[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.]


















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                             March 19, 2009

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