/General Counsel,
      American Bankers Association Card Policy Council...............    28
    Echard, Linda, President and CEO, ICBA Bancard, on behalf of the
      Independent Community Bankers of America.......................    29
    Fecher, Douglas, President and CEO, Wright-Patt Credit Union,
      Inc., on behalf of the Credit Union National Association (CUNA)    31
    Ireland, Oliver I., Partner, Morrison & Foerster LLP.............    33
    McCracken, Todd, President, National Small Business Association
      (NSBA).........................................................    34
    Mierzwinski, Edmund, Consumer Program Director, U.S. PIRG........    36
    Plunkett, Travis B., Legislative Director, Consumer Federation of
      America........................................................    38
    Yakimov, Montrice Godard, Managing Director, Compliance and
      Consumer Protection, Office of Thrift Supervision..............    10

                                    APPENDIX

    Prepared statements:
        Marchant, Hon. Kenny.........................................    52
        Albin, Sheila A..............................................    53
        Braunstein, Sandra F.........................................    70
        Clayton, Kenneth J...........................................    84
        Echard, Linda................................................   107
        Fecher, Douglas..............................................   118
        Ireland, Oliver I............................................   127
        McCracken, Todd..............................................   136
        Mierzwinski, Ed..............................................   145
        Plunkett, Travis B...........................................   145
        Yakimov, Montrice Godard.....................................   201

                  Additional Material Submitted for the Record

    Castle, Hon. Michael:
        Letter to Chairman Gutierrez and Ranking Member Hensarling
          from Joe Samuel, Senior Vice President of Public Policy,
          First Data Corporation, dated March 18, 2009...............   216
    Cleaver, Hon. Emanuel:
        Constituent letter...........................................   220
    McHenry, Hon. Patrick:
        Responses to questions submitted to Sandra Braunstein........   222
    Meeks, Hon. Gregory:
        Responses to questions submitted to Sandra Braunstein........   224
        Responses to questions submitted to Linda Echard.............   227

                       H.R. 627, THE CREDIT CARDHOLDERS'
                        BILL OF RIGHTS ACT OF 2009; AND
                       H.R. 1456, THE CONSUMER OVERDRAFT
                     PROTECTION FAIR PRACTICES ACT OF 2009

                                  ----------

                            Thursday, March 19, 2009

                 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 2:55 p.m., in
    room 2128, Rayburn House Office Building, Hon. Luis V.
    Gutierrez [chairman of the subcommittee] presiding.
        Members present: Representatives Gutierrez, Maloney, Watt,
    Moore of Kansas, Waters, Green, Miller of North Carolina,
    Scott, Cleaver, Klein; Hensarling, Castle, Royce, Jones,
    Neugebauer, Price, Campbell, Marchant, Lee, Paulsen, and Lance.
        Ex officio present: Representative Bachus.
        Also present: Representative Maffei.
        Chairman Gutierrez. This hearing of the Subcommittee on
    Financial Institutions and Consumer Credit will come to order.
        Thank you to all of the witnesses for appearing before the
    subcommittee today.
        Today's hearing is a legislative hearing that will examine
    two important consumer protection bills: H.R. 627, the Credit
    Cardholders' Bill of Rights Act of 2009; and H.R. 1456, the
    Consumer Overdraft Protection Fair Practices Act of 2009.
        The subcommittee has asked our witnesses to discuss recent
    regulatory action in the areas of credit card reform and
    overdraft reform and comment on H.R. 627 and H.R. 1456. We will
    be limiting opening statements to 12 minutes per side, but
    without objection, the record will be open to all members.
    Opening statements will be made a part of the record.
        I yield myself 4 minutes.
        In 2008, this committee led the Congress in adopting tough
    but commonsense consumer protection measures for credit card
    borrowers. This legislation, appropriately entitled the Credit
    Cardholders' Bill of Rights, was approved by the House by a
    wide majority, but was not taken up by the Senate. The
    reintroduction of this legislation in the form of H.R. 627 in
    the 111th Congress is a sign that this Congress is committed to
    American consumers who demand commonsense consumer-oriented
    laws at a time of economic recession.
        Credit cards, when used properly, are an important part of
    the American economic system. More than a convenient means of
    payment, they can be instrumental in starting a small business,
    helping in building a solid credit history, and are even
    effective in providing families with capital during times of
    economic crisis. Far too often, consumers come to rely on
    revolving debt or they are drawn to cards that offer low teaser
    rates and other mechanisms designed to create a never-ending
    cycle of debt.
        Today Americans are suffering from rising unemployment
    rates, dramatically declining family wealth, and declining real
    wages, all of which make it harder for consumers to pay off
    credit card debt. In fact, in 2008, we saw the percentage of
    accounts 30 days past due go to an all-time high of 5.6
    percent. On average, American families owe 24 percent of their
    income in credit card debt. These are daunting figures in an
    unstable time, but Congress can and must do something about it
    by making sure that unfair credit card practices and fees do
    not deter consumers from paying down their debt.
        Among its many consumer protections, H.R. 627 would
    prohibit unreasonable interest rate increases by preventing
    credit card companies from arbitrarily increasing interest
    rates on existing balances. Additionally, it would end double-
    cycle billing, meaning that credit card companies could not
    charge interest on debt consumers have already paid on time.
        The legislation also requires fair allocation of consumer
    payments, banning the process of crediting a consumer's
    payments to low-interest debt first, thus ensuring that the
    highest yielding debt for the insurer remains on the books the
    longest.
        In addition, the Credit Cardholders' Bill of Rights
    protects vulnerable consumers from high-fee subprime credit
    cards by preventing these fees from being charged to the card
    itself. This is an important provision for minority consumers,
    many of whom are twice as likely to have an APR over 20
    percent.
        We set to work on this legislation with the knowledge that
    the Federal Reserve Board has mandated new regulations that
    mirror many of the protections included in H.R. 627. I applaud
    the Board for its work on UDAP and Regulation Z changes.
        Today's hearing will also discuss H.R. 1456, the Consumer
    Overdraft Fair Protection Act. This bill would provide
    consumers with more notice choice regarding overdraft fees.
    Among other things, H.R. 1456 would require notice to consumers
    when an ATM transaction is about to trigger an overdraft.
    Consumers would then have a choice to accept or reject the
    overdraft service and the associated fee.
        Of course, the Federal Reserve has also proposed new rules
    outlining additional consumer protections regarding overdraft
    fees, but similar to the credit card issue, I believe Congress
    should keep the proverbial legislative heat on the industry.
        I am committed to working with the members of the
    subcommittee and the full committee to advance this practical
    and consumer-friendly legislation. I believe H.R. 627 fits
    these criteria as well, and with some work, so will H.R. 1456
    soon.
        I yield 5 minutes to the ranking member, Mr. Hensarling.
        Mr. Hensarling. Thank you, Mr. Chairman, and thank you for
    calling this hearing.
        Last year, the House Financial Services Committee approved
    what I believe to be a dangerous piece of anti-consumer
    legislation that ultimately would restrict the availability of
    credit card credit. Instead of giving borrowers more tools to
    determine which card best meets their needs, the bill would
    outlaw certain practices, set arbitrary payment deadlines, and
    create industry mandates that will only make it harder for
    companies to use risk-based pricing methods.
        The advent of risk-based pricing since 1990 has been a boon
    for consumers. Since then, interest rates have fallen
    substantially from 20 percent to below 15 percent. Consumer-
    hated annual fees on most cards have typically virtually
    disappeared and fringe benefit rewards, offers like frequent
    flier miles and cash back, have exploded.
        Like a lot of people, I am not a fan of some of the
    practices and confusing legal manifestoes that credit card
    companies employ. In fact, both my wife and I have changed
    credit cards on several occasions when we have not liked the
    service or the product. And there is one particular credit card
    company with which we refuse to do business.
        But this bill, instead of empowering consumers with
    enhanced competition and effective disclosure, instead
    represents another assault on personal economic freedom that
    will only exacerbate the credit crunch that already threatens
    so many of our citizens.
        Let us take a quick look at the facts. According to the
    Census Bureau, over half of families almost always pay their
    credit card balance while only 24 percent hardly ever pay off
    their balance. Furthermore, industry statistics reveal that
    more than 19 of 20 credit card borrowers are paying at least
    their minimum monthly payment on time.
        Discarding risk-based pricing for the sake of that small
    group of borrowers who aren't paying their debts on time would
    effectively turn the clock back to an era where there was
    little competition and a third fewer Americans had access to
    credit cards. Those who did paid the same universal high rate
    regardless of whether they paid their bills on time or
    regardless of their creditworthiness.
        Make no mistake about it, if this bill passes, it is going
    to be a lot harder for people to access the credit they need to
    pay their bills, cover their medical emergencies, or finance a
    large purchase. I have heard from several of them in the Fifth
    Congressional District of Texas, which I have the honor of
    representing in Congress.
        I heard from the Blanks family of Fruitvale who wrote me,
    ``My new business would not be started if not for my credit and
    credit cards. I hate to say it, but with a daughter and wife in
    college, my credit card is all I have.'' I want to make sure
    that the Blanks family of Fruitvale, Texas, do not lose their
    credit card.
        I heard from the Vian family of Rowlett, Texas: ``In the
    fall of 2004, my wife and I were laid off from our jobs at the
    same time. We had just moved into our first home together in
    July of that year. Needless to say, the layoff was quite a
    shock and without access to our credit cards at that time,
    frankly, I don't know what we would have done.'' I want to
    ensure that the Vian family of Rowlett keeps their credit
    cards.
        I heard from the Juarez family of Mesquite: ``I oppose this
    legislation as I have utilized my credit cards to pay for some
    costly oral surgery. I do not want to get penalized by this
    legislation for making my payments on time.'' And the
    correspondence goes on and on and on.
        And don't take my word for what will happen. Listen to the
    nonpartisan Congressional Research Service: ``Credit card
    issuers could also respond in a variety of ways. They may
    increase loan rates across-the-board on all borrowers, making
    it more expensive for both good and delinquent borrowers to use
    revolving credit. Issuers may also increase minimum monthly
    payments, reduce credit limits, or reduce the number of credit
    cards issued to people with impaired credit.
        Now I believe we already see in the credit crunch, we know
    what will happen if we start to restrict credit. We are already
    seeing it. And as badly as my friends on this side of the aisle
    want to vilify some of those in the credit card company, I
    think that most of their vehemence is directed at those in the
    payday industry and the pawn industry.
        I have an article from the IndyStar, dated February 3rd,
    entitled, ``More American Families are Seeking Payday Loans as
    Financial Turmoil Mounts.''
        I have another one from the Boston Globe, dated July 9th of
    last year, entitled, ``Cash-Strapped Consumers Desperate for
    Deals are Increasingly Turning to Pawn Shops and Payday Lenders
    Instead of the Local Mall and Neighborhood Bank.''
        And last but not least, from the Washington Post, from our
    friends across the pond in Italy, ``As Italy Banks Tighten
    Lending, Desperate Firms Call on the Mafia.''
        Those are the choices consumers will be faced with when
    they lose their credit cards.
        Chairman Gutierrez. Congresswoman Maloney for 4 minutes.
        Mrs. Maloney. I would like to thank Chairman Gutierrez and
    the ranking member for holding this hearing on the Credit
    Cardholders' Bill of Rights and the Consumer Overdraft
    Protection Practices Act.
        I would say to my good friend on the other side of the
    aisle that I agree with his constituent who wrote that she did
    not want her credit card fees to go up or interests rates to go
    up for any time, any reason. This bill stops some of the most
    egregious practices.
        It came out of a series of meetings with stakeholders over
    2 years, with issuers, with consumers, with those professionals
    in financial services. We came up with a set of principles and
    drafted the bill in support of those principles. Some financial
    institutions voluntarily instituted the gold standards, the
    gold practices, but other issuers did not; therefore, they were
    at a competitive disadvantage.
        This levels the playing field not only for the consumer,
    but for financial institutions themselves, so that businesses
    that are coming forward with best practices are not penalized
    economically for going forward with them.
        For too long, the playing field has been tilted against the
    American consumer as they have battled against unfair,
    deceptive, and anti-competitive practices. These are the words
    of the Federal Reserve.
        Last fall, we took a major step forward in leveling this
    playing field when the House passed the Credit Cardholders'
    Bill of Rights by an overwhelming bipartisan vote of 312-112.
    This legislation works on the basis that a deal is a deal and
    would prohibit a penalty increase of an interest rate on an
    existing balance unless the customer is more than 30 days late.
    It bans double-cycle billing, charging interest rates on a
    balance that has already been paid, and requires all payments
    to be posted to account balances in a fair and timely fashion.
        Regrettably, this legislation was not considered in the
    Senate before the end of this session.
        In December, we saw another important step forward for
    consumers as the Federal Reserve, the Office of Thrift
    Supervision, and the National Credit Union Administration,
    after receiving more than 66,000 comments from Americans across
    this country, setting a record of support of a rule change,
    finalized their rule that tracks the major provisions of this
    legislation, labeling these practices unfair, deceptive, and
    anti-competitive.
        While this final rule will provide significant new consumer
    protections, it does not go into effect until July of 2010. And
    unless it is codified into law, these new protections can be
    changed at any time in the future without the consent of
    Congress.
        For more than 2 years, I have been working on this
    legislation, and during that time, we have garnered the support
    of more than 50 major editorial boards from across this Nation
    and have earned the endorsement of many respected national
    consumer groups, labor unions, and civil rights organizations.
    Many of these organizations have made passage of this
    legislation their very top priority.
        Let me be very clear: credit cards remain a vital tool, a
    vital innovation in our economy, a tool that enables consumers
    to do everything from paying for an airline ticket or covering
    an emergency expense to paying for schoolbooks. However, with
    the now-near universal use of credit cards, we need to ensure
    that consumers have adequate fair protections.
        The other bill before this subcommittee today is the
    Consumer Overdraft Protection Fair Practices Act. While I
    recognize the great benefits the increase in use in debit cards
    have provided American consumers, overdraft fees are becoming
    an increasing problem for bank customers.
        A November 2008 Federal Deposit Insurance study--
        Chairman Gutierrez. The gentlewoman's time has expired.
        Mrs. Maloney. Let me just say if I could at the end--both
    of these bills give tools to consumers to better manage their
    own credit, to allow them to make a choice whether or not they
    want to opt in to an overdraft protection. Some consumers have
    been charged $150 for having bought three cups of coffee. They
    did not know they were going to have an overdraft.
        This allows them to better manage their credit during a
    time when we are in a credit crisis.
        We are helping the financial institutions. We should also
    help the consumers. That is what these two bills do, and I
    believe it helps our economy and the institutions.
        Chairman Gutierrez. Mr. Castle.
        Mr. Castle. I ask unanimous consent that this letter from
    First Data be submitted.
        Chairman Gutierrez. Without objection, it is so ordered.
        Mr. Castle. Many of us are aware that in December of 2008,
    the Federal Reserve Board announced final rules to improve
    consumer understanding and eliminate unfair practices related
    to credit cards and other related credit plans. These rules
    were carefully crafted after holding rigorous consumer tests
    and after taking into consideration over 66,000 comments on the
    proposals during the allotted comment period.
        After receiving these comments and running these tests, the
    Federal Reserve announced that the final list of comprehensive
    reforms would be implemented by July 1, 2010. This will allow
    18 months for the industry to overhaul their current business
    models and to work on improving disclosures to comply with the
    new rules.
        To the 6,000 companies that issue credit cards, this is no
    easy task. It will require planning and assistance in
    effectively implementing these rules to ultimately help
    consumers. However, this hearing, in part, will address a new
    bill that will only give the industry 3 months to implement new
    rules.
        With any change in business models, there will be costs to
    consider and unexpected effects to prepare for, and 3 months is
    not enough time to do this.
        I believe the new rules take a comprehensive approach to
    protecting consumers, and I remain convinced that enacting
    legislation that goes well beyond these carefully crafted rules
    is not wise.
        I yield back the balance of my time, Mr. Chairman.
        Chairman Gutierrez. I thank the gentleman.
        Mr. Miller is recognized for 2 minutes.
        Mr. Miller of North Carolina. For millions of families,
    abuse of overdraft fees for debit and checking accounts has
    become an unconscionable burden. The problem is not that banks
    penalize their consumers who overdraw their checking accounts.
    The problem is the manner and frequency with which those fees
    are assessed to consumers, and those practices have become
    predatory.
        In 2007, banks loaned $15.8 billion to cover overdrafts,
    and U.S. consumers paid $17.5 billion in overdraft fees. The
    typical overdraft transaction was a $20 purchase. The typical
    overdraft fee was $34, and about three-quarters of the
    overdraft fees were from families who were barely getting by.
        Overdraft fees now account for 45 percent of the service
    fee revenue for some banks, and the number is rising. And they
    game the system. They develop fee harvesting software to
    manipulate the sequence in which checks and other debits are
    posted to maximize the charges for overdrafts. In some cases,
    they consciously do not post the overdrafts so the consumer
    will not understand, will not know that they have gone over
    their--that they are now overdrafting, so they will rack up
    more charges and more penalties.
        The result is that consumers are hopelessly in debt and
    their next paycheck is largely going to go to their bank, not
    to put food on their family's table.
        Mr. Hensarling said that they don't have overdraft. If we
    make banks reform their practices, they will go to payday
    lenders. They would be far better off with payday lenders. The
    actual rate of interest for an overdraft fee for a $10--it
    works out to a 3,500 20 percent interest rate for overdraft
    fees paid in 2 weeks.
        This has to be reformed.
        Chairman Gutierrez. Thank you. Mr. Price for 2 minutes.
        Mr. Price. Thank you, Mr. Chairman.
        Mr. Chairman, we are considering this legislation today
    against an economic background in our country that is uniquely
    challenging. I hear from constituents daily who have been
    unable to get loans or renew their lines of credit. I hear from
    banks in my district who are suffering under mark-to-market
    accounting rules, getting mixed messages from their regulators,
    and still wanting to lend to their customers. We ought to be
    pursuing every available avenue to loosen up credit.
        To that end, this legislation is simply the wrong thing at
    the wrong time. As has been mentioned, the Federal Reserve just
    issued a 1,200-page rule--1,200-page rule--in December that
    completely overhauls the credit cash industry. This bill
    appears to be a poor attempt to ``solve'' what the Federal
    Reserve is already accomplishing, and I look forward to the
    comments of the panelists regarding that issue.
        This legislation isn't focused on giving consumers control
    over their credit. By imposing significant restrictions and
    price controls on creditors, individuals will have fewer
    options, not more, fewer options available to choose from.
        Consumers need access to key information about credit
    products in a concise and a simple manner. Information will
    empower them to make their own choices in determining what type
    of credit card is right for them. The Congress ought not
    restrict the choices that are available, especially in a time
    of restrained credit markets.
        By statutorily preventing issuers from being able to price
    for risk, dictating how they must treat the payment of multiple
    balances, and implementing price controls, we will only see
    restricted access to credit for those with less-than-perfect
    credit histories, and an increase in the cost of credit for
    everyone. This means less credit availability.
        Every Member of Congress wants to ensure that consumers
    have the information they need to make educated decisions about
    their credit. I hope that our commitment to ensuring access to
    affordable credit for all consumers is equally strong,
    especially in this time of strained credit markets.
        Chairman Gutierrez. Mr. Paulsen for 1 minute.
        Mr. Paulsen. Thank you for holding this important hearing
    today.
        I also appreciate the diligent work that has been done at
    the Fed and NCUA on the credit card rules, and I commend the
    collaborative way in which you have worked together and the way
    they have been devised. I hope the rules that you have issued
    prove to be helpful to the consumer.
        However, I have some strong concerns about the proposed
    legislation that is going to be before us today, that it may
    duplicate not only efforts that you have done, but ask credit
    card issuers to implement those changes much, much too quickly.
    Giving issuers 3 months to dramatically change the way they do
    business could have very adverse consequences, hurting access
    to credit, especially in small businesses when they are relying
    on credit cards more heavily now than ever before, since many
    are unable to access more traditional lines of credit from
    banks and other institutions.
        So I look forward to your testimony, and I yield back, Mr.
    Chairman.
        Chairman Gutierrez. Thank you very much.
        Ms. Sandra Braunstein is the Director of the Division of
    Consumer and Community Affairs for the Board of Governors of
    the Federal Reserve System and has appeared before the
    subcommittee this week. We welcome you back.
        Ms. Yakimov is the Managing Director for Compliance and
    Consumer Protection at the Office of Thrift Supervision, and
    this is her first time before the subcommittee this year.
        Ms. Sheila Albin is the Associate General Counsel for the
    National Credit Union Administration, and I would like to
    welcome you here before the subcommittee.
        You may begin your testimony, Ms. Braunstein.

       STATEMENT OF SANDRA F. BRAUNSTEIN, DIRECTOR, DIVISION OF
       CONSUMER AND COMMUNITY AFFAIRS, BOARD OF GOVERNORS OF THE
                         FEDERAL RESERVE SYSTEM

        Ms. Braunstein. Thank you, Chairman Gutierrez, Ranking
    Member Hensarling, and members of the subcommittee. I
    appreciate the opportunity to discuss the Federal Reserve
    Board's recent regulatory actions to expand protections for
    consumers who use credit cards and overdraft protection plans.
        Credit cards provide important benefits for many consumers,
    both as a source of credit and as a convenient payment
    mechanism. However, in recent years, credit card terms and
    features have become more complex, which has reduced
    transparency in credit card pricing.
        In December 2008, the Board issued comprehensive, sweeping
    rules to enhance protections for consumer credit card accounts.
    One rule prohibits certain unfair card practices using the
    Board's rulemaking authority under the Federal Trade Commission
    Act, while a complementary rule improves disclosures for credit
    cards under the Truth in Lending Act (TILA).
        The two credit card rules were the result of extensive
    consumer testing, data analysis, public comment letters, and
    outreach to consumer and community groups and industry
    representatives.
        The final TILA rule includes both content and format
    changes to application and solicitation notices, account
    opening disclosures, and periodic statements. The rule also
    requires that consumers receive 45 days advance notice of rate
    increases or changes in other key account terms to ensure that
    consumers will not be surprised by unexpected changes and will
    have time to explore alternatives.
        The data obtained in our consumer testing illustrated the
    limitations of disclosures for today's complex financial
    products. There are certain key credit card terms that cannot
    be explained to consumers in a way that would improve their
    ability to make meaningful decisions about credit.
        Because improved disclosures alone cannot solve all the
    problems consumers face in managing their credit card accounts,
    the Board issued a rule prohibiting certain unfair practices.
        The Board's final rule includes several key protections for
    consumers. First, it ensures that the consumers have an
    adequate amount of time to make payments once they receive
    their billing statements. Second, the rule requires banks to
    allocate payments in a manner that does not maximize interest
    charges. Third, the final rule contains several provisions that
    restrict the circumstances in which a bank may increase the
    interest rate applicable to the consumer's accounts. Fourth,
    the final rule prohibits two-cycle billings. And finally, the
    rule includes several provisions to protect vulnerable subprime
    consumers from products that charge high fees and provide
    little available credit.
        The combined rules will impact nearly every aspect of
    credit card lending. To comply, card issuers must adopt new
    business models, pricing strategies, and credit products.
    Issuers must revise their marketing materials, application and
    solicitation disclosures, credit agreements, and periodic
    statements.
        These changes will include extensive reprogramming of
    automated systems and staff training. Although the Board has
    encouraged card issuers to make the necessary changes as soon
    as practicable, the 18-month compliance period is consistent
    with the nature and scope of the required changes.
        In addition to the final credit card rules, the Board also
    issued proposed rules for overdraft protection programs. In the
    past, overdraft services were provided only for check
    transactions. Institutions now have extended that service to
    other transaction types, including ATM withdrawals and point-
    of-sale debit card purchases. Most institutions have automated
    the process for determining whether and to what extent to pay
    overdrafts. The Board's proposal contains two alternative
    approaches for giving consumers a choice about the use of
    overdraft services.
        The first approach would prohibit institutions from
    assessing any fees on a consumer's account after an institution
    authorizes an overdraft unless the consumer is given notice and
    a reasonable opportunity to opt out of the institution's
    overdraft service.
        The second approach would require an institution to obtain
    the consumer's affirmative consent or opt in before fees may be
    assessed to the consumer account for overdrafts. The proposed
    rules would apply to overdrafts for ATM withdrawals and one-
    time debit card purchases.
        In closing, let me emphasize that the Federal Reserve's
    commitment to enhancing the ability of consumers to use credit
    cards to their benefit. The Federal Reserve is also committed
    to helping consumers better understand the cost of overdraft
    services and providing a means to exercise choice regarding the
    use of these services.
        I am happy to answer questions from the committee.
        [The prepared statement of Ms. Braunstein can be found on
    page 70 of the appendix.]
        Chairman Gutierrez. Thank you.
        Ms. Yakimov.

      STATEMENT OF MONTRICE GODARD YAKIMOV, MANAGING DIRECTOR FOR
         COMPLIANCE AND CONSUMER PROTECTION, OFFICE OF THRIFT
                              SUPERVISION

        Ms. Yakimov. Good afternoon, Chairman Gutierrez, Ranking
    Member Hensarling, and members of the subcommittee. I thank you
    for the opportunity to present the views of the Office of
    Thrift Supervision on the Credit Cardholders' Bill of Rights
    Act of 2009, the Consumer Overdraft Protection Fair Practices
    Act of 2009, and issues related to credit card lending and
    overdraft protection.
        We appreciate your leadership on these important elements
    of the financial services market, and we share your commitment
    to protecting consumers from abusive practices.
        My written comments go into detail on the provisions of the
    proposed legislation.
        In my opening statement, I would like to focus on what the
    OTS and other Federal banking regulators have recently achieved
    in protecting consumers from unfair credit card practices. I
    would also like to emphasize the OTS's position on how best to
    approach consumer protection in this area and what
    recommendations we can offer for making continued progress.
        As you know, the Office of Thrift Supervision, the Federal
    Reserve Board, and the National Credit Union Administration
    issued the final rule in January 2009 to protect consumers from
    unfair credit card practices. The rule was a result of the
    process that the OTS initiated in August of 2007 by issuing an
    advance notice of proposed rulemaking seeking comments and
    suggestions on what credit card practices and overdraft
    protection practices should be banned.
        Comments in response to that advanced notice urged a
    uniform set of rules across the credit card industry, across
    the practices we might cover. So the OTS worked with the
    Federal Reserve and NCUA to provide consumers with uniform
    protections regardless of which financial institutions issued
    their product and the industry with a level playing field.
        The rule prohibits raising interest rates on existing
    credit card balances when consumers are paying their card bills
    on time, and generally also prohibits increasing rates on new
    balances during the first year of the account.
        It requires that consumers receive a reasonable amount of
    time to make their credit card payment. It bans double-cycle
    billing, prohibits payment allocation methods that unfairly
    maximize interest charges, and in the subprime credit card
    market, it limits fees that had been significantly reducing the
    available credit to the consumer.
        As I explain in my written testimony, this will accomplish
    the primary goals of H.R. 627, the Credit Cardholders' Bill of
    Rights Act.
        In general, the OTS believes that using the Agency's
    collective rulemaking authorities over these practices provides
    greater ability to address unfair practices as they emerge. The
    industry has shown remarkable ability to adapt and alter
    practices, including unveiling new products.
        Consumers have generally benefited from the expansion of
    products and certain practices. By exercising their rulemaking
    authority, the Agencies can keep pace with these innovations
    while ensuring that they do not disadvantage the consumers.
        Regarding the overdraft legislation, the OTS shares the
    concern that prompted the bill and we see the benefit of many
    of its provisions. However, we believe the regulatory
    initiatives enacted and in process address several key issues
    there. If Congress decides to proceed with legislation and
    moves forward with both of these bills, the OTS respectively
    requests that they be amended to provide implementing authority
    jointly to the Fed, the NCUA, and the OTS.
        The history of the rule on unfair credit card practices
    demonstrates OTS's leadership in initiating the process to use
    the FTC Act rulemaking power to address abusive practices. The
    absence of such rulemaking authority would preclude OTS from
    providing the kind of policy perspectives that began and
    significantly shaped the credit card role and the important
    consumer protections it contains.
        Additionally, there are other observations in my written
    testimony that we would recommend if the Congress should move
    forward with this legislation.
        Thank you again, Mr. Chairman, for inviting me here today.
    I look forward to responding to your questions.
        [The prepared statement of Ms. Yakimov can be found on page
    201 of the appendix.]
        Mr. Gutierrez. Thank you.
        Ms. Albin, please, for 5 minutes.

    STATEMENT OF SHEILA A. ALBIN, ASSOCIATE GENERAL COUNSEL, OFFICE
    OF GENERAL COUNSEL, NATIONAL CREDIT UNION ADMINISTRATION (NCUA)

        Ms. Albin. Good afternoon, Chairman Gutierrez, and Ranking
    Member Hensarling. Thank you for the opportunity to testify on
    behalf of NCUA regarding credit cardholder and consumer
    overdraft protection legislation.
        NCUA's primary mission is to ensure the safety and
    soundness of federally insured credit unions as well as their
    compliance with applicable Federal regulations. It examines all
    Federal credit unions and participates in the supervision of
    federally insured State-chartered credit unions.
        As the administrator for the Share Insurance Fund, NCUA
    provides oversight and supervision to over 7,800 credit unions,
    representing approximately 88 million members. NCUA is
    responsible for monitoring and ensuring compliance with most
    Federal consumer protection laws and regulations in Federal
    credit unions. In State-chartered credit unions, the
    appropriate State supervisory authority has regulatory
    oversight and enforces State consumer laws and regulations.
        In December 2008, NCUA, OTS, and the Federal Reserve Board
    jointly issued the UDAP rule, amending each Agency's credit
    practices rule to prohibit several questionable credit card
    practices. Based on comments received, the Agencies determined
    a more comprehensive approach addressing more than just Truth
    in Lending Act disclosures was appropriate. Each of the
    Agencies oversees financial institutions that engage in the
    same type of business. And although practices addressed in the
    UDAP rule are not prevalent in the credit union industry, the
    NCUA Board recognizes the uniform approach to the topic is
    best.
        Both total outstanding credit card debt and total loans in
    credit unions grew in 2008, albeit at slower rates than at
    previous years. This growth at a time when consumers are
    finding it difficult to obtain credit demonstrates that credit
    unions continue to strive to meet their members' credit needs.
        In 2005, NCUA participated with member agencies of the
    FFIEC Act in issuing guidance for guarding overdraft protection
    programs focusing on automated systems. This guidance included
    a discussion of best practices and recommended that
    institutions provide consumers with an opt-out notice.
        NCUA and the Federal Reserve Board has regulated the
    disclosures for overdraft programs using our authority under
    the Truth in Savings Act (TISA). NCUA amended its TISA rule in
    2006 to address concerns relating to the uniformity and
    adequacy of fee disclosures in connection with overdraft
    programs. The amendment created a new requirement for credit
    unions that promote overdraft payment programs to disclose
    their fees and other information to address continued concerns
    about overdraft fees. Regulation DD recently extended the
    disclosures requirements for overdraft fees to all banks and
    now requires disclosure of the periodic and year-to-date totals
    for overdraft fees. Today, the NCUA board is proposing a
    substantially similar amendment to NCUA's TISA regulations.
        The Federal Reserve Board has recently proposed additional
    requirements for overdraft protection programs under Regulation
    E that will also apply to credit unions. The proposed rule will
    limit a financial institution's ability to assess overdraft
    fees for ATM withdrawals and one-time debit card transactions.
    The proposed rule also offers a right of opt-out or opt-in as
    alternative regulatory approaches. Additionally, the proposed
    rule would prohibit assessing a fee if an overdraft is caused
    solely by a debit hold or funds in a consumer account.
        In addition, NCUA's general lending regulation for many
    years has required credit unions to establish a written policy
    for fees for overdraft protection programs.
        In summary, credit cards and overdraft protection programs
    are useful member services. Currently, approximately half of
    all federally assured credit unions issue credit cards to their
    members. Approximately 2,800 federally insured credit unions
    offer overdraft protection services.
        Overdraft protection programs can benefit both credit
    unions and their members if members access the program
    infrequently because credit unions receive another source of
    fee revenue and members avoid the inconvenience and subsequent
    fees associated with returned checks.
        NCUA is concerned with regulating overdraft programs under
    the Truth in Lending Act because treating overdraft fees as a
    finance charge will adversely affect Federal credit unions'
    ability to offer overdraft services to their members. This is
    because of the statutory limit on interest on lending which is
    currently set at 18 percent for Federal credit unions.
        Thank you again for the opportunity to appear, and I would
    be glad to answer any of your questions.
        [The prepared statement of Ms. Albin can be found on page
    53 of the appendix.]
        Chairman Gutierrez. Thank you very much.
        Ms. Braunstein, I don't know if you got this letter when
    you were doing your reviews, but there were these great parents
    who had this wonderful daughter that they loved very much. When
    they sent her to college, they wanted to make sure that she had
    access to money, and so they went to the bank and got her a
    debit card that she could take to college with her. She would
    go to the bank frequently, and when she needed money, if there
    were insufficient funds, no problem. The ATM simply would not
    give her the money, and she would call these wonderful parents
    of hers, who would automatically go online and transfer more
    funds to the wonderful daughter.
        Except on one occasion, she decided she was a little
    thirsty, and she used the ATM card issued by the bank as a
    credit card at a coffee shop, and the $1.89 overdraft cost
    these wonderful parents, who love their daughter very much,
    $185 because there was an initial $35 for the $1.89 overdraft
    and then the wonderful bank charged $10 a day for every day
    there were insufficient funds in this account, for a total of
    $185.
        I don't know what the relationship is between $1.89 and
    $185, but it makes the payday lenders look really, really good
    in this case.
        And there was a total of 20 days because, you see, the bank
    doesn't just call up and say, ``Hey, you have insufficient
    funds.'' They wait until you receive your bank statement at the
    end of the month and you see these wonderful charges of $35,
    etc., and then you put the money in.
        So did anybody ever in your public commentary send a letter
    like these two wonderful parents who sent their daughter to
    college?
        Ms. Braunstein. Congressman, I think we got a number of
    letters like that out of the 60,000 letters. We have gotten
    lots of letters.
        Chairman Gutierrez. I am so happy to know my wife and I are
    not alone in this situation.
        So let me ask you, in your regulations, did you address it
    at all?
        Ms. Braunstein. In the proposal that we have out now on
    Regulation E, that is one of the reasons why we want to offer
    alternatives of either opt-out or opt-in to overdraft programs.
    And basically what this would do was, if somebody chose not to
    take overdraft, it gives consumers a choice, it means that if
    they go to use their debit cards to buy something in a coffee
    shop or McDonald's or wherever and there is not sufficient
    money in their account, then the purchase should be denied.
        And if for some reason the bank pays it anyway, if it goes
    through or the merchant authorizes it anyway, what it would do
    is prohibit the financial institution from charging a fee.
        Chairman Gutierrez. It seems to be different. I remember
    when a debit card was a debit card; that is, it was to be used
    at ATM machines. And then all of a sudden, one day they became
    a debit/credit card; that is to say, now you can use it and
    merchants ask you, do you want a debit or do you want this used
    as a credit card?
        I really think that we should--and hopefully in the
    legislation--look at making sure that when a consumer comes in,
    and he just wants a debit card, he gets one. If there is not
    money in the card, there is not money in the card, and it is
    just not used. If you want a credit card, you should get a
    credit card because when I use my credit card, they simply--the
    Visa is so much lower than on a bank-issued debit card, it is
    astronomical almost.
        Ms. Braunstein. Just to clarify. It is not that the debit
    card turns into a credit card. I understand what you are
    saying. Because of the fact that an overdraft is extended, it
    has the impact of being a credit card. But it still is a debit
    card.
        Chairman Gutierrez. But when you go to the ATM machine and
    you ask for $20 and there isn't $20 in it, you don't get $20 in
    cash. Yet, you can walk over to an establishment, ask for $1.89
    for a cup of coffee, and it turns into a financial bonanza for
    the issuer of the card.
        And so I want to ask you one other question.
        When Congresswoman Maloney introduced the Credit Card
    Protection Act Bill of Rights, I was very supportive of it, and
    continue to be very supportive of it. That is why we are having
    a hearing this early in the process so that we can get the work
    done and hopefully to the Senate. So I want to commend the
    gentlelady from New York on her work and share with her that I
    am not an unbiased spectator here.
        Now, I noticed as I look, that there was a change, the one
    change, and I would like you to comment on it because I think
    it is important. In the original, it was 1 year of enactment
    for the credit card industry to institute the new practices
    under the legislation. And under the new legislation, it says 3
    months. You guys came up with about 18 months from the time you
    put your regulations out. Did the industry want it to be 18
    months? Did you at the Board think it was 18 months? How did
    you get to the 18 months? And what do you think about the
    changes in the legislation?
        I am going to ask unanimous consent that she be allowed to
    answer the question.
        Ms. Braunstein. Actually, the industry wanted longer than
    18 months. It was the Federal Reserve and the other Agencies
    (the OTS and the NCUA) that decided on the 18 months. And this
    was based on a number of things.
        One of the things is that this was a package. There are the
    UDAP rules you are talking about that are contained in your
    legislation to a large extent. But there is also all the truth
    in lending changes which involves all new forms and also new
    processes that are involved with that.
        So this is one very large, sweeping, comprehensive package
    that is going to fundamentally change the way the industry does
    its business. And when we looked at, in terms of talking to the
    industry, but also looking ourselves at everything that would
    be required in order to put everything in place to make this
    work well, we felt that 18 months was a reasonable time.
        The danger is if you don't give sufficient time to the
    industry to get everything in place in a way that has been
    tested, that staff is trained, that it is running smoothly, if
    there is not sufficient confidence in the new risk models--
    which they are going to have to design all new risk models
    because of the pricing changes--it could severely hamper the
    markets in terms of credit availability.
        So we wanted to provide sufficient time so that when this
    is implemented, it is implemented correctly, and credit will
    flow to consumers and that the market should still work well.
        Chairman Gutierrez. I don't want to abuse the chairmanship.
    So your basic answer is the industry wanted more but the Fed
    thought in order for credit risk and other areas that the
    implementation, okay. Thank you very much.
        Mr. Hensarling, please, for 5 minutes.
        Mr. Hensarling. Thank you, Mr. Chairman. Ms. Braunstein,
    does Federal Reserve data indicate that credit card credit for
    consumers is contracting within our economy?
        Ms. Braunstein. I think that is right, but frankly all
    credit is contracted right now. It is very difficult to
    differentiate what might be the result of the pending rules
    versus what is happening just because of the economic
    situation. We are not in normal economic times.
        Mr. Hensarling. I believe we all understand that.
        And coming up with your rules, and I know they have been, I
    believe, 3 years in the making, and I understand you have done
    extensive consumer testing, have you also examined other
    international models and studied case history?
        Ms. Braunstein. I would have to check on that. I am not
    sure.
        Mr. Hensarling. In 2006, the U.K. decided that credit card
    default fees were too high and ordered that credit card issuers
    cut them or face legal action. And independent studies have
    shown that led to a retrenchment of roughly $2 billion cost to
    the credit card industry, which caused them, 2 of the 3 biggest
    issuers, to impose annual fees on their cardholders, 19 major
    card issuers raised interest rates, and one independent study
    showed that credit standards became tighter, and 60 percent of
    new applicants were being rejected.
        If the Federal Reserve has not had an opportunity to study
    the U.K. model--and it is very late in the game--I would
    respectfully recommend that you study the U.K. model.
        Ms. Braunstein, does the Federal Reserve feel that we have
    an uncompetitive marketplace with credit cards? Do you feel
    that consumers have inadequate choices or is it more that there
    are simply what you would describe as unfair and deceptive
    practices?
        Ms. Braunstein. I think the market has been very
    competitive, but I don't think that there has been the
    transparency for consumers that is needed. I think that these
    are very complex products and that it is very difficult for
    consumers to understand what the terms are, and oftentimes it
    is difficult for them to shop and compare because there is such
    a wide array of products. And without the increased
    transparency, it is hard to compare one against the other.
        Mr. Hensarling. Since there is such a wide array of
    products, do you observe that there are at least products in
    the marketplace that are widely available to most consumers
    that do not contain what you would consider to be the unfair
    practices which your rules attempt to address?
        Ms. Braunstein. I don't know. I can't say that there are
    not products already out there.
        Mr. Hensarling. In page 2 of your testimony, you talk about
    limitations-of-disclosure-based approach, and I believe, if I
    am understanding you right, it is the position of the Federal
    Reserve that some terms are simply too complex, that consumers
    just cannot understand them, cannot fathom them.
        I think you have said that double-cycle billing is too
    complicated for the average consumer to understand, but if I
    read your final rule summary document from December 2008, it
    explains both it and its repeal in just 63 words.
        Did the Federal Reserve consider using that summary or,
    again, are consumers just too dumb to understand?
        Ms. Braunstein. Congressman, we did extensive consumer
    testing on these new credit card disclosures, and we tested a
    wide variety of terms, of which double-cycle billing is one,
    but we also tested the explanation of payment allocation and
    other terms. And I will tell you, our experience has shown us
    that it is not necessarily the number of words, but it is the
    explanation of the process. It just--some of these things just
    could not--and we tried many different ways. And it wasn't us,
    the Fed, you know. We hired experts on this who were trying
    many different ways. Some of these terms were not--
        Mr. Hensarling. Notwithstanding a competitive marketplace,
    notwithstanding a general credit contraction, you still
    advocate that consumers need to be protected against themselves
    even though potentially that could lead to a loss of their own
    credit cards?
        Ms. Braunstein. I think that when we decide to write rules
    on unfair and deceptive practices, we have to look at the risks
    and we have to look at the benefits and the harm. And we
    weighed all of that, and we felt these rules are needed in
    order to protect the consumer.
        Mr. Hensarling. What would happen, Ms. Braunstein--with the
    chairman's indulgence, one last question--if your rules,
    instead of having to be implemented in 18 months, had to be
    implemented within 90 days, what is your impression of the
    impact on the consumer credit marketplace?
        Ms. Braunstein. Very honestly, I am not sure how that could
    even be done. I mean, if legislation came out, we would have to
    write rules. The legislation does not quite mirror our rules,
    we would have to make adjustments. It also puts it all in TILA.
    We are using the FTC Act. We would have to make a lot of
    changes. We would have to put that out for public comment. We
    would have to get comments back. We would have to put out a
    final rule. And then you would have to leave some time for the
    industry to comply. I see no way that process could be done in
    90 days.
        Chairman Gutierrez. The gentlelady from New York, Mrs.
    Maloney, is recognized for 5 minutes.
        Mrs. Maloney. I want to thank all of my colleagues who have
    worked hard on this bill and have supported it, some on both
    sides of the aisle, and I want to thank all of the panelists,
    not only for your testimony today, but for your extraordinary
    work during what has been called the worst economic crisis in
    our lifetime.
        I wanted to clarify one of the statements by one of my good
    friends on the other side of the aisle and place in the record
    two reports. This is about the risk-based pricing, and their
    claim that this bill would have a negative effect on risk-based
    pricing. And I would like to place in the record a GAO study
    and a report by the Federal Reserve. Both found that there is
    no evidence that risk-based pricing has decreased overall
    interest rates. Rather, the decrease in the Federal funds rate
    is more likely responsible for the decline in the interest
    rates consumers have seen.
        I also would like to place in the record testimony before
    this committee, before the former head of Freddie Mac. He was
    testifying on housing, but then he started talking about credit
    cards. And he talked about how he and his wife had sat down at
    dinner and tried to figure out their credit card disclosure and
    could not figure it out. This is the former head of a very
    important financial institution. And I think that says volumes.
        Also, the Federal Reserve, in some of the reports,
    testified that Reg Z, or transparency, was not enough, that you
    needed changes, fundamental changes for unfair, deceptive, and
    anti-competitive practices, and I feel strongly that we should
    move forward and pass the Credit Card Bill of Rights.
        I would like to ask Ms. Braunstein, now that the Federal
    Reserve has labeled a number of practices as unfair, deceptive,
    and anti-competitive, how in the world can it be justified to
    the American people that they should have to wait until July
    2010 until they get relief of these practices?
        And secondly, you testified that you need roughly 18
    months. Are there some aspects of the rule or the legislation
    that could be implemented quicker? Possibly there are some that
    have form changes which are more difficult, but are there
    others that we could implement in a more, I would say,
    reasonable timeframe?
        Ms. Braunstein. We did look at that. And what we found was
    that pretty much everything in there, it is part of a whole
    package and there is a lot of overlap between what is going to
    be on the new disclosures versus what would be changed in the
    pricing models. Everything kind of ties together and is
    interconnected, and it made more sense to have one effective
    date for everything.
        So that is why we did that. We feel that it really is--
    there is a lot of interconnection between the different moving
    pieces.
        Mrs. Maloney. What was your personal recommendation for a
    timeframe?
        Ms. Braunstein. Eighteen months. The staff's recommendation
    was 18 months.
        Mrs. Maloney. I have spent so many hours and asked so many
    questions on this bill, I am going to give back my time so my
    colleagues can have more time to ask their questions.
        I just want to conclude that of all of the issues that I
    have worked on, this one has generated the most comments. Like
    the Fed, it is hard for me to go to the Floor of Congress
    without getting a credit card story or to walk into a
    supermarket without getting a credit card story or get into the
    subway or the bus without strangers coming up and telling me a
    story that they feel was unfair and deceptive to them.
        And I truly believe that our commerce works better, our
    democracy works better when people understand the rules and
    make a decision that that is the rule they want to follow.
        I am very proud of having authored, along with many of my
    colleagues, the ATM disclosure. When you go to get your ATM
    money, many people wanted to ban institutions, financial
    institutions from getting any type of fee, but if they are
    providing a type of service, they are entitled to a fee. It
    allows the consumer to say ``yes'' for the convenience to
    access my bank account from Washington, I am willing to pay
    that fee. But it gives the consumer the power to control their
    own financial decisions, and I feel that is what is important.
    And I think that is what we tried to accomplish in the bill, to
    give consumers more choice and more control in making decisions
    about managing their own finances.
        I yield back my time.
        Ms. Braunstein. Congresswoman?
        Mrs. Maloney. Yes.
        Ms. Braunstein. Can I just make one really quick comment? I
    do want the say in terms of the effective date that we have as
    an agency, and including Chairman Bernanke, has made public
    comments that we would expect and hope that the industry would
    implement pieces as soon as was practicable for them--and I say
    that in my testimony--so we could be--we are hopeful that we
    will see some implementation before the 18-month deadline.
        Mrs. Maloney. I thank you for that, and I would like to
    applaud the industries that have voluntarily gone forward and
    implemented these improvements.
        Chairman Gutierrez. The time of the gentlelady has expired.
        Mr. Bachus, you are recognized for 5 minutes.
        Mr. Bachus. Ms. Braunstein, back on December 18th, Chairman
    Bernanke asked you how long it would take to implement the
    Federal rules for credit cards and if it could be implemented
    before July 1, 2010, and your response was that card issuers
    are going to need to rethink their entire business models. They
    are going to have to redesign their marketing materials, their
    solicitations, their periodic statements, all of the pieces of
    paper that they use, their contracts, all of that is going to
    have to be redesigned. And you mentioned several other things
    they would have to do. And in fact, I would like to introduce
    into the record--these are the Fed rules and regulations that
    the credit cards companies have to comply with.
        Chairman Gutierrez. Without objection, it is so ordered.
        [The documents referred to can be accessed at the following
    link: http://www.federalreserve.gov/boarddocs/meetings/2008/
    20081218/openmaterials.htm]
        Ms. Braunstein. I am glad I didn't have to carry those up
    here today.
        Chairman Gutierrez. The cost might be prohibitive, but we
    are going to introduce it.
        Mr. Bachus. Yes, I am not even sure I could read these in
    the time allotted. But all that is going to take a lot of time,
    so my question to you--and this may be kind of a set-up
    question. I mean, you could drive this a long way.
        Is it still your belief that the credit card companies will
    literally be unable to meet the 90-day deadline in the Maloney
    bill?
        Ms. Braunstein. Yes. As I have said already, yes, I do
    think that would be an almost impossible task for all of us,
    not just for the industry but also for the regulators, to have
    to conform the rules and do what we need to do.
        Mr. Bachus. And with two alternatives the credit card
    companies would have if they couldn't comply, they could cut
    people loose from their credit. That would be one alternative.
    I mean, they would have to just stop--
        Ms. Braunstein. I don't know. I can't answer for the
    industry as to what they would do. But I know that we, as I
    said, we would be concerned that if it was rushed and they
    didn't do it correctly, there would not be confidence in the
    risk models. And that certainly could have impacts on the flow
    of credit in the marketplace.
        Mr. Bachus. Right. And if they didn't comply, they could
    all be sued, is that correct, for violating the rules? If they
    weren't able to comply and they did one little thing wrong that
    violated this--
        Ms. Braunstein. Well, yes, if the rule--depending on how
    you write the legislation, but right now, I think it is under
    TILA so there would be private rights of actions.
        Mr. Bachus. Okay. That would be something.
        I yield the balance of my time to the gentleman from
    Delaware, Governor Castle.
        Mr. Castle. Thank you for yielding.
        Let me ask this question first, Ms. Braunstein. You have
    indicated that the Fed has said that the credit card issuers,
    6,000 of them, should make their changes as soon as
    practicable; they shouldn't wait for the 18 months.
        Do you have any evidence of that actually happening? It may
    be more anecdotal than will be actual data-wise, but can you
    fill us in on that?
        Ms. Braunstein. Well, anecdotally, I mean, we are
    constantly doing outreach both to the industry and also to
    consumer and community groups, and, in some of our
    conversations with industry, they have certainly started. I
    don't know--I don't have any anecdotal evidence as to what
    their timeframe is earlier than the 18-month compliance date,
    but we have had conversations where they have developed
    flowcharts and that they are trying to put the pieces in place.
    So it is underway. It is definitely underway.
        Mr. Castle. I am really asking you to do my work when I ask
    this next question, I think, and perhaps it is a question for
    all of you. But can you explain if there are differences in the
    two bills that we are considering today and the regulations
    which you have drafted at the Fed, and, if there are, what they
    might be?
        Ms. Braunstein. There are differences. And one of the
    recommendations I would make is, if Congress does move forward
    with this bill, if your committee moves forward, is you may
    want to take a look at that on both sides. I know that, in
    pricing, we changed some things.
        I think when the bill was drafted, it was done on the basis
    of the proposed rules we had issued in May of 2008. We made
    some changes in our final rules, and that was due to the public
    comments we received and our analysis of the issues. We
    actually went further than the bill does on pricing
    restrictions and repricing of existing balances and also making
    sure that you cannot change the price for any reason during the
    first year of the cards. We went a little further on that.
        There are some differences in payment allocation. There are
    a few other things. And we would encourage you to, you know,
    take a look at those.
        Mr. Castle. My time is up, but I may be next anyhow.
        Mr. Watt. I don't think so.
        Mrs. Maloney. [presiding] Mr. Watt?
        Mr. Castle. I mean, not next. After the other side. Excuse
    me.
        Mrs. Maloney. Mr. Watt, and then we will come back to Mr.
    Castle.
        Mr. Watt. Am I recognized yet?
        Mrs. Maloney. Yes, you are recognized.
        Mr. Watt. Thank you.
        Actually, I want to follow the same question, but I want to
    get more specific. I actually would--I think the committee, the
    full committee, would benefit from side-by-side analysis of the
    differences from the regulators who drafted the regulations
    that are to go into effect.
        Ms. Braunstein. We would be happy to have staff come up--
        Mr. Watt. Let me be clear on what I am asking for: a side-
    by-side analysis and an explanation of why any changes--any
    differences, why you chose to go either higher or lower,
    because I think that would be very helpful to the committee in
    assessing.
        I know there are other differences in what you proposed and
    what the bill proposes other than just the July 1, I guess,
    2010, implementation date is your drop-dead date at this point.
    And you have done an outstanding job of explaining why there
    are some implementation delays, but I think the committee would
    benefit from an explanation of all of the differences and why
    you opted for what you did, either greater or lesser than what
    the bill does.
        And if I could request that in writing, then I would be
    happy to yield back all of my time.
        Ms. Braunstein. We have that information in-house.
        Mr. Watt. Because I think that is the kind of thing that,
    really, even if we got it verbally, would probably not be all
    that helpful to us.
        So I hope I have helped Mr. Castle. Even though he wasn't
    next, I kind of picked up on where he was going, and that was
    the question that I was planning to ask anyway.
        I have an important assignment on a plane, so I am going to
    yield back.
        Ms. Braunstein. Congressman, can I just say that we have
    that information, we have done those kinds of analyses, and we
    will be happy to share those with you in writing.
        Mrs. Maloney. And share it with the committee.
        Ms. Braunstein. Yes.
        Mrs. Maloney. Thank you.
        Mr. Watt. I know the committee will get one, but, you know,
    it takes a while, so I am asking this question for myself. So
    at least give the committee, Mr. Castle, and me one--
        Ms. Braunstein. Not a problem.
        Mr. Watt. --since we are tag-teaming this question. Thank
    you.
        Mrs. Maloney. Thank you, Congressman.
        Congressman Castle?
        Mr. Castle. Thank you, Madam Chairwoman.
        And I thank Mr. Watt for asking my questions better than I
    did, but I also would very much like to see that copy of
    whatever these differences are.
        And, to me, it is going to come down, to a degree, not
    completely, but to a degree, to this time differential and the
    ability to be able to put this into effect or not. And I
    realize that you are speaking as a regulator, and maybe others
    should speak to it, as well. But we have all the issuers, too,
    and you spoke for them, to a degree, also.
        But, you have the whole problem of passing legislation,
    which is going to get even closer to the 18 months left in
    yours, and then you are going to have the problem of dealing
    with the issuers, as well as whatever dealings you are going to
    have to do with the legislation. And, to me, it gets
    complicated.
        When we first passed the chairwoman's legislation, I forget
    whether it was 18 months or not, but I guess it was, but that
    was 6 months or so ago or more at this point. And, as that time
    narrows, I think it is going to get even more complicated to
    complete this task. I think we need to be careful about this.
        One thing we need to remember is we do have 6,000 credit
    card issuers. They are carrying out a business. They are, in
    many instances, in most instances, related to financial
    institutions which have had some strains, and I am a little
    concerned about how far we can push them at this point.
        And I don't know if that is in the form of a question, but
    if you want to respond to it, you may, Ms. Yakimov.
        Ms. Yakimov. Well, thank you, Congressman Castle.
        I think the point about the implementation date, the
    effective date, is an important one to try to get right. And
    what we tried to balance was our interest in providing
    significant new consumer protections while, at the same time,
    giving the industry the time that they needed to get it right.
    And we certainly didn't want to cause major disruption.
        One example to point to is the provisions that deal with
    the subprime issuers, where we have said that they cannot
    charge a fee in connection with getting the card that takes the
    majority of the credit line. And, taking it one step further,
    they can't charge more than 25 percent. So they can't charge
    more than 50 percent, and they can't charge more than 25
    percent during the first month.
        Issuers that have built a niche in this space will really
    have to think through what is their new business model so that
    they can continue to offer credit.
        That is just one example of some major changes. The changes
    on the limitations to retroactive rate increases will have a
    significant impact. These protections are really important, but
    we wanted to give the industry time to, as Sandy points out
    quite well, comply with TILA changes, do the training, do
    testing, do they need new product lines, and all the rest.
        Mr. Castle. Well, I appreciate that. I mean, I hate to make
    this comparison, but I watched what we did on the Floor today
    and how we have been handling some of the TARP money and the
    AIG issues or whatever. And sometimes when we rush legislation,
    like in the stimulus package, we end up with problems, such as
    the bonus situation with AIG.
        It just seems to me that the Fed has gotten all these
    different 56,000, I guess, inquiries as a result of the
    preliminary rules which you have issued. You have now gone
    back, and all your Agencies have been involved, and you have
    looked at what that should be, and you have come up with a
    plan, and it takes a long time to implement it. We are talking
    about a lot of credit card issuers.
        And I don't in any way discredit the legislation. I happen
    to believe that the chairwoman is right in terms of what she is
    trying to do. But I am mightily concerned about the ability to
    do this. I mean, the credit card companies don't like what you
    have done much more than they like the legislation. But they
    may be put in a situation where you can't carry out your
    responsibilities and they can't carry out their
    responsibilities. And that concerns me a great deal.
        So my hope is that we could, at some point, agree to just
    move forward as rapidly as we can with the regulatory practices
    which the Fed has drawn up as just a better way of proceeding
    for everybody who is involved with this in getting to the same
    end, on which there is general agreement, I think, in this
    committee and probably in the Congress, if I had to guess.
        And with that, I yield back, Madam Chairwoman.
        Mrs. Maloney. I thank the gentleman for his concern, but we
    have had well over 4 hearings on this legislation over a 2-year
    period and numerous smaller roundtable discussions and meetings
    with stakeholders and industry and regulators on it. So it has
    been very deliberative.
        I now recognize Congressman Moore.
        Mr. Moore of Kansas. Thank you, Madam Chairwoman. And I
    appreciate your efforts to strengthen consumer protections on
    the use of overdraft services. In this time of financial
    crisis, we need to do what we can to protect our consumers.
        Ms. Braunstein, in your testimony, you note that the Fed
    has offered a proposal to, ``give consumers greater control
    over the payment of overdrafts.''
        I understand the Fed has already issued rules to address
    depository institutions' disclosure practices related to
    overdraft services that take effect January 1, 2010, and the
    public comment period of the Fed's overdraft protection
    proposal ends on March 30, 2009.
        You also note that, ``After evaluating the comments and
    conducting additional consumer testing, we expect to issue a
    final rule later this year.''
        Ms. Braunstein, when would you expect the Fed to issue that
    rule? And do you have any comments on H.R. 1456, the Overdraft
    Protection Act, as it relates to the Fed's efforts?
        Ms. Braunstein. As you say, our comment period on the Reg.
    E proposal we put out ends the end of this month, and we will
    look at the comment letters. We are hoping to have final rules
    out during the summer. And so, you know, we are moving forward
    on that. So we are hoping to have the final rules in the
    summer.
        Mr. Moore of Kansas. Final rules, that will be?
        Ms. Braunstein. For overdraft protection. I am talking
    about on the proposal we just issued on giving consumers a
    choice.
        Mr. Moore of Kansas. Any better estimate as to when,
    besides this summer? Is that the best estimate you can give me
    right now?
        Ms. Braunstein. Yes, I think so, at this point, because we
    need to see what comments come in, how long it takes to do the
    analysis, and get the final rules completed.
        Mr. Moore of Kansas. Thank you.
        I yield back, Mr. Chairman.
        Chairman Gutierrez. The gentleman yields back. Mr. Lee is
    recognized for 5 minutes.
        Mr. Lee. Thank you.
        I think I am going to try to take this in a slightly
    different direction. I actually may be an advocate of what you
    are going through because my background was running
    manufacturing businesses, and I lived through, firsthand, doing
    major implementations of our enterprise system of our business.
    And I can attest on some of the difficulties.
        But starting off with--I agree with Chairwoman Maloney's
    bill in terms of the content of we ultimately want to protect
    consumers and that this is an issue that we definitely want to
    move forward on. At the same time, I see what the Federal
    Reserve has done over the past few years and is painstakingly
    taking the time to make sure we get this right, and I do
    applaud that.
        But my concern is, when we have ever, from a business
    perspective, done an implementation on major changes, which
    you, Ms. Braunstein, have alluded to, the best case is you can
    do that in a year. And, like you, I am concerned about the risk
    of trying to push through legislation that, within 90 days,
    could have a very detrimental effect.
        In one of the implementations we did for our company, when
    we ultimately went live, after testing for almost a year, our
    go-live scenario almost put our company under, based on the
    fact that the system did not work the way we thought it would.
    We had thousands of lost records and lost many customers along
    the way. So my concern is making sure we do this in a way that
    not only protects the consumer but also makes sure that we have
    a system put in place that adequately functions.
        My question to you is--because, like everyone, we want to
    get this implemented as fast as possible--is there any time we
    could shave off this, at this point, 18 months if we were
    focused?
        Ms. Braunstein. I don't know. I really think--I know that
    we looked at it very thoroughly when we came up with the 18
    months. We knew, frankly, that that was going to be something
    that we would get a lot of criticism on from consumer community
    groups, from certain Members of Congress. We didn't go into
    that blindly.
        So we did spend a lot of time looking at that and talking
    about that issue and searching it out, and that is where we
    came out on this. I think that is a discussion you need to
    have, in terms of--or have with the industry and see if you
    think it could be done sooner.
        Ms. Yakimov. May I add something?
        One of the things that we are doing, as we look at the
    institutions that offer credit cards within OTS, is checking on
    the progress they are making in terms of preparing. In
    December, we issued a CEO letter from our principal, saying,
    ``Look, we are looking for you to implement as soon as you
    possibly can.'' Through the exam process in there, we can
    continue to monitor that.
        The other thing I point to is we just recently, last month,
    had a conference call collectively with the Federal Reserve and
    NCUA. We had more than 700 institutions participate, 700 lines.
    We are hearing from the industry that they are working hard,
    they are getting after this. So we will continue to monitor.
        Mr. Lee. Would anybody be able to offer up any--if we
    flipped the switch in 90 days, which I am dramatically opposed
    to, just based on what my historical reference has been on
    doing 3 implementations from a software standpoint, could you
    name any specific risk that you would see that would come out
    of this?
        Ms. Braunstein. Well, as I have mentioned a couple of times
    today, I think the risk--I am not sure that it is even doable,
    but the risk of rushing this would be that the models would not
    be fully developed. New funding mechanisms would not be in
    place because the risk models would be in doubt, and that could
    put some severe constraints on the availability of credit. I
    think that is a very real concern.
        Mr. Lee. Thank you.
        I yield back.
        Chairman Gutierrez. Thank you.
        Mr. Green, you are recognized for 5 minutes, sir.
        Mr. Green. Thank you, Mr. Chairman.
        And I thank the witnesses for their testimony.
        I, too, am going to pursue this line of questioning with
    reference to the timeline. Do you have any empirical evidence
    to support the notion that one time is more beneficial than
    another, that having 18 months is more beneficial? I understand
    that you have beliefs, but what empirical evidence did you
    acquire?
        Ms. Braunstein. We spent a lot of time talking to industry.
    We also have a lot of years' experience with implementation of
    other regulations, and we looked at those and how long it took
    to put systems in place to get those regulations up and
    running.
        Mr. Green. Give me an example, if you would, please. I am
    looking for the actual empirical evidence, as to opposed to a
    commentary about how you approached it.
        Ms. Braunstein. Can we get back to you with that
    information?
        Mr. Green. Well, could you just give me one example of
    another industry or some other time that you actually had to do
    this and the actual amount of time that it took?
        The obvious answer is, yes, you are going to get back to
    me, but if you have something today, I would be more than
    anxious to hear it.
        Ms. Braunstein. Well, I know when we put major TILA
    changes, truth-in-lending changes, in place in the past, we
    have always had to go out at least 12 months in advance to get
    those in place. And this is even more comprehensive than that,
    because this is involving several regulations.
        Mr. Green. Did you exercise this 12-month rule based on
    other empirical evidence, or has this just become custom and
    tradition?
        Ms. Braunstein. No, as I say, we have talked extensively
    about the kinds of systems changes that are needed, you know,
    the forms that need to be developed, the time it takes to do
    that. I think you could probably get even better data from the
    industry, in terms of their workflows.
        Mr. Green. Well, my suspicion is that the industry will
    give me enough information to help me with my 18-month
    conclusion, if that is my end. But what I am trying to do is
    actually fairly understand what went into the computations. And
    so far I am hearing you say, we have talked and, after talking,
    we sort of came to a conclusion.
        And I am interested in knowing, for example, it takes ``X''
    amount of time to develop the computer program, it takes ``X''
    amount of time to run the model. Have you done that kind of
    analysis?
        Ms. Braunstein. We could get back to you with that
    information. I am not prepared to go into that level of detail
    today, but we could certainly get back to you.
        Mr. Green. Yes, ma'am.
        Ms. Yakimov. I would just add, some of the comments that we
    got from industry and from some of the vendors that the
    industry worked with to process changes, such as 21 days to
    make sure that people have a reasonable period of time to make
    their payment, those types of systems-based changes that we
    have made in the rule. We did get a fair amount of fairly
    specific comments from industry and from vendors that are part
    of the record. I can't give you rule-specific--
        Mr. Green. Would you do this for me? Define ``industry''
    for me. When you say ``from industry,'' I think I know what you
    are referencing, but why don't you tell us so that we will have
    it for the record?
        Ms. Yakimov. From some of the major credit card issuers
    that commented about the implementation period. They commented
    about what, from their experience, they felt they would need to
    do in order to comply with the rule as it was proposed. We got
    comments from them and from, as I said, vendors that provide
    back-room support.
        Mr. Green. Is it possible that there may be a hint of--may
    be a scintilla of bias associated with that sort of
    intelligence coming from what you have defined as the
    ``industry?''
        Ms. Braunstein. Absolutely. That is why, like I said in the
    beginning, this was a conclusion we came to. I think the
    industry actually requested longer. From what I remember in my
    conversations--this was months ago now--but, you know, most of
    the industry was telling us they would need a minimum of 2
    years or even longer. So, yes, we did put that factor into our
    calculations.
        Ms. Yakimov. Right.
        Mr. Green. Well, just as a parting comment, and I am really
    doing some soul searching, but the anecdotal comments that I
    get from consumers would connote it can be done right away and
    I want it done right now. So consumers have an immediate need,
    as they see it, when they talk to me. I understand that
    industry has a need, as well, which is why I conclude that
    empirical evidence is the best way to arrive at a reasonable
    decision. Thank you.
        I yield back. Thank you, Mr. Chairman.
        Chairman Gutierrez. Congressman Neugebauer, please.
        Mr. Neugebauer. Thank you, Mr. Chairman.
        One of the problems with getting to the dance late is the
    dance card gets filled up. And so, a lot of the questions that
    I have were already asked, but I want to go back on a couple of
    things.
        Ms. Braunstein, one of the things you said was--and I think
    Ms. Yakimov--I think you both said that some of these things
    the industry is already starting to incorporate into their
    business model. And one of the things--I am obviously not in
    that credit card business, but this is going to require a lot
    of software modifications, a lot of internal operational
    procedures, and somebody is not just going to flip a switch in
    2010 and say, okay, we are on the new system.
        So I have to believe that the industry--and we will have
    some of those folks here--but I have to believe that, as I
    understand it, they will have to be in compliance by that date,
    if I am not mistaken. And so it would appear to me that process
    is going to be an evolving process. Am I misreading that?
        Ms. Braunstein. No, that is correct.
        Ms. Yakimov. That is right.
        Mr. Neugebauer. You believe that is true? And, as you said,
    in some of the banks that you all have been in, you have begun
    to see some of that implementation already taking place?
        Ms. Yakimov. We have a group at OTS that specializes in
    following credit card issues. We have seen, for example, we
    track, are there noncurrent and charge-off--the amount of
    noncurrent loans and charge-offs, how is that changing over
    time.
        This is the group that specializes in collecting a whole
    host of data from the institutions through our supervisory
    process. And that is the group that we are using to give us
    periodic reports on how the industry is preparing, and we will
    continue to do that.
        Mr. Neugebauer. Because I have some credit cards, and I am
    already getting changes in the contract and changes in the
    terms that are very consistent with the new regulations. And so
    I think some of the credit card companies are already moving in
    that direction.
        And, of course, I guess I want to continue to be ``Mr.
    Disclosure'' to all of you, as Ms. Braunstein knows--she has
    appeared before us before. We have to get to a universal
    consumer disclosure that is simple and easy to read, because I
    think a lot of the issues that are driving a lot of our
    consumer complaints and people who are getting into trouble
    with their credit, some of that is poor choices that they are
    making. And we can't legislate nor can we correct poor choices.
    We can fix poor information and poor disclosure.
        And I know there are some reforms in this, but I think one
    of the things that we almost need to get our consumers used to
    is, whenever they are looking at any kind of credit, they are
    looking at that same disclosure statement, no matter what type
    of credit is, so they get accustomed to seeing that and so they
    know what to look for on that, so that we don't have people who
    say, ``Oh, I didn't know.''
        So I thank these witnesses.
        And, with that, I will yield back, Mr. Chairman.
        Ms. Braunstein. Congressman, could I just say a word about
    disclosures?
        Mr. Neugebauer. Yes, please.
        Ms. Braunstein. This package includes a complete redesign
    of credit card disclosures under the Truth in Lending Act, and
    those are all consumer-tested. And we did indeed find, one of
    the interesting pieces of that, as you know, years ago Congress
    legislated something that is referred to as the ``Schumer Box''
    for credit cards that has all kinds of information in the
    solicitations in a box. People did recognize that and found
    that very useful.
        So, in fact, when we redesigned disclosures, we made the
    account opening statements consistent with the solicitations,
    utilizing a box tabular format, because we found--so what you
    are saying is absolutely right. Consumers look for certain
    information. And we try to, you know, do that in the redesigned
    disclosures. And hopefully we have been--
        Mr. Neugebauer. So over at HUD and all of the other
    places--
        Ms. Braunstein. Well, that was last week's panel.
        Mr. Neugebauer. I know, but I find if you say it over and
    over and over and over again, eventually maybe it gets done.
    So, thank you.
        Chairman Gutierrez. Thank you.
        Mr. Cleaver, you are recognized for 5 minutes.
        Mr. Cleaver. Mr. Chairman, I will forego any questions in
    an attempt to bring the next panel up.
        Chairman Gutierrez. Thank you so much. With unanimous
    consent, we will accept that. Thank you so much, Mr. Cleaver.
        I want to thank all of the panelists for their testimony
    here this afternoon.
        And, Ms. Braunstein, since last week, you know, we are kind
    of a little critical about how long it took between the time
    the legislation--we really would like to compliment everybody
    at the Fed for working so quickly on the new regulations, the
    UDAP and the Z regulations, and working on them quickly. You
    know, we have to balance ourselves out.
        Ms. Braunstein. Thank you so much.
        Chairman Gutierrez. Thank you so much to all of the
    panelists for being here.
        Let me introduce the second panel.
        Mr. Kenneth J. Clayton is senior vice president/general
    counsel for the American Bankers Association Card Policy
    Council.
        Ms. Linda Echard is president and CEO of ICBA Bancard and
    is testifying on behalf of the Independent Community Bankers of
    America.
        Mr. Douglas Fecher is the president and CEO of Wright-Patt
    Credit Union, Inc., and is testifying on behalf of the Credit
    Union National Association.
        Mr. Oliver I. Ireland is a partner at Morrison & Foerster,
    LLP, here in Washington, D.C., and is testifying on his own
    behalf.
        Mr. Todd McCracken is the president of the National Small
    Business Association.
        Mr. Ed Mierzwinski is a senior fellow at the Consumer
    Program at U.S. PIRG.
        And last, but not least, Mr. Travis Plunkett is the
    legislative director of the Consumer Federation of America, who
    is appearing before the Financial Services Committee for the
    second time this week.
        Thank you all for appearing this afternoon.
        Mr. Clayton, you may begin your testimony.

    STATEMENT OF KENNETH J. CLAYTON, SENIOR VICE PRESIDENT/GENERAL
       COUNSEL, AMERICAN BANKERS ASSOCIATION CARD POLICY COUNCIL

        Mr. Clayton. Thank you, Mr. Chairman, Mr. Castle, and Mr.
    Lee. My name is Kenneth J. Clayton, and I am here on behalf of
    the American Bankers Association. I appreciate the opportunity
    to testify today on both credit card and overdraft protection
    issues.
        Credit cards are responsible for more than $2.5 trillion in
    transactions a year, and they are accepted at more than 24
    million locations worldwide. It is mind-boggling to consider
    the systems needed to handle 10,000 card transactions every
    second around the world. It is an enormous, complicated, and
    expensive structure, all dedicated to delivering the efficient,
    safe, and easy payment vehicle that we have all come to enjoy.
    They are an integral part of today's economy.
        As you have heard today, regulators have taken
    unprecedented action in response to consumer concerns over
    credit cards. These changes have forced a complete reworking of
    the credit card industry's internal operations, pricing models,
    and funding mechanisms.
        The rule essentially eliminates many controversial card
    practices. For example, it eliminates the repricing of the
    existing balances, including the use of universal default and
    so-called ``any time, any reason'' repricing. It eliminates
    changes to interest rates for new balances for the first year
    that card is in existence. It eliminates double-cycle billing,
    and it eliminates payment allocation methods perceived to
    disadvantage consumers.
        The rule likewise ensures that consumers will have adequate
    time to pay their bills; adequate notice of any interest rate
    increases on future balances so they can act appropriately; and
    clear information in all card materials that they will notice,
    understand, and use to take informed actions in their best
    interests.
        In sum, the final regulation already covers the core issues
    sought to be addressed by H.R. 627.
        Card companies are committed to implementing these vast
    changes as soon as possible. But policymakers need to
    understand that this is an enormous undertaking, requiring
    companies to redesign entire risk and operating models that
    support hundreds of millions of accounts. And we need to do
    this during a time of unprecedented economic turmoil, with
    rising delinquencies and locked funding markets that reduce our
    ability to make loans, further complicating our task.
        Some things to think about: Lenders must rework every piece
    of paper, from solicitations to applications to periodic
    statements to advertisements; create entirely new business
    models that adequately manage investor willingness to fund
    lending and regulatory concerns over safety and soundness;
    rework, integrate, and test multiple internal systems and
    retrain hundreds of thousands of employees so that everything
    seamlessly operates together; and subject every step of this
    process to detailed legal and regulatory reviews that ensure we
    get it right.
        Under H.R. 627, we are asked to do all of this in 90 days.
    This is extremely difficult. And if such a proposal were
    enacted, we would envision three likely outcomes: operational
    problems that create billing mistakes and significant confusion
    for millions of consumers, while opening ourselves up to
    significant legal liability; a significant pullback in
    available credit to protect against underwriting risk that we
    have not yet had the time to adequately assess; and a potential
    for increases in the cost of credit for the very same reason.
        Such outcomes will harm consumers, small businesses, and
    the broader economy at a time when it can least afford it. We
    would urge members to refrain from taking such action.
        Let me quickly comment on legislative efforts on overdraft
    protection. Overdraft protection provides significant benefits
    to millions of consumers every day. It keeps checks from
    bouncing and transactions from being denied and avoids the cost
    and embarrassment associated with such occurrences. With such
    value comes some cost; yet the cost for such protection is
    completely manageable. Consumers can take numerous steps to
    keep track of their balances and manage the risk associated
    with overdrafts in their accounts.
        H.R. 1456 would impose operational challenges that are
    nearly impossible to implement and that may have the effect of
    reducing the availability of this service to consumers, thus
    denying them a product in which they find great value. And we
    note that legislating in this area may be premature.
        The Federal Reserve has a current rulemaking intending to
    go at the very issues that are the subject of this legislation.
    The comment period for that proposal closes on March 30th; that
    is 11 days from now. And the Fed will be poised to act based on
    significant input from all interested parties. We urge Congress
    to refrain from acting and let the regulatory process be
    completed.
        Thank you, Chairwoman Maloney. Thank you for the
    opportunity to comment on these two legislative proposals. I
    will be happy to answer any questions you may have.
        [The prepared statement of Mr. Clayton can be found on page
    84 of the appendix.]
        Mrs. Maloney. [presiding] Thank you very much for your
    testimony.
        Ms. Linda Echard?

    STATEMENT OF LINDA ECHARD, PRESIDENT AND CEO, ICBA BANCARD, ON
         BEHALF OF THE INDEPENDENT COMMUNITY BANKERS OF AMERICA

        Ms. Echard. Thank you, Madam Chairwoman, Ranking Member
    Hensarling, and members of the subcommittee. My name is Linda
    Echard, and I am president and CEO of ICBA Bancard.
        Twenty-five years ago, the Independent Community Bankers of
    America hired me to help them leverage the negotiating power of
    their members in order to put together a program so they could
    afford to be in the credit card business. Today, I work to help
    keep their playing field level so the community-bank credit and
    debit card issuers can afford to participate and meet the
    demands of competing.
        I would first like to discuss H.R. 627, the Credit
    Cardholders' Bill of Rights Act. While we agree that a small
    number of issuers have engaged in practices that are harmful to
    consumers, any legislative remedy should focus on transparency,
    disclosure, and encouraging consumer choice. The most powerful
    force for a change in a market as competitive as credit cards
    is the ability of an educated consumer to shop with his or her
    feet.
        Instead, this measure attempts to prohibit specific
    practices, imposing additional costs and burdens on community
    bankers who did not contribute to the problems in the industry.
    The consequences will cause small lenders to struggle to meet
    the credit needs of their consumer and small-business customers
    and possibly exit the business entirely. No one benefits if
    community banks exit the marketplace.
        Throughout my career, I have seen firsthand the
    implications of burdensome regulations and mandates, such as
    these, on small issuers. At a time when the government is
    encouraging efforts by community banks to assist in the
    recovery of our economy, passing this bill sends the wrong
    message to those who are actually in a position to help.
        I would also note that the 25-day statement mailing
    requirement and deadline set forth in this legislation for full
    compliance are simply not feasible for community banks or their
    third-party processors. The mailing requirement does not take
    into account statement cycles that fall on or near weekends and
    holidays.
        Today, community banks can offer credit cards that are
    tailored to the needs of their individual consumers, allowing
    them to differentiate themselves from the competition. But the
    limitation on an issuer's ability to adjust for risks in the
    cost of funds in this legislation will fundamentally change the
    credit card features that consumers have come to rely on.
        I can also see community banks shifting away from fixed-
    rate credit card models to variable-rate cards. More broadly,
    these restrictions will begin to shift credit cards from an
    open-ended, unsecured loan where the consumer largely decides
    his or her own repayment schedule to something like the old-
    fashioned finance company installment loan.
        Shifting to H.R. 1456, the Consumer Overdraft Protection
    Fair Practices Act, many community banks offer overdraft
    protection programs that are valued by their customers.
    Overdraft programs are not all created equal, a fact that gives
    community banks the ability to leverage the unique and close
    relationship they have with their customers to offer them
    competitively priced programs to best meet their needs. This
    competitive advantage is an important part of what allows
    community banks to serve their communities.
        ICBA supports ensuring consumers are fully informed about
    the terms and conditions of an overdraft program and are made
    fully aware of the choices available to them. However, the
    burdens imposed in H.R. 1456 would reduce community banks'
    ability to competitively offer these services. This legislation
    presents technical and practical difficulties that will serve
    to reduce the availability of overdraft coverage to community
    bank customers.
        Subjecting these programs to regulation under TILA will
    likely cause many community banks to do away with discretionary
    overdraft programs, leaving consumers only the choices of
    linking with another account or qualifying for a line of credit
    in order to cover overdrafts. For community bank customers at
    the margin, those may not be viable options.
        In conclusion, our concerns with these two pieces of
    legislation are straightforward: Overly restrictive approaches,
    such as H.R. 627 and H.R. 1456, while serving well-intentioned
    purposes of addressing questionable practices, will create more
    difficulties than they cure.
        Community banks want to be able to offer competitive credit
    card products and also want to help their customers with
    reasonable overdraft programs. Setting rigid parameters under
    which a bank may operate a card business or overdraft
    protection program will discourage already overly burdened
    community banks, pushing them to reduce the number of products
    and services they can currently offer.
        Thank you for the opportunity to be here today.
        [The prepared statement of Ms. Echard can be found on page
    107 of the appendix.]
        Mrs. Maloney. Thank you.
        Mr. Fecher?

      STATEMENT OF DOUGLAS FECHER, PRESIDENT AND CEO, WRIGHT-PATT
      CREDIT UNION, INC., ON BEHALF OF THE CREDIT UNION NATIONAL
                           ASSOCIATION (CUNA)

        Mr. Fecher. Good afternoon. Thank you for giving me the
    opportunity to testify today regarding H.R. 627 and H.R. 1456
    on behalf of the Credit Union National Association. My name is
    Doug Fecher, and I am president and CEO of Wright-Patt Credit
    Union in Fairborn, Ohio.
        Wright-Patt Credit Union serves 170,000 everyday Americans
    in the Miami Valley, just outside of Dayton, Ohio, including
    the airmen and airwomen of Wright-Patterson Air Force Base. Our
    philosophy is to help everyday people save more, smartly use
    credit, and improve their family's financial wellbeing.
        My written testimony goes into greater detail regarding
    CUNA's concerns with the two bills under consideration today.
    In general, we support what the legislation is trying to do;
    however, we do have serious concerns with the approach being
    taken by H.R. 1456.
        I am a practical thinker and come from the perspective of
    the people I serve: Americans who are faced with making daily,
    routine financial decisions that are best for their family,
    often with limited resources. What matters to them is making
    their paycheck last from one payday to the next, how they are
    going to pay for the things they need, not to mention the
    emergencies that they sometimes face.
        The bounce protection legislation being considered is well-
    intentioned but, as a practical matter, will limit consumer's
    access to legitimate financial services and may be technically
    impossible to implement.
        I want to be clear: Credit unions support reasonable
    changes to laws governing overdraft programs. While we oppose
    this legislation in its current form, we would like to work
    with supporters to eliminate predatory activity without making
    it impossible for responsibly offering these services to
    consumers.
        We have three suggestions aimed at improving this bill:
        First, instead of amending the Truth in Lending Act, we
    recommend that the bill be redrafted to amend the Truth in
    Savings Act. This gives Congress the opportunity to require
    meaningful disclosures to users of these programs, such as the
    true dollar cost and the available alternatives.
        It would also avoid the problem that the bill in its
    current form creates with respect to the Federal credit union
    usury ceiling. If this bill were law, it would cause credit
    unions offering these programs to exceed the usury ceiling
    prescribed by the Federal Credit Union Act, presently 18
    percent. Since even a modest fee would exceed this threshold,
    as a result, credit unions would no longer be able to offer
    these services, driving their members to higher-cost service
    providers.
        Second, H.R. 1456 has the potential to present significant
    operational issues by requiring a written agreement with the
    member prior to the extension of any overdraft coverage. CUNA
    suggests that the bill provide a change-in-terms disclosure
    when overdraft protection is offered and specifically require
    that a consumer can fully opt out if he or she so desires.
        Finally, the requirement that consumers be notified at an
    ATM or point of sale that the transaction will cause an
    overdraft represents a compliance burden that we do not believe
    can be met, given credit union current technology. There may be
    other ways to notify consumers that they are about to trigger
    an overdraft event. A sticker or a first-screen general notice
    alerting the consumer that a withdrawal from the ATM may
    trigger an overdraft may be appropriate.
        To the extent that the subcommittee feels that real-time
    disclosure is important, we suggest limiting that type of
    requirement to disclosure on ATM networks that are controlled
    by the financial institution to which the consumer is
    affiliated.
        To summarize our overdraft concerns, we should not make
    legislation that removes choice from the market. Credit unions
    offer these services in a way that solves a sometimes serious
    problem for consumers. While we should disallow having the
    manipulation of accounts done for the sole purpose of
    extracting more and higher fee revenue from unaware consumers,
    we should not eliminate responsible providers from the market.
        We look forward to working with the subcommittee to address
    these concerns.
        I would like to make a brief comment with respect to H.R.
    627, the Credit Cardholders' Bill of Rights Act. We agree with
    most provisions of this legislation. However, we do have two
    concerns we would like the subcommittee to address and one
    suggestion.
        Our primary concern is the bill's effective date. Were this
    bill to become law, credit unions would have only 90 days to
    comply with the same requirements with which they are already
    currently adjusting their systems to comply with about 15
    months from now. We believe such a requirement would be overly
    burdensome and expensive for America's credit unions and
    ultimately unnecessary, as the credit unions will be in
    compliance in due time.
        Our second concern involves the provision prohibiting the
    issuance of a credit card to a consumer under the age of 18
    unless the consumer has been legally emancipated under State
    law. While we agree with this provision, we believe there
    should be an exception for cards that are co-signed by a parent
    or guardian.
        Finally, we ask that the subcommittee include in this
    legislation a provision that directs the Government
    Accountability Office to study the impact of merchant data
    breaches on consumers and financial institutions. When
    merchants lose consumers' personal data, including credit card
    information, the cost of the breach is borne almost entirely by
    the financial institution and the consumer. We believe this
    imbalance deserves additional scrutiny and study.
        Again, thank you for giving me the opportunity to testify
    today. I will be available to answer questions. Thank you very
    much.
        [The prepared statement of Mr. Fecher can be found on page
    118 of the appendix.]
        Mrs. Maloney. Thank you.
        Mr. Ireland?

     STATEMENT OF OLIVER I. IRELAND, PARTNER, MORRISON & FOERSTER
                                  LLP

        Mr. Ireland. Good afternoon, Acting Chair Maloney, and
    Ranking Member Hensarling. I am a partner in the Washington,
    D.C., office of the law firm of Morrison & Foerster. Prior to
    joining Morrison & Foerster, I was an Associate General Counsel
    at the Board of Governors Federal Reserve System for over 15
    years and worked at the Federal Reserve Banks of Boston and
    Chicago before that. I have almost 35 years of experience in
    banking and financial services, and I am pleased to be able to
    appear here before you today to discuss H.R. 627 and H.R. 1456.
        Today, American households are experiencing extreme
    financial pressure. Equity that households have in their homes
    is at an all-time low, and their net worth has fallen 20
    percent since the third quarter of 2007. Moreover, unemployment
    in February of 2009 was 8.1 percent, the highest since 1983.
        As unemployment grows, affected households must
    increasingly rely on the ability to borrow to meet day-to-day
    expenses. Any congressional regulatory efforts to modify credit
    card practices need to pay particular attention to the
    potential to unnecessarily limit the availability of this
    source of credit for these households.
        H.R. 627 would limit credit card practices by credit card
    issuers, and H.R. 1456 would limit overdraft practices at
    institutions holding consumer deposit accounts. In both cases,
    recent or pending Federal Reserve Board rule-writing efforts
    would address these policy concerns.
        For example, in December of last year, the Board, working
    with the OTS and the NCUA, adopted the most sweeping regulatory
    changes to credit card practices ever. The Board also is in the
    process of addressing fees for overdrafts and consumer
    accounts, including whether there should be an opt-in or opt-
    out for overdraft fees, the form of the notice to be given, the
    treatment of debit holds, and related issues.
        At this point in time, adopting either H.R. 627 or H.R.
    1456 runs the risk, at best, of creating conflicting statutory
    and regulatory regimes. At the extreme, new legislation or
    credit card practices could lead to significant limitation on
    the availability of credit to American households.
        For example, H.R. 627 calls for its provisions to become
    effective in 3 months, instead of July 1, 2010, the effective
    date for the UDAP and Regulation Z rules. Similarly, the
    provisions of H.R. 1456 differ significantly from the Board's
    proposal. Some aspects of H.R. 1456, such as the opt-out for
    point of sale, are simply unworkable, and others, such as the
    opt-in, are likely to lead to a significant disruption in
    consumer payments, to the detriment and ire of both consumers
    and merchants.
        A 3-month effective date in H.R. 627, in particular, would
    present serious operational problems and could significantly
    curtail access to credit. Credit card issuers will be faced
    with enormous changes in highly automated systems. Any effort
    to accelerate these automation changes may simply fail or
    result in significantly higher levels of processing errors.
        Perhaps more significantly, the repricing and payment
    allocation provisions would affect as much as $12 billion a
    year in revenue for credit card issuers. In order to recover
    this lost revenue, as a practical matter, credit card issuers
    only have two possible options: raise rates and fees; or reduce
    the amount of credit risk in their portfolios.
        Early implementation of the repricing limitations, however,
    would severely limit the rate option. Credit card issuers would
    have no cushion of profitability to absorb the increased costs
    and would have no choice but to take steps to reduce risks in
    their portfolios. These steps would reduce the amount of credit
    available to households significantly when they need it most
    for ready access to credit.
        I appreciate the opportunity to appear before you here
    today and would be pleased to answer any questions.
        [The prepared statement of Mr. Ireland can be found on page
    127 of the appendix.]
        Mrs. Maloney. Thank you very much.
        Mr. McCracken?

    STATEMENT OF TODD McCRACKEN, PRESIDENT, NATIONAL SMALL BUSINESS
                           ASSOCIATION (NSBA)

        Mr. McCracken. Good afternoon, Madam Chairwoman, Ranking
    Member Hensarling, and members of the subcommittee. My name is
    Todd McCracken, and I am the president of the National Small
    Business Association, America's oldest small-business advocacy
    organization.
        Historically, small businesses have led America's
    resurgence out of periods of economic distress and uncertainty.
    Previous small-business-led economic recoveries were based
    substantially on the creation of millions of new small firms.
        How did these aspiring small-business owners do it? Besides
    possessing an entrepreneurial streak, they were able to finance
    their dreams through a number of means, most of which are
    currently unavailable or restricted. They borrowed from
    themselves, often through second mortgages and the like; they
    borrowed from their friends and family; or they borrowed from a
    bank.
        Aspiring business owners would be hard-pressed in the
    current environment to self-finance their entrepreneurial
    dreams. Home prices are down, and so are the stock portfolios.
    The same is true for their friends and families. Banks have
    tightened their lending standards, and there has been a drastic
    reduction in the number of SBA loans being made. Even those
    banks on the receiving end of billions of dollars of taxpayer
    dollars have not increased their small-business lending.
        Where does this leave the aspiring entrepreneurs who will
    lead the Nation out of its recession? Increasingly reliant on
    their credit cards. Credit cards are now the most common source
    of financing for America's small-business owners.
        Although they are increasingly turning to credit cards to
    finance their business ventures, more than two-thirds of
    surveyed small-business owners report that the terms of their
    cards are worsening, however. This is not good news for
    America's economy, which is heavily reliant on a robust and
    thriving small-business community. The billions of dollars
    generated from outlandish retroactive interest rate hikes, the
    escalating imposition of undisclosed fees, and unilateral and
    unforeseen interest rate increases is money diverted from
    economic development.
        America's small-business owners are not in the habit of
    advocating for the passage of increased Federal regulations, as
    I am sure you know, preferring free enterprise and market
    solutions. But the current practices of the credit card
    industry defy the principles of a competitive market. While
    welcoming the enactment of the Unfair and Deceptive Acts or
    Practices, UDAP, rule, NSBA believe that it is necessary to
    codify these rules and enact them sometime before July 2010.
        While NSBA supports the enactment of H.R. 627, there are
    two major aspects of credit card reform the bill does not
    address. One is interchange fees, and the other is exemption of
    small-business cards, and we urge Congress to address both of
    these things.
        As much as $2 of every $100 in credit or debit card
    receipts goes to card issuers through interchange fees, which
    have increased over the last decade from being about 13 percent
    of card issuer revenue to being about 20 percent, and inflating
    the cost of nearly everything consumers buy. In total,
    Americans paid more than $42 billion in interchange fees in
    2007, about twice as much as they paid in credit card late
    fees. NSBA urges Congress to adopt legislation similar to the
    Credit Card Fair Fee Act or the Credit Card Interchange Fees
    Act of 2008, which were introduced during the 110th Congress.
        The largest loophole in H.R. 627 is the absence of explicit
    protection for small-business owners who use their cards for
    business purposes. Since H.R. 627 amends the Truth in Lending
    Act, which, except for a few provisions, does not apply to
    business cards, its protections are limited to consumer credit
    cards. Although the credit cards of many, if not most, small-
    business owners are based on the individual owner's personal
    credit history, it is conceivable that issuers could legally
    consider them exempt from H.R. 627's vital protections.
        TILA defines a ``consumer'' as a natural person who seeks
    or acquires goods, services, or money for personal, family, or
    household use other than for the purchase of real property.
    While a small-business owner who opens a personal credit
    account and uses it occasionally for business should be
    covered, it is far from clear that this legislation would
    protect a small-business owner who used his card exclusively or
    even primarily for business purposes.
        Although in the past issuers appear largely to have kept
    most of their cards in compliance with TILA, there is no
    guarantee this convention will continue, especially when one
    considers that its basis appears to have been practicality and
    not legal obligation. Since issuers were able to subject
    consumer cards to the most egregious of practices, there was
    little incentive to distinguish between consumer and small-
    business cards. An unintended consequence of H.R. 627, if it
    remains unamended, is that this legislation could provide just
    such an incentive.
        Accordingly, NSBA urges Congress to correct this oversight
    and extend the protections of TILA, the UDAP rule, and H.R. 627
    to business cards of small businesses. It is inconceivable that
    Congress would knowingly allow issuers to perpetuate practices
    recognized as unfair and deceptive against America's small
    businesses, especially given their essential role in the
    Nation's economic recovery.
        In conclusion, the small-business community is not opposed
    to the credit card industry, nor does it begrudge its profits.
    In fact, as I previously outlined, the small-business community
    is increasing reliant on credit cards for its very existence.
    Small business simply asks the credit card industry to play by
    the same rules as the rest of us.
        Thank you very much.
        [The prepared statement of Mr. McCracken can be found on
    page 136 of the appendix.]
        Mrs. Maloney. Thank you.
        And this will be followed by two consumer advocates in
    alphabetical order.
        Mr. Mierzwinski?

      STATEMENT OF EDMUND MIERZWINSKI, CONSUMER PROGRAM DIRECTOR,
                               U.S. PIRG

        Mr. Mierzwinski. Thank you, Madam Chairwoman, Mr.
    Hensarling, and members of the committee.
        As you will note from my written testimony, Mr. Plunkett
    and I are submitting a joint written testimony on behalf of a
    dozen organizations, and we will each talk about one of the
    bills. I will talk first about the overdraft bill. And all of
    our organizations strongly support, Madam Chairwoman, your
    introduction of these two bills.
        I would say one thing about the consumer credit card bill
    of rights. Until your bill passed last year, in the 20 years I
    have been here in Washington, no bill ever opposed by the
    credit card industry made it through any congressional
    committee that I can remember. So that is my point on that.
        In terms of overdraft fees and the overdraft bill, H.R.
    1456, the invention of so-called bounce protection programs in
    the 21st Century is not a sign of the advance of civilization;
    it is more a sign of the decline of civilization. I want to
    make just a couple of quick points.
        First, it is essentially banks making payday loans. It used
    to be that banks and credit unions were the good guys. We had
    the rent-to-own industry, the payday loan industry, the auto
    title pawn industry, and the check cashers who were the bad
    guys. This is essentially the banks' entry into predatory
    lending, and that is too bad, and it is something that your
    bill would stop.
        Second, the problems have been exacerbated by two trends.
    The first thing is that, in 2004, Congress made it easier for
    banks to get access to the checks that were written more
    quickly when it enacted Check 21, but Congress hasn't given
    consumers faster access to their deposited funds since the
    original law was passed in 1987 and took effect in 1988. So
    banks hold our checks and deposited funds as long as they can,
    and they manipulate our transactions in order to increase fee
    income from unfair overdraft programs. The second trend is that
    banks have encouraged the use of plastic. Plastic has not just
    become a substitute for checks; it has become a substitute for
    cash transactions. So both these trends have increased the
    ability of banks to make money on this program of bounce
    protection, or, as they prefer to call it, courtesy overdraft.
        What is good about a program that you don't ask for, that
    you don't sign up for, and that costs you more money than it
    benefits you? In a word, nothing is good about it. Without
    asking for our consent, banks and credit unions unilaterally
    permit most customers to borrow money from the banks by writing
    a check, withdrawing funds at an ATM, using a debit card, or
    preauthorizing electronic payments that overdraw our accounts.
    Instead of rejecting purchases that are electronic, they choose
    to have the purchases go through so they can make more money.
        One important point is that small debit transactions--and,
    again, these are not checks; these are small debit
    transactions--are a growing source of the income from overdraft
    protection accounts. About half of all overdraft fees are
    caused by small debit transactions, the $4 latte that costs
    $35. In fact, the average debit overdraft is $17. The average
    fee is double that, $34.
        Consumers want choice. These programs don't give us choice.
    Your bill would require the consumer's consent before he or she
    participated in this overdraft program. If you have that
    consent, you might think about, instead of this bank-friendly
    overdraft program, getting a more traditional overdraft program
    that costs you a lot less; apply for an overdraft line of
    credit; apply for a transfer from your savings account or your
    credit card. Eighty percent of consumers would rather have that
    sort of choice, and an opt-in is the way to do it. An opt-out
    simply won't work.
        By the way, 80 percent of consumers also want the choice at
    point of sale as to whether or not their transaction would go
    through. I am not going to be embarrassed at the Starbucks or
    at other coffee shop if they say my card did not work, and I
    have to take out a $5 bill. It is absurd for banks to claim
    that people want that kind of choice:
        ``Would you rather pay $35 for that $4 coffee or would you
    rather pay for it in cash, Mr. Mierzwinski?'' I would rather
    pay for it in cash or walk away.
        The fact is that the cost of overdrafts, over $17 billion a
    year, is actually more than the so-called ``benefit.'' The
    total number of transactions is less than $16 billion a year.
    The costs are inordinately borne by lower-income people,
    minorities, younger people, and senior citizens on fixed
    incomes, many of them receiving government benefits. Many
    people on government benefits are receiving their benefits
    through prepaid debit cards, and these cards are often subject
    to these fees.
        By the way, the banks claim, using Federal Reserve data--
    first of all, the Federal Reserve says that it is feasible to
    provide overdraft protection warnings at point of sale. They
    claim it might cost as much as over $1 billion. Well, the most
    vulnerable senior citizens pay over $1 billion in overdraft
    protection fees every year. All in all, senior citizens pay
    over $4 billion in overdraft protection fees.
        So this is a program that hurts people who cannot afford
    it. It is a program that has nothing to do with choice. Your
    bill would fix all the problems. The Fed's program would not.
    The Fed's program is narrower, and they are asking, ``Do we
    want to opt out,'' which is not really a choice, or ``Do we
    want opt in?''
        You have already decided on the right choice, opt in.
        Sorry. We cannot see the red light.
        Mrs. Maloney. Thank you. The gentleman's time has expired.
    Thank you for your testimony.
        [The joint prepared statement of Mr. Mierzwinski and Mr.
    Plunkett can be found on page 145 of the appendix.]
        Mrs. Maloney. Mr. Plunkett is recognized for 5 minutes.

    STATEMENT OF TRAVIS B. PLUNKETT, LEGISLATIVE DIRECTOR, CONSUMER
                         FEDERATION OF AMERICA

        Mr. Plunkett. Congresswoman Maloney, Ranking Member
    Hensarling, it is good to be here, and thank you for the
    opportunity to testify.
        I am going to focus my remarks on the very serious
    financial consequences that unfair and deceptive credit card
    practices are having on many families in this recession and how
    the Credit Cardholders' Bill of Rights Act will help stop these
    traps and tricks.
        The President spoke yesterday afternoon, actually, on the
    need for a credit card bill of rights. He said, ``The truth of
    the matter is that the banking industry has used credit cards
    and has pushed credit cards on consumers in ways that have been
    very damaging.''
        First, let me tell you what is in the bill that is
    important for consumers, and then I would like to give you
    three reasons why it is important to implement credit card
    reform on a very timely basis.
        We have heard about the 30-day rule. This proposal says no
    interest rate increases on existing balances unless you are
    more than 30 days in paying your bill. This bill says you can't
    allocate payments for debt at different interest rates unfairly
    anymore; you have to allow consumers, at the very least, to
    write a check and pay off payments at both the higher and the
    lower interest rate debt.
        It bans deceptive and unfair double-cycle billing. It takes
    several steps to stop the assessment for late fees for on-time
    payments, and unlike the regulators rule, which is also
    substantively good, it will provide timely protection from
    these abusive practices to consumers. It takes effect 3 months
    after enactment instead of in July 2010, as we have heard.
    Also, codifying protections in law has the advantage of
    preventing regulators from quietly undoing important
    protections at a later date.
        So why do we need to do this, and why do we need to do it
    fairly quickly?
        First, the number of families in trouble with their credit
    card loans is approaching historic highs. One often-watched
    measure is the monthly credit payoff rate; this is the amount
    of money people are paying on their credit card bills. It has
    been dropping precipitously for credit cards, and it is now at
    one of the lowest levels ever reported, indicating people are
    having a harder and harder time affording their bills.
        The amount of charge-offs, the amount of debt written off,
    is uncollectible, and delinquencies are at their highest levels
    since 2002. Most experts are saying they could peak at their
    highest levels ever by the end of this year.
        Personal bankruptcies are up by a third since this time
    last year.
        Card issuers share a great deal of responsibility for
    putting so many Americans in such a vulnerable financial
    position. For 15 years, CFA and many others have been warning
    that issuers were irresponsibly pushing consumers to take on
    more debt than they can afford; and now, in the recession, we
    are seeing the implications of those actions.
        Let us just talk about exactly what is happening now, about
    some of the practices that credit card issuers are using now in
    this recession:
        They have added new fees. They have increased the amount of
    fees. They have used harmful, rather than responsible, methods
    to lower credit lines, and they are hitting people with a lot
    of interest rate increases.
        Citigroup back-pedaled last fall on promises not to raise
    rates at any time for any reason and promptly raised rates for
    much of their portfolio. Chase has started charging hundreds of
    thousands of cardholders $120 in fees a year while increasing
    the minimum monthly payment for cardholders who were promised a
    fixed rate for the life of the balance.
        Bank of America has used a variety of questionable methods
    they claimed were risk-based to raise rates substantially on
    many cardholders. Capital One and other issuers are using vague
    clauses in their agreements to raise interest rates, often by 5
    percent or more, on millions of cardholders with a good credit
    history because of market conditions.
        So we are now hearing that this bill is somehow going to
    lead to a scarcity of credit, lead to interest rate increases
    on consumers who shouldn't have interest rate increases and
    harm them; and we seem to have missed the major lesson of the
    current economic crisis, that poor regulation can harm
    consumers and the economy.
        I mean, look at what started happening in the credit card
    industry before regulation was implemented. Defaults were at
    record highs, as I have mentioned. Issuer costs to borrow money
    was increasing. Securitization was grinding to a halt, of
    credit card loans. Credit was being cut back as we have heard,
    and rates for many consumers were increasing. They can't blame
    that on regulation; it hasn't taken effect. This was the effect
    of a market that had not been properly regulated for 20 years.
        So, in closing, what I will say is, we have to have a
    discussion that understands what the current situation is and
    what the hazards of poor regulation have been, and then we can
    have a reasonable discussion about the pros and cons of various
    regulatory proposals. Thank you.
        [The joint prepared statement of Mr. Plunkett and Mr.
    Mierzwinski can be found on page 145 of the appendix.]
        Mrs. Maloney. I want to thank all of the panelists for
    their very thoughtful presentations.
        I just have one question for industry and for consumer
    groups. I am sure you were all here for the debate from the Fed
    and OTS and NUCA. I just want to ask one question: Putting
    aside the debate about implementation, do you support the
    regulations that have been finalized on credit cards?
        I will start with you, Mr. Clayton. Just a ``yes'' or a
    ``no.''
        Mr. Clayton. I just want to note that the regulations have
    the force of law. We are responsible for complying with them,
    and we will in a very aggressive manner.
        Mrs. Maloney. Okay. Thank you.
        Ms. Echard. We, too, support most of the changes, but we
    need the time to implement them; and we will be ready in July
    2010.
        Mrs. Maloney. Well, I just want to respond to her very
    important statement, and I just would like to make a statement
    about community banks.
        They have really come to the forefront during this
    financial crisis with loans to individuals and communities, and
    you have done a fantastic job. I hear great reports of credit
    availability from community banks.
        I would like to say that issuers would have yet another 3
    months before having to comply. Issuers have already had 3
    months since the release of the rules, and it will be a few
    months more before this could possibly pass both Houses and be
    signed by the President.
        These practices that have been labeled by the Federal
    Reserve--not by consumers, but by the Federal Reserve, who are
    charged with safety and soundness of our financial
    institutions--have called them unfair, deceptive and
    anticompetitive. Arguing for any delay simply does not match
    the needs of consumers.
        You know, I just wanted to put that out there. It has been
    a long time, and it will probably be a long time before it
    finally passes both Houses and is signed.
        Mr. Fecher, do you support the Credit Card Bill of Rights?
        Mr. Fecher. Most credit unions do not engage in those
    practices. So, yes, we do support those.
        Mrs. Maloney. Mr. Ireland?
        Mr. Ireland. We certainly support compliance with Federal
    law.
        Mrs. Maloney. Mr. McCracken?
        Mr. McCracken. Yes, we do.
        Mrs. Maloney. Mr. Mierzwinski?
        Mr. Mierzwinski. Yes, of course, Representative Maloney, we
    support the bill; and I concur with your comments about why
    they really have a lot more time.
        Mrs. Maloney. Mr. Plunkett?
        Mr. Plunkett. Yes.
        Mrs. Maloney. Thank you very much.
        I yield to Mr. Hensarling.
        Mr. Hensarling. Thank you, Madam Chairwoman.
        Ms. Echard, I think I heard in your testimony some
    discussion of what you thought community bankers might do if
    this would become law.
        What would happen to their credit card offerings? Can you
    elaborate on what you would anticipate the consequences of the
    passage of this legislation to be?
        Ms. Echard. Thank you. Yes.
        The change-out of the disclosures and of the materials
    alone, by a conservative estimate, for our 700 institutions is
    probably going to cost them in the neighborhood of--somewhere
    from $6 million to $9 million, and that is just covering 200
    new applications per branch. That is going to be equivalent to
    2 years of their credit card profitability, to 2 to 3 years of
    their credit card profitability.
        Mr. Hensarling. Do you predict that some banks may drop
    credit card offerings, or will they raise interest rates and
    fees in other areas to compensate for that loss?
        Ms. Echard. I believe that some community banks, even
    though they do not engage in any of these practices, will find
    the burden of complying, especially getting the implementation
    done in 90 days, to be too much, and they will sell their
    credit card portfolios.
        Mr. Hensarling. In your time and in your familiarity with
    the banking industry, if there are consumers who find out that
    through the passage of this legislation that ultimately the
    credit cards they could have accessed in the past are no longer
    available to them and they lose those credit cards, do you have
    an opinion on where they may end up going to access credit?
        Ms. Echard. With the concentration, they will have the
    choice of going to a large financial institution and not with
    their local institution. Thousands of community bank customers
    may be faced with having their banking in one place and their
    credit card elsewhere.
        Mr. Hensarling. Again, going back to the timing issue, if
    this became law within 90 days, how many community banks might
    be able to comply within the 90-day time limit?
        Ms. Echard. Not a single one. The 6,000 community banks
    that were mentioned, or the 6,000 banks, most of them are small
    issuers. They are credit unions, community banks. Most of them
    rely on processors.
        We have been meeting with our processor and a focus group
    of our community bank every single week since implementation
    was announced. While it is not as huge as the Y2K project, it
    is somewhat on that scale in that we have the communication
    bulletins.
        If you think of the July 1st enactment date, that means
    that all of the statement processing systems have to be done in
    June because all of the statements being mailed out beyond that
    date have to be correct. So that means testing in May and
    April. We have a system freeze so that the cards will operate
    smoothly for all merchants and for all consumers; there is no
    processing, no changes, nothing. It is a sacred time in the
    credit card industry from November to January, so that knocks
    out those 3 months.
        I mean, we are starting on it now. It is going to take a
    huge effort to get this done, and the last thing we will be
    doing will be the training of client services, the training of
    customer service, the training of bank personnel, and the
    completion of the applications in the agreements and the review
    of all of that. So it is a tremendous, tremendous undertaking.
        Mr. Hensarling. Earlier, with the testimony of the
    representative of the Federal Reserve, she offered her opinion
    that the credit card industry was a competitive industry. Does
    anybody on the panel wish to disagree with that particular
    assessment?
        Mr. Plunkett hit his button first.
        Mr. Plunkett. Well, it is becoming considerably more
    concentrated. Nobody wants to impose unnecessary costs on any
    bank, especially small banks. But let us just point out that
    the 6 largest issuers control approximately 80 percent of the
    market; if you look at the top 10, it is approximately 90
    percent of the market. So the costs are going to be borne by
    the largest companies, which are among the largest banks in the
    world.
        Mr. Hensarling. Mr. Plunkett, since your organization has
    ``consumer'' in its title and you speak about a concentration
    in the industry, what public policies of your organization
    furthered or proposed or endorsed that which would increase
    competition within the credit card industry?
        Mr. Plunkett. We think this is a competitive proposal. I
    mean, I cannot tell you how many times I have had behind-the-
    scenes, off-the-record discussions with people in the credit
    card industry when they have said, ``You know, we are trying to
    do our best, but those guys over there, they are using, you
    know, a tactic that we think is reprehensible, but we have no
    choice. We are leaving money on the table if we do not do the
    same thing.''
        This sets a level playing field of fair practices.
    Everybody has to comply, and there is plenty of room for
    competition and plenty of room to price to risk.
        Mr. Hensarling. So your prediction is, there will be more
    credit card offerings to consumers after this legislation
    passes?
        Mr. Plunkett. Well, my prediction is this will not harm
    competition.
        Mr. Hensarling. Thank you.
        My time has expired.
        Mrs. Maloney. The Chair recognizes Congresswoman Waters
    from California.
        Ms. Waters. Thank you very much. I am extremely
    appreciative for this hearing that you are holding today and
    for all of the work that you have done in taking on one of the
    toughest tasks of the last Congress and of this Congress, to
    try and get some justice for credit cardholders. I thank you
    for your work.
        I have been intrigued by the discussion on overdraft abuses
    and on the need for overdraft protection. I would like to ask--
    Mr. Mierzwinski, is it?
        Mr. Mierzwinski. That is correct.
        Ms. Waters. Okay. Would you explain to me how a cup of
    coffee--was it you who described that?
        Mr. Mierzwinski. Sure. Well--
        Ms. Waters. --could end up costing what--$30 because of
    overdraft abuses? Would you kind of break that down for me?
        Mr. Mierzwinski. Sure.
        Very simply, as consumers have switched from writing checks
    for their bills and using cash for their day-to-day
    transactions in stores, they have switched to debit cards, an
    ATM card that can be used at point of sale.
        Even when the consumer's debit card shows a negative
    balance or when the bank reorders the transactions at the end
    of the day to increase the number of negative items on that
    day, in either case what happens is, you buy something with
    your debit card for $4 or for $2, depending on the kind of
    coffee you buy, and they accept the transaction. At the end of
    the day, they bounce it and charge you $35.
        The statistics from the studies that our colleague
    organization, the Center for Responsible Lending, has done show
    that the average debit card transaction is only about $17, but
    the average fee is $35.
        Ms. Waters. Wow.
        Mr. Clayton, is that what happens with the overdraft abuse
    that was just described by Mr. Mierzwinski?
        Oh, let's see. You are with the American Bankers
    Association Card Policy Council?
        Mr. Clayton. That is correct.
        Ms. Waters. Is that what happens? Is that what you know
    happens or is this just being made up?
        Mr. Clayton. No, that is not our understanding of how
    things operate in the real world.
        Ms. Waters. How does it operate? Tell me how it operates.
        Mr. Clayton. As a practical matter--and the Federal Reserve
    has done some consumer testing on this--consumers really very
    much appreciate the availability of overdraft protection plans
    to help them in a bind.
        Ms. Waters. No. I just want to know how it works.
        Mr. Clayton. Say again?
        Ms. Waters. I want to know how it works.
        I just had him describe what happens with the overdraft. He
    described a cup of coffee at $4 or $2 that, at the end of the
    day, is an overdraft because there is no protection for the
    consumer in stopping that purchase at the point of purchase.
        So tell me what is wrong with what he just described?
        Mr. Clayton. There is enormous protection for consumers in
    stopping the purchase at purchase time. Consumers have a great
    deal more control in this process than people give them credit
    for. It is exactly the same as when they were working with
    checking accounts for many years.
        Ms. Waters. Just tell me how it works.
        Mr. Clayton. People keep track of their balances. They can
    go online and check out where it is. They can keep cushions--
        Ms. Waters. No, but what he said was, you buy a cup of
    coffee at Starbucks for $4, I guess, with a debit card or
    something, and the card does not have $4 on it; I guess they
    only have $2 on the card.
        So you use the card. They get the coffee. They drink it.
        At the end of the day, it is an overdraft that you charge
    $35 for. Is that correct or not?
        Mr. Clayton. If they overdraft their accounts, they will be
    subject to fees.
        Ms. Waters. So what he just described is correct?
        Mr. Clayton. If they overdraft their accounts, they will--
        Ms. Waters. So what he just described is correct?
        Mr. Clayton. Yes.
        Ms. Waters. Okay. So, if it is correct, do you think that
    that is overdraft abuse? Do you think that that is a practice
    that should be discontinued because it is too harsh, because it
    is costing too much money and that, if you wanted to, you could
    reject the card and avoid the abuse?
        Mr. Clayton. Well, first of all, the technology does not
    exist to actually do that at the point of sale.
        But notwithstanding that--and there are significant costs
    that have been talked about here--consumers have a
    responsibility to manage what is in their accounts. There are
    fees for not complying with what is in their accounts in
    overdrafting. So to the extent that you think it is
    inappropriate for consumers to get fees for overdrawing on the
    amount of money they have, then you can take the position that
    the whole process is inappropriate.
        From our perspective, we are taking a risk. We are putting
    out a convenience and a service to consumers that they seem to
    value and that they have a lot of control over, whether they
    are going to incur costs or not, so we understand where you are
    coming from.
        Ms. Waters. Do 18-year-olds and 17-year-olds have access to
    these debit cards? Can they use them at Starbucks in the way
    that was just described?
        Mr. Clayton. Well, you have to have an account, and I think
    you have to be an adult to have an account, and you have to be
    of voting age, so 18 and above.
        Mrs. Maloney. The gentlelady's time has expired.
        Ms. Waters. Thank you very much.
        Mrs. Maloney. Mr. Lee from New York.
        Mr. Lee. Thank you very much.
        It was nice to hear the general consensus through both the
    first and second panel today. I think everyone is in agreement
    that we do need to do modifications to try to protect consumers
    and to make it easier for them to understand the contracts and
    to try to protect consumers. I do not think I heard from anyone
    who was not in agreement with making strides in that regard.
        The one thing that I did hear overwhelmingly was the fact
    that the timeline is inappropriate and, furthermore, that it
    would, in my opinion and from what I have heard, put consumers
    at risk.
        I used the earlier example because I am a lowly freshman
    here, but I came from a manufacturing business where I went
    through three occasions, through various businesses that I had
    an opportunity to run. We went through major software
    implementations, not much different than you would see here
    when you are modifying your business systems for a credit card.
    I can assure you, a good implementation is doing it in a year.
        My concern is--and I would like to hear from some of the
    individuals here--what risk we would run if we do rush this;
    because I think, at the end of the day, Chairwoman Maloney and
    her ideas that she has passed are all good ideas. But what I do
    not want to do is jeopardize businesses that are already
    struggling, credit card companies, and put them at further
    risk, because when you do do an implementation, you need a
    large number of people focused on this project.
        Right now, we have companies that are cutting back on
    staff. I just do not want to see this thing fail when, at the
    end of the day, we are trying to do things that are positive
    for consumers.
        I guess I would start with Mr. Clayton. If you could,
    define what specific risks we would see if in 90 days we were
    to flip the switch and this were to occur. In your mind, what
    specifics to consumers, what negative effects, would they see?
        Mr. Clayton. Operationally, we would expect to see mistakes
    in billings for millions of consumers. That is the first step.
        The second thing is, we do see significant problems in our
    ability to manage our risk models in this kind of economically
    challenging time. There is a significant amount of delinquency
    increase in the marketplace today. There are significant
    pressures on funding as witnessed by the TALF program that the
    Treasury Department and the Federal Reserve are trying to bring
    into place.
        With credit card lending, what people do not always notice
    is that around one-half of credit card lending is actually
    funded by investors who buy securities backed by credit card
    receivables, and that market is frozen. If those investors
    believe that we cannot adequately gauge risk in this
    challenging environment, they will not buy the paper that
    supports one-half of the credit card lending in this country.
        Mr. Lee. I am sorry. What was the total value of that?
        Mr. Clayton. The actual amount currently that the Federal
    Reserve has talked about is about $450 billion.
        So adequately measuring your risk in this environment and
    doing it operationally and in a consistent manner limits
    litigation risk. In other words, it is a significant challenge
    that you have to not only overcome your internal views on it,
    but that you have to overcome the investor community.
        So we are very worried that, if you do this, you will
    ultimately limit the ability for us to find reasonable cost
    funding to loan to consumers, and you will see a significant
    contraction of credit in the marketplace.
        Mr. Lee. Thank you.
        Ms. Echard, could you chime in on that, please?
        Ms. Echard. Yes. Thank you.
        Potentially, the banks being out of compliance is an issue,
    the posting of payments. All of the systems are being examined
    right now, including the consumer facing systems like the
    actual statement--does that need to be redesigned?
        The system that produces that: the billing cycles, the
    number of billing cycles, the staffing for those billing
    cycles, the Web site that consumers can go on to make their
    payment should they choose to pull down their transactions,
    every single system--the client services system, the customer
    service system--needs to be examined to do that--
        Mr. Lee. I know that all too well.
        Ms. Echard. --in order that everything gets posted properly
    and is handled properly.
        Mr. Lee. We saw today even on the House Floor, when
    Congress rushes to try to push through legislation, you have
    outcomes that are less than desirable.
        So, just in closing, I appreciate all of your comments
    today. Thank you for the education.
        Mrs. Maloney. Thank you, Congressman.
        Congressman Cleaver is recognized for 5 minutes.
        Mr. Cleaver. Thank you, Madam Chairwoman. Let me express my
    appreciation for you and for all of the work that you have done
    on this.
        Most of the members who could get an airplane out, did; and
    I could have gotten one out as well. I did not. I stayed. I sat
    through the whole testimony. I only got up once to get some
    water.
        When I was mayor in Kansas City, I was part of an economic
    development effort to help bring one of the credit card
    operations into our City. One of the things I have tried to do
    today is--I wanted somebody to say something to convince me
    that I should go to my colleague and ask her to remove my name
    as a cosponsor for the legislation. I wanted desperately to
    come to the conclusion that maybe this legislation was ill-
    conceived. That has not happened.
        I am, frankly, interested in knowing just a couple of other
    things.
        Mr. Clayton and, I think, Mr. Fecher, maybe the first four
    of you mentioned--and maybe Mr. McCracken as well--that the 90-
    day timeline was too problematic. So let me ask you--and if you
    can, just answer it quickly--if that were changed, would your
    organization then submit a letter in support of the
    legislation?
        Mr. Clayton. Mr. Cleaver, I am afraid not. I mean, the bill
    does not match the rules. There are significant differences.
        Mr. Cleaver. Okay.
        Yes.
        Ms. Echard. Normally, I probably would not be agreeing with
    the ABA, but in this case, codifying this does not give the
    regulators the flexibility to work with the institutions.
        Mr. Cleaver. Mr. Fecher?
        Mr. Fecher. I think we would strongly consider that,
    actually.
        As I stated before, most credit unions do not engage in
    these practices in the first place, and our significant
    objection to the bill is the 90 days. So, assuming a close
    reading of the bill does not turn up anything else that is
    unsuitable, I think we would tend toward supporting it, yes.
        Mr. Cleaver. Okay.
        Mr. Ireland?
        Mr. Ireland. I have no problem with the idea of codifying
    the Federal Reserve rules to make that a statutory law.
        I think it is impossible to implement that in 90 days. I
    think there are provisions from the bill that are inconsistent
    with the Fed rules and that won't work very well.
        Mr. Cleaver. But back to my question about the 90 days, you
    are saying--
        Mr. Ireland. You cannot do it. It is much worse, I think,
    than Mr. Clayton suggests.
        Mr. Cleaver. Okay.
        Mr. McCracken?
        Mr. McCracken. I was not one of the people who raised the
    concern.
        Mr. Cleaver. I am sorry. So let me go back.
        Mr. Clayton, give me the one thing that I can amend the
    bill with that would then generate your organization's support.
        Mr. Clayton. I assume other than the 90-day requirement?
        Mr. Cleaver. Yes.
        Mr. Clayton. There is more than one thing.
        Mr. Cleaver. How many?
        Mr. Clayton. Three or four beyond that.
        Mr. Cleaver. What are they?
        Mr. Clayton. The first one is that you would have to
    conform the bill to the Fed rule, and I do not--first, let me
    back up.
        I cannot tell you whether our industry would support the
    bill at that point, but raising concerns about the bill, which
    is what--is that what you are asking me to respond to?
        Mr. Cleaver. No. No.
        What I am trying to find out is if you are just opposed to
    the codification, period, if you just do not want to do it. If
    that is the case, then in the absence of some compelling
    statement that would just cause me or somebody to say, ``Gee,
    we need to leave this bill alone,'' then there would be no
    choice for me but to support it.
        Mr. Clayton. We are not opposed to the codification of the
    Federal Reserve rule; although we would note that that takes
    away important flexibility that, if you got it wrong, you could
    no longer easily adjust in the marketplace, and that could be a
    problem for consumers. So we would start with that premise.
        Then there were a number of things within the bill that we
    think need to be changed.
        Mrs. Maloney. The gentleman's time has expired.
        Mr. Cleaver. Thank you, Madam Chairwoman.
        Mrs. Maloney. Thank you very much. And I congratulate you
    on your important amendment to the bill on students.
        Congressman Maffei.
        Mr. Maffei. Yes. Thank you, Madam Chairwoman, and thank you
    for introducing this piece of legislation.
        I have been hearing from my constituents who have had their
    interest rates raised, even very often when they have not been
    late on their bills. Most upsetting to these individuals--and,
    I will be frank, to myself as well--is that the companies are
    raising rates on the preexisting revolving balances.
        I think we all understand that if you raise rates on future
    purchases or on future balances, then they have a chance to
    just say, ``Well, I will switch to another card,'' or what have
    you. But on current existing rates, that gives them only the
    choice of trying to find another credit card that would be able
    to take their balance over, which they do not have that option,
    particularly in this environment; or to pay it off, which
    again, given the environment, they do not really have that
    option.
        So there is really a huge challenge for consumers, and this
    is one of the prime reasons I am a sponsor of Mrs. Maloney's
    legislation, because what I see is unfair.
        I do want to ask everybody on the panel--and maybe I am
    incorrect here--do you see raising rates on currently existing
    balances as fair or unfair?
        A quick answer from everybody on the panel would be great.
    I will start with Mr. Plunkett and work to the other side.
        Mr. Plunkett. Well, as I said previously, it is very
    damaging financially, and most of the time, it is completely
    unfair. You are absolutely right. A lot of the rate increases
    that are occurring now are not based on the fault of the
    borrower at all.
        An additional reason to move fast here is that, as we
    talked about, many of the largest banks are the largest credit
    card issuers, and many of those banks are receiving Federal
    money. There are efforts to restart lending on the credit card
    front. How can we do that and not have fair terms on those
    loans?
        Mr. Maffei. All right. Thank you, sir.
        Mr. Mierzwinski. We would agree with Mr. Plunkett.
        I would just add to his last point that in our testimony we
    went into detail, that we believe that all of the recipients of
    TALF money should comply with the Fed rules immediately and
    with additional consumer protections.
        Mr. Maffei. All right. Thank you.
        Mr. McCracken?
        Mr. McCracken. Yes. Well, it is unfair, but more
    importantly, to our small business members, if they are not
    sure at what interest rate they are borrowing money, often for
    business purposes it is very difficult to make a business
    decision about where the best source of capital is for them.
        Mr. Maffei. Okay.
        Mr. Ireland?
        Mr. Ireland. I am going to be a little bit different,
    unfortunately.
        I think what is unfair depends on what the parties
    understand they are doing. If you look at the Federal Reserve's
    own discount windows circular, that it lends to banks, it says
    they can raise the rate at any time, and they do, and it
    applies to existing balances as well as to future balances.
    That is a common term in open-end, revolving credit of this
    nature; it is not a common term and it is virtually never seen
    in closed-end credit.
        So the question is, what do people understand they were
    doing when they entered into the relationship?
        Now, I think what has happened is that people's
    understanding and use of credit cards over the last 20 years
    has changed and that what used to be retail installment credit
    has become revolving credit. So I understand the Federal
    Reserve's change in the rules to say, you cannot change it on
    existing balances because the credit that used to be could not
    be changed on existing balances.
        Mr. Maffei. No. No. That is fine. I think--you are not
    avoiding the question exactly.
        So you see it as fair given the rules that we have been
    working under?
        Mr. Ireland. Given the rules we have been working under, I
    have no problem with the change going forward.
        Mr. Maffei. Okay. Mr. Fecher.
        Mr. Fecher. We generally see that to be unfair with one
    caution. Credit unions tend to be balance sheet lenders. In
    other words, the money that they are using to fund the credit
    card balances are their members' deposits. If the costs of
    those deposits were to go up because of economic conditions,
    rising interest rates in the economy, you could face the
    position where the cost of the funds to fund the credit union
    balances could go above the credit card.
        So, with that one caution, raising the rate through no
    fault of the borrower, we would believe to be unfair with the
    caution of the cost-of-funds issue.
        Mr. Maffei. Thank you.
        Ms. Echard?
        Ms. Echard. Thank you, Congressman.
        Community banks are honest brokers. They are not going to
    play games with the interest rate. However, they have the same
    concerns. If their cost of funds rises, they need the ability
    to make an adjustment, or many of them who today offer fixed
    rates would convert to a variable rate product.
        Mr. Maffei. Okay.
        Mr. Clayton?
        Mr. Clayton. Let me add to that.
        The cost of funds can clearly move, but so does the risk. I
    mean, delinquencies are at a significantly higher level than
    they have been in a while. There is an unprecedented amount of
    economic turmoil. We do not know which borrowers are not going
    to pay us back, beforehand.
        Mr. Maffei. So you want to raise the rates on all of them?
        Mr. Clayton. In order for us to continue to make loans, we
    have to get some kind of assurance to manage our risk
    appropriately. If we cannot do that, we cannot make loans to
    everybody.
        So to put a real face on it--and I will put it in a small
    business environment--if a small business using a personal
    credit card has a small business balance at $25,000 and it
    defaults, that takes $25,000 of loan losses right out of our
    capital. Because we can lend, essentially, 10 to 1 to that
    capital, we can lend $250,000 with just--
        Mr. Maffei. Well, I am out of time.
        Mr. Clayton. I will be really quick.
        The point is, if we lose $25,000 in that one context, we
    cannot make loans to 10 other businesses of the same amount;
    and that is where the real hurt comes.
        Mr. Maffei. I appreciate it, Mr. Clayton. I understand,
    sir, where you are coming from. I actually think that is sort
    of the fundamental problem here.
        Again, it is very, very difficult to--I think if you try to
    get outside of yourself, it appears unfair to that borrower,
    and they do not really care too much about the future loan.
        Thank you very much.
        Mrs. Maloney. I now recognize Congressman Cleaver.
        Mr. Cleaver. Madam Chairwoman, if there is no objection, I
    would like to submit for the record a letter from one of my
    constituents where she explains how her interest rates were
    raised recently, without her knowledge, from American Express,
    Capital One, and Chase.
        Mrs. Maloney. Without objection, it is so ordered.
        I also would like to ask unanimous consent for a letter
    from the president and CEO of the National Association of
    Federal Credit Unions to Chairman Gutierrez, and Ranking Member
    Hensarling to be entered into the record.
        Without objection, it is so ordered.
        I want to thank the witnesses and members for their
    participation.
        The Chair notes that some members may have additional
    questions for the witnesses which they may wish to submit in
    writing. Therefore, without objection, the hearing record will
    remain open for 30 days for members to submit written questions
    to the witnesses and to place their responses in the record.
        The subcommittee hearing is now adjourned.
        [Whereupon, at 5:32 p.m., the hearing was adjourned.]

                                A P P E N D I X

                                 March 19, 2009

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