[Congressional Record Volume 144, Number 109 (Wednesday, August 5, 1998)]
[Extensions of Remarks]
[Pages E1550-E1551]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




               CREDIT CARD ON-TIME PAYMENT PROTECTION ACT

                                 ______
                                 

                          HON. JOHN J. LaFALCE

                              of new york

                    in the house of representatives

                       Wednesday, August 5, 1998

  Mr. LaFALCE. Mr. Speaker, I am today introducing the ``Credit Card 
On-Time Payment Protection Act'' to address the growing financial 
penalties imposed on credit card holders who pay their credit card 
bills in full each month.
  While most of the information we see on credit cards and credit card 
debt is alarming, one positive fact has received little attention. This 
is the fact that over 40 percent of credit card holders routinely pay 
off their credit card balances in full each month without incurring 
finance charges or carrying credit balances. This use of credit cards 
only for transactions rather than credit has been relatively stable 
over time. According to the Federal Reserve Bank of New York, 43 
percent of households with credit cards routinely paid off their card 
balances in 1983, with 41 percent continuing to regularly pay off card 
balances in 1995.
  At a time of escalating consumer debt, paying off of credit card debt 
should be encouraged. But the credit card companies have taken the 
opposite approach. Rather than encouraging a reduction of debt they are 
imposing penalties on card holders who pay off their card balances on 
time. Rather than encouraging responsible use of credit cards and 
reducing credit card delinquencies, they are creating new disincentives 
to reduce credit card debt.
  Press articles began appearing two years ago describing how one 
credit card issuer, then another, had begun imposing minimum finance 
charges or maintenance fees on the accounts of card holders who 
regularly paid off the card balances each month. Other card issuers 
began to reimpose annual fees on the ``no fee'' accounts of card 
holders who paid in full. The theory behind this was, if consumers were 
going to have to pay a fee, they might as well carry credit balances 
and pay interest charges. Our colleague Joe Kennedy responded to this 
problem with a bill to prohibit the imposition of a minimum finance 
change or fee on a credit card account solely because a card holder 
paid off any credit extended in full.
  Late last year the press reported that several large national retail 
company chains were

[[Page E1551]]

cancelling their co-branded credit cards for card holders who paid 
their monthly balances on time. This meant that their most responsible 
customers were suddenly deprived of the use of their credit cards. More 
recently, our colleague Sid Yates brought to my attention a far more 
subtle, but equally effective, method that some credit card companies 
are using to exact fees payments from card holders who pay on time. 
This involves manipulation of the ``payment due'' date on the credit 
card statement to induce earlier payment of the monthly payment amount 
than is necessary to avoid any finance charges, thus allowing the card 
issuer more time to hold and earn interest on the payment.
  Under the Truth in Lending Act, if a card issuer provides a ``grace 
period'' during which any credit charges can be repaid in full without 
incurring finance charges, it must be disclosed to the consumer in the 
initial card offering and in the monthly billing statement. There is no 
specific requirement, however, that the monthly ``payment due'' date be 
the same as this disclosed grace period, especially if no interest 
charge is actually charged until the end of the stated grace period. 
This has permitted, for example, one Chicago area bank to decrease the 
25 day grace period it discloses in promotions and agreements with 
consumers to only 20 days in the payment due date it includes in 
statements of card holders who routinely pay off their monthly 
balances. This permits the bank an extra ``float'' on these payments of 
at least five days each month without the knowledge of the card holder. 
Court documents estimated that this band has used this tactic to induce 
card holders to advance nearly $600 million each month five days before 
it is actually necessary to avoid interest charges.
  This manipulation of monthly payment due dates falsely induces card 
holders to transmit payments earlier than necessary every month, 
depriving them of the use of their own money up to 60 days each year! 
And it allows card issuers to benefit from the additional float on 
millions of dollars each month. Given the huge percentage of card 
holders who pay off their monthly bills, and the fact that large 
national credit card issuers are beginning to use this practice, this 
problem may affect millions of card holders across the United States 
with a credit card volume of potentially tens of billions of dollars 
annually.
  I am pleased to join with Representatives Kennedy and Yates in 
introducing legislation that would eliminate these unfair and costly 
practices that discourage responsible credit card use. The bill would 
make it a violation of the Truth in Lending Act for any credit card 
issuer to cancel the credit card account, or impose new fees, finance 
charges or other costs on any credit card account solely on the basis 
that the credit extended during billing periods is regularly repaid in 
full without incurring finance charges.
  The bill also would make it a prohibited fee or charge for a card 
issuer to send card holders billing statements with payment due dates 
that are earlier than the date disclosed in promotions and card 
agreements and have the effect of inducing the card holder to send 
payments earlier than would otherwise be necessary to avoid finance 
charges. Taken together, these charges would preserve the accounts of 
the most responsible credit card users and save consumers potentially 
millions of dollars each year in unnecessary fee payments.
  While I consider myself a strong supporter of legislation to 
modernize the banking industry, I cannot accept bank practices that 
impose unnecessary and unproductive costs on consumers. Imposing new 
charges and canceling the accounts of consumers who pay their credit 
card bills on time serves one purpose, and one purpose only--to 
increase the already record levels of bank fee income. These practices 
have no other economic or policy purpose or rationale.
  At a time of escalating consumer debt and record levels of credit 
card delinquencies and personal bankruptcy, the banking industry should 
not engage in practices that discourage responsible use of credit and 
reduction in credit card debt. The practices I have outlined are 
discriminatory, they are unfair to consumers and they are wrong. I urge 
Congress to end these practices by adopting my legislation.
  The text of the bill follows:

                                 H.R.--

       Be it enacted by the Senate and House of Representatives of 
     the United States in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Credit Card On-Time Payment 
     Protection Act of 1998.''

     SEC. 2. PENALTIES FOR ON-TIME PAYMENT PROHIBITED.

       Section 127 of the Truth in Lending Act (15 U.S.C. 1637) is 
     amended by inserting at the end thereof the following new 
     subsection:
       ``(h) Penalties for On-Time Payment Prohibited--
       ``(1) In General.--In the case of any credit card account 
     under an open-end consumer credit plan, no creditor may 
     cancel an account, impose a minimum finance charge for any 
     period (including any annual period), impose any fee in lieu 
     of a minimum finance charge or impose any other charge or 
     penalty with regard to such account or credit extended under 
     such account solely on the basis that any credit extended has 
     been repaid in full before the end of any grace period 
     applicable with respect to the extension of credit.
       ``(2) Payment Due Dates.--For purposes of paragraph (1), a 
     creditor shall be deemed to have imposed a prohibited charge 
     or penalty on an account under an open end consumer credit 
     plan if the creditor regularly transmits to the obligor of 
     such plan a statement for a billing cycle in which credit has 
     been extended under such plan that includes a payment due 
     date as required by subsection (b)(9) of this section--
       ``(A) that is different from and in advance of--
       ``(i) the date by which payment must be made for any credit 
     extended under such credit plan to avoid incurring a finance 
     change that was disclosed to such obligor pursuant to 
     subsection (c)(1)(A)(iii) of this section;
       ``(ii) the actual date by which payment would otherwise 
     have to be made to avoid incurring a finance charge if 
     calculated on the same basis as the date by which or the 
     period within which any payment must be made to avoid 
     incurring a finance charge that was disclosed to such obligor 
     pursuant to subsection (c)(1)(A)(iii); and
       ``(B) that has the purpose or effect of inducing the 
     obligor of such plan to transmit payment to the creditor 
     earlier than what otherwise would be required to avoid 
     incurring a finance charge.
       ``(3) Scope of Application.--Paragraph (1) shall not be 
     construed as--
       ``(A) prohibiting the imposition of any flat annual fee 
     which may be imposed on the consumer in advance of any annual 
     period to cover the cost of maintaining a credit card account 
     during such annual period without regard to whether any 
     credit is actually extended under such account during such 
     period; or
       ``(B) otherwise affecting this imposition of the actual 
     finance charge applicable with respect to any credit extended 
     under such account during such annual period at the annual 
     percentage rate disclosed to the consumer in accordance with 
     this title for the period of time any such credit is 
     outstanding.''

     SEC. 3. REGULATIONS.

       The Federal Reserve Board, not later than 6 months after 
     the date of the enactment of this Act, shall issue final 
     regulations to implement the amendments made by this Act.

     

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