[Congressional Record Volume 144, Number 124 (Thursday, September 17, 1998)]
[Senate]
[Pages S10455-S10457]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                 CONSUMER BANKRUPTCY REFORM ACT OF 1998

  The Senate continued with the consideration of the bill.


                      Unanimous Consent Agreement

  Mr. GRASSLEY. Mr. President, for our majority leader, I make this 
request: I ask unanimous consent that pursuant to the consent agreement 
of September 11, at 10:30 a.m. on Tuesday, September 22, the Senate 
resume S. 1301, and Senator Kennedy be immediately recognized to offer 
his amendment relative to the minimum wage. I further ask that at 2:15 
on Tuesday there be 5 minutes equally divided, to be followed by the 
vote on the motion to table that amendment.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. GRASSLEY. I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The legislative clerk proceeded to call the roll.
  Mr. REED. Mr. President, I ask unanimous consent that the order for 
the quorum call be rescinded.
  The PRESIDING OFFICER (Mr. Roberts). Without objection, it is so 
ordered.
  Mr. REED. Mr. President, I also ask unanimous consent to lay aside 
the pending managers' amendment.
  The PRESIDING OFFICER. Without objection, it is so ordered.


                Amendment No. 3596 To Amendment No. 3559

 (Purpose: To prohibit creditors from terminating or refusing to renew 
   an extension of credit because the consumer did not incur finance 
                                charges)

  Mr. REED. Mr. President, I have an amendment at the desk.
  The PRESIDING OFFICER. The clerk will report the amendment.
  The legislative clerk read as follows:

       The Senator from Rhode Island [Mr. Reed] proposes an 
     amendment numbered 3596 to amendment No. 3559.

  Mr. REED. Mr. President, I ask unanimous consent reading of the 
amendment be dispensed with.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The amendment is as follows:

       At the appropriate place in title IV, insert the following:

     SEC. 4  . PROHIBITION ON CERTAIN ACTIONS FOR FAILURE TO INCUR 
                   FINANCE CHARGES.

       Section 106 of the Truth in Lending Act (15 U.S.C. 1605) is 
     amended by adding at the end the following:
       ``(g) Prohibition on Certain Actions for Failure To Incur 
     Finance Charges.--A creditor may not, solely because a 
     consumer has not incurred finance charges in connection with 
     an extension of credit--
       ``(1) refuse to renew or continue to offer the extension of 
     credit to that consumer; or
       ``(2) charge a fee to that consumer in lieu of a finance 
     charge.''.

  Mr. REED. Mr. President, my amendment would prohibit credit card 
companies from terminating a customer's account or imposing a penalty 
solely because the customer pays his or her bill on time and in full 
each month. It seems amazing but there are actually some companies out 
there that will terminate credit because the borrower, the debtor, pays 
the full amount each and every month on time.
  This amendment is narrowly tailored and would not otherwise affect 
the ability of the credit card company to terminate accounts or charge 
any fees or do anything with respect to penalties, but it would 
restrict and, indeed, eliminate this practice of terminating the best 
creditors that they have simply because they are not making any money 
on finance charges.
  I am offering this amendment in response to this very troubling 
practice which finds many credit card companies discriminating against 
the most responsible borrowers, those who pay their balances on time 
each and every month. Specifically, several companies have started to 
terminate a customer's card or impose a penalty if the customer pays 
his or her credit card bill in full each month.
  For example, in my home State of Rhode Island, many consumers with a 
credit card issued by a popular national discount store were alarmed to 
receive letters which stated:

       Our records indicate this account has had no finance 
     charges assessed in the last 12 months. Unfortunately, the 
     expense incurred by our company to maintain and service your 
     account has become prohibitive, and as a result, in 
     accordance with the terms of your cardholder agreement, we 
     are not reissuing your credit card.

  One couple who received this letter has been married for 49 years and 
had never been late on any mortgage payment or denied any loan or been 
late in any type of credit arrangement that they had. Yet, with this 
note, the company was informing them that they were effectively being 
denied credit solely because they were responsible borrowers.

  Now, the message from credit card companies in this case is if you 
are too good a risk we won't give you any credit. That is illogical 
and, I think, should not be the practice of these companies.

[[Page S10456]]

 In fact, this practice is contrary to the goals of S. 1301, which is 
to promote responsible borrowing practices and reward those who are 
responsible in their borrowing practices. By penalizing borrowers who 
pay off their bills each month, it seems that some credit card 
companies are, in fact, advocating the type of behavior which S. 1301 
is designed to discourage.
  I am not moved by the claims of these companies that say they need to 
cancel accounts which do not incur financial charges because the cost 
of servicing these accounts is prohibitive. Industry data suggests it 
costs issuers about $25 annually to service an account. But issuers are 
able to offset this cost through an interchange fee of approximately 2 
percent charged to merchants on each transaction. Each year, on 
average, $3,000 is charged to a credit card. This 2-percent interchange 
fee on these charges equals about $60 which would seem to more than 
cover the cost of these accounts. Moreover, with Americans holding over 
$450 billion in consumer debt and with an average interest rate on 
credit card balances at 17.7 percent, the overall profitability of 
credit card lending is obvious and apparent.
  This amendment is a narrowly crafted measure which is designed to 
prohibit credit card companies from discriminating against the most 
responsible borrowers. For this reason, the amendment would clearly 
advance the goals of S. 1301 to promote more responsible credit card 
practices.
  I see no reason why my colleagues would oppose it. I therefore ask my 
colleagues to support this amendment. At the appropriate time I will 
ask for the yeas and nays.
  I yield the floor.
  The PRESIDING OFFICER. The distinguished Senator from Iowa is 
recognized.
  Mr. GRASSLEY. First of all, because we have about 12 amendments 
pending on this bill, I want to thank the Senator from Rhode Island for 
coming over here and helping to expedite the process of the Senate on a 
very important bill. I thank Senator Reed for coming over and doing 
that.
  Having said that, knowing the personality of the Senator from Rhode 
Island, that he is very sincere about his position and very sincere in 
determining that this is a problem to needs to be dealt with, I suggest 
there are two issues relating to this amendment. One would be the 
immediate issue of whether or not it is needed; second, the extent to 
which this really falls in the jurisdiction of the Senate Banking 
Committee.
  I don't find fault with the Senator from Rhode Island offering this 
amendment to my bill, but a reason for my opposition is that I do not 
like to usurp the authority of other committees.
  I think experience has shown that price controls, as indicated in 
this amendment, are counterproductive. In the end they are very harmful 
to the people they are trying to help, particularly the consumer, and 
in addition to that, somewhat harmful to the general economy.
  I feel this amendment should be opposed. This amendment has the 
destabilizing effect of imposing price controls on credit card lenders 
by prohibiting the imposition of a fee or canceling the account of an 
account holder because the account has not incurred financial charges.
  The credit card industry is extraordinarily competitive. People might 
not realize it--on the other hand, they might realize it because they 
get so many of these solicitations--but in the banking industry alone, 
there are 6,000 credit card issuers. They are all in competition, 
competing with each other for new credit card holders. Everybody here 
on the Senate floor right now is in somebody's computer and in a few 
days they will get some sort of a solicitation. That is how competitive 
it is. Whether that is right or wrong is another thing, but the 
competitive environment makes that determination.
  This intense competition provides consumers with enormous benefits. 
For instance, it has resulted in a decline of the average credit card 
interest rate in the past several years. Just as important, the 
competition results in industry choice for the consumer. As I said, 
consumers can choose from literally thousands of different cards, each 
with a different array of pricing and benefit features.
  As a result, the extraordinarily competitive environment in which 
credit card issuers operate, consumer credit actually dictates credit 
card prices much more efficiently than we can do through almost any 
Federal law. Any lender who offers undesirable pricing features will 
swiftly fall behind the competition because the consumers can and will 
choose other products. By contrast, this amendment would harm consumers 
by restricting consumer choice.
  In addition, we have a record going back to 1991 when another 
Senator--still a Member of this body--tried to impose price controls on 
lenders and it precipitated a severely negative impact on the stock 
market. For example, in 1991, when the Senate opposed price controls on 
credit card lenders in the form of an interest rate ceiling, the stock 
market reacted, dropping 120 points in a single day. Clearly, in this 
time of already volatile market activity, we don't want to repeat 
things of that nature. I am not suggesting that would be what would 
happen in the case of the amendment that is before the Senate, but, 
obviously, we should be very cautious.

  Now, probably a more important point for Members to consider in 
supporting or not supporting this amendment would be, as I said, 
whether it is in the jurisdiction of the Senate Banking Committee. We 
have the Senator from North Carolina, Mr. Faircloth, chairing the 
Subcommittee on Financial Institutions of the Banking Committee. He has 
indicated to me that he will hold hearings on credit card solicitation 
practices and also on lending practices.
  I know many Members feel the credit card companies have been sloppy 
and overly aggressive in the way they offer credit. I say there is 
substance to that argument. That is why I have appreciated my comanager 
of this bill, Senator Durbin, bringing this to our attention as part of 
this legislation. I think it has been amply discussed, and I share some 
of those concerns as well. I do think it is more appropriate for the 
committee of jurisdiction to do that. I am certainly not here to tell 
Members that credit card companies have been totally responsible in the 
way that they offer credit. But the fact is that these are issues which 
need to be explored by the authorizing standing committee and its 
subcommittee.
  The amendment of the Senator from Rhode Island is a Banking Committee 
issue. We happen to have before the Senate a bankruptcy bill which came 
out of the Judiciary Committee where we don't have the expertise that 
we ought to have on this issue. I would like to follow the regular 
order of the Senate and let the subcommittee with real expertise 
examine this.
  I have a letter from Senator Faircloth that I wish the Senator from 
Rhode Island would consider. It is addressed to me.

       It is my understanding that a number of amendments relating 
     to credit cards will be offered to S. 1301. Most, if not all, 
     of these amendments will relate to matters in the 
     jurisdiction of the Banking Committee. I Chair the Financial 
     Institutions Subcommittee of the Banking Committee.
       I share the concerns that many have regarding multiple 
     credit card solicitations and solicitations to minors. In 
     fact earlier this year, my Subcommittee held a hearing on 
     bankruptcy issues, with representatives of the credit card 
     industry testifying. I have requested and received GAO 
     reports on such practices as high loan to value loans and 
     the sending of ``live'' loan checks.
       As for many of the proposed amendments relating, however, 
     none have been passed by the Committee. In fact, none have 
     been considered by the Committee. Further, none of the 
     proponents of the amendments have requested hearings on any 
     of their legislative proposals.
       During consideration of the bankruptcy bill, please know 
     that I would be more than willing to hold a hearing or 
     hearings on any of these proposals in my Subcommittee where 
     they rightfully should be considered under regular order.
           Sincerely,

                                              Lauch Faircloth,

                                                         Chairman,
                           Subcommittee on Financial Institutions.

  I give that to my colleagues for consideration. Again, I thank the 
Senator from Rhode Island for coming.
  I yield the floor.
  Mr. REED addressed the Chair.
  The PRESIDING OFFICER. The Senator from Rhode Island.
  Mr. REED. Mr. President, I thank the Senator from Iowa for his 
comments and for his leadership, along with our

[[Page S10457]]

colleague from Illinois, Senator Durbin. I have a few comments in 
response to his very thoughtful commentary.
  First, the jurisdiction of the committee when it gets to the floor, 
it has been my limited experience, is somewhat fluid. In fact, in this 
bill we are amending the Truth in Lending Act, which has ramifications 
in both the Judiciary Committee and the Banking Committee. I think, to 
be very scrupulous about jurisdictional responsibilities here, we 
missed the opportunity to do something which most of our colleagues, I 
hope, would recognize is an appropriate thing to do--preventing the 
termination of credit to people who simply pay their bills on time.
  The second aspect of this debate, which I think is appropriate to 
have in this bill, is that the driving force for this legislation comes 
very powerfully from the credit card industry. They are concerned that 
many individual consumers seek bankruptcy because of their huge credit 
card debts, and they feel that they are currently disadvantaged with 
the present system. So, again, I don't think it is inappropriate as we 
look at this bankruptcy system and, in many respects, test the credit 
card industry and look at some of their practices. This practice is 
particularly disturbing--again, that somebody's credit would be 
terminated simply because they paid on time.
  Another aspect that the Senator from Iowa mentioned was the 
suggestion that this is, in some way, price controls. I think that is a 
very, very long stretch--to look at this amendment which says you can't 
terminate an individual because they pay on time--that is a far cry 
from imposing limits on how much could be charged in terms of fees, 
penalties; and, clearly, I make no attempt to do that. I would never 
suggest that we do that in this amendment. I point out that in fact 
there are existing situations, in State law certainly, usury statutes, 
which do impose fees and caps on what a credit card company can charge. 
That is not the intent nor the specificity of this amendment.
  This simply says that it should not be permissible for a company to 
terminate an individual who has paid promptly, solely for the fact that 
that individual has paid promptly. If the individual is in arrears, if 
the individual has done something else to violate the agreement, then 
that is grounds, but not prompt payment; that should not be grounds.
  Ultimately, let me get back to the initial point I made. At the heart 
of this legislation--and, again, the Senator from Iowa and his 
colleagues have done much to make sure this was at the core--was to try 
to reinstill a sense of responsibility among borrowers that we will not 
tolerate people who game the system, who use bankruptcy as a shield for 
their irresponsibility. To me, it is extremely ironic that we would be 
talking about a situation here where I am attempting to recognize and 
protect the continued extension of credit to the most responsible 
borrowers we have in the country, the ones who pay on time every month 
and don't use this system to be irresponsible.
  So I hope my colleagues can recognize the merits within this 
particular amendment and support it.
  On a final point, I note that today is the birthday of the Senator 
from Iowa. I thank you for working overtime on your birthday on this 
measure, Senator.
  I yield the floor.
  Mr. GRASSLEY. I thank the Senator.
  I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The bill clerk proceeded to call the roll.
  Mr. REED. Mr. President, I ask unanimous consent that the order for 
the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. REED. Mr. President, I ask for the yeas and nays on the pending 
amendment.
  The PRESIDING OFFICER. Is there a sufficient second? There is a 
sufficient second. The yeas and nays were ordered.
  Mr. GRASSLEY addressed the Chair.
  The PRESIDING OFFICER. The distinguished Senator from Iowa.
  Mr. GRASSLEY. I ask unanimous consent that at 12 noon today the 
Senate proceed to a vote on or in relation to the Reed amendment number 
3596. I further ask that at 11:55 there be 5 minutes for debate equally 
divided.
  The PRESIDING OFFICER. Is there objection? Without objection, it is 
so ordered.
  Mr. GRASSLEY. I yield the floor.
  Mr. DURBIN addressed the Chair.
  The PRESIDING OFFICER. The Senator from Illinois is recognized.
  Mr. DURBIN. Mr. President, I rise in support of the amendment offered 
by the Senator from Rhode Island.
  Recently, some credit card issuers have started to discriminate 
against people who pay off their account balances each month, and, 
therefore, don't incur finance charges for the credit card purchases. 
These issuers charge such customers a monthly fee, or they actually 
terminate the customer's account.
  The Reed amendment would prohibit credit card issuers from charging a 
fee, or terminating an account based solely on the customer's failure 
to go into debt to incur finance charges.
  Let me tell you why I think this is a good idea.
  Industry experts have concluded that many issuers of these cards have 
been actively discouraging consumers from paying off balances by 
lowering their monthly minimum payments, and, in some cases, requiring 
as little as 2 percent of the balance on their credit card debt each 
month. Think of how long it would take to pay off your credit card 
under such circumstances. At such a rate, it could take 34 years, in 
fact, to pay off a $2,500 credit card balance, with payments totalling 
300 percent of the original principal.
  In fact, about 40 percent of American credit card holders pay their 
balances in full each month, thus incurring no interest charges. Such 
``convenience users'' are considered freeloaders by these credit card 
companies--even deadbeats. They want people to go into debt. They want 
us to pay finance charges as much as possible every single month. Some 
credit card companies charge annual fees and other techniques to 
discourage this type of credit card use.
  I think the amendment offered by the Senator from Rhode Island is a 
good one. I will support it on the floor. I believe that the credit 
card companies should understand that if some people are unable to make 
their monthly payments, and thus, incur additional expenses, so, too, 
there are people who really do pay off their debts as they are 
incurred, and in so doing these people should not be penalized.
  I yield the remainder of my time.
  I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The bill clerk proceeded to call the roll.
  Mr. BYRD. Mr. President, I ask unanimous consent that the order for 
the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The distinguished Senator from West Virginia is recognized.
  Mr. BYRD. Mr. President, I ask unanimous consent to speak out of 
order.
  The PRESIDING OFFICER. Is there an objection? Without objection, it 
is so ordered.

                          ____________________