[Congressional Record Volume 154, Number 113 (Thursday, July 10, 2008)]
[House]
[Pages H6391-H6393]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                   CREDIT CARDHOLDERS' BILL OF RIGHTS

  The SPEAKER pro tempore. Under the Speaker's announced policy of 
January 18, 2007, the gentlewoman from New York (Mrs. Maloney) is 
recognized for 60 minutes as the designee of the majority leader.
  Mrs. MALONEY of New York. Madam Speaker, I wish to address the 
Chamber tonight on the Credit Cardholders' Bill of Rights.
  In recent years, the playing field between credit card companies and 
credit cardholders has become very one-sided. It is no surprise that it 
is average American cardholders and not the credit card companies who 
are getting the short end of the stick.
  A credit card agreement is supposed to be a contract. But what good 
is a contract when only one party has any power to make decisions, and 
one party makes all the decisions? Cardholders deserve more bargaining 
power. The United States Congress can and should help level the playing 
field between card companies and cardholders.
  I introduced the Credit Cardholders' Bill of Rights, H.R. 5244, to 
give American credit cardholders a fair deal. We now have over 155 
cosponsors in this body. My comprehensive credit card reform bill takes 
a balanced approach to reforming major industry abuses and improving 
consumer protections for cardholders.
  Put simply, the Credit Cardholders' Bill of Rights protects 
cardholders against arbitrary interest rate increases any time and for 
any reason; prevents cardholders from being unfairly penalized; 
protects cardholders from due date gimmicks; shields cardholders from 
misleading terms, and empowers them to set limits on their own credit 
and to better control their own credit; prevents card companies from 
giving subprime credit cards to people who cannot afford them; and 
requires Congress to provide much better oversight of the credit card 
industry in general.
  The Credit Cardholders' Bill of Rights fosters fair competition and 
free market values. It sets no price controls, no rate caps, and no 
fees. It merely requires the card companies to let consumers know when 
they are jacking their fees up and increasing their rates. I believe 
the free market works best when consumers are empowered to make their 
own choices, and my bill would give cardholders the information and the 
rights they need to make choices about their own credit.
  The balanced provisions in my bill are the deliberative result of 
over a year of careful study and analysis. Over the last 2 years, I 
held numerous congressional hearings and meetings to determine how 
Congress, Federal regulators, and credit card companies could work 
together to help improve services and protections for cardholders.
  There is no doubt that credit cards are very important to our 
economy. They offer cardholders instant access to a convenient and 
flexible source of financing, and have enabled many people to start new 
businesses, pay for tuition, or make other major purchases. Credit 
cards also provide many people with a safety net to help solve cash 
flow problems or cover unexpected expenses. But cardholders are 
increasingly confronting problems with unfair industry practices 
embodied in one-sided contracts, and this must be changed.
  In recent months, the House of Representatives, under the leadership 
of Financial Services Chairman Barney Frank, succeeded in passing major 
mortgage reform legislation and an economic stimulus plan. The Senate 
is now following suit. Both of these important steps will help get our 
economy back on track, but we cannot overlook credit card reform. It is 
a critical part of the equation, and one Congress will be turning its 
attention to.
  Over 155 of my colleagues have already signed on as cosponsors of 
this important legislation. In the coming months, I plan to continue to 
build on the support this bill has gained, and I plan to work with 
Barney Frank to get this marked up in committee so we can bring it to 
the floor for a vote.
  Consumers deserve to know where their elected officials stand on 
credit card reform that affects their lives. This is a critical issue 
of importance to my constituents, and we must show them that Congress 
is ready to restore some balance between consumers and credit card 
companies.
  When I started to work on this issue, one of the first things I did 
was hold a roundtable discussion with many of the stakeholders, major 
credit card issuers, as well as leading consumer advocates. From this 
discussion, I developed a series of principles that have guided the 
development of the legislation. I am going to take a few minutes to 
describe each of these principles, explain what the bill does to 
achieve them, and provide real-world examples of what this means to the 
average credit cardholder.
  The first principle is that cardholders deserve protection against 
arbitrary interest rates any time and for any reason. Right now, credit 
card companies have the right to raise a customer's interest rate for 
any reason. This has made it very difficult for many consumers to 
understand how and why they have had their interest rate changed and 
hiked up on their credit cards.
  Compounding this problem is that when a new higher interest rate is 
applied, it not only affects future purchases, it also raises the 
interest rate on existing balances. Consumers are often only made aware 
of these new higher interest rate increases only after they have gone 
into effect.
  To counter this problem, the Credit Cardholders' Bill of Rights 
requires credit card companies to give a customer 45 days' notice of 
any and all interest rate hikes, and allows them the option to just say 
``no,'' to opt out of the interest rate increase. In return, if the 
cardholder opts out of the new rate, they are required to close the 
card and pay off the existing balance at the payment schedule they 
agreed to.
  And here is a real-world example. A person has a $1,000 balance and a 
9.9 percent APR interest rate. One month, she pays her utility bill one 
day late. The credit card company charges her a $35 late fee and raises 
her interest rate from 9.9 percent to over 29 percent, but does not 
tell her about the rate increase until she gets her next statement in 
the mail. The new rate is applied to the entire existing balance of 
$1,000. And the consumer can try and get a new card at a lower rate, 
but until then the $1,000 debt will be growing at a 29.99 percent rate 
of interest.
  Under the Credit Cardholders' Bill of Rights, the customer would 
still be charged the late fee, but they would be notified that, in 45 
days, their interest rate would be raised from 9.9 percent to over 29 
percent. This would give them more time to try to apply for a new 
credit card with a lower interest rate; or, they could decline the 
higher interest rate on the card, close the account, and pay off the 
balance at the old 9.9 percent rate.
  I have got to say, under the Credit Cardholders' Bill of Rights, the 
customer could still be assessed the higher interest rate for missing 
payments on other bills, but that new higher rate would only apply to 
purchases and balances going forward and not retroactive on their 
existing balances. They would also have the ability to opt out of the 
rate increase, close the account, and pay off their existing balances 
at the old rate.
  Another principle in the bill is that cardholders who pay on time and 
don't go over their limit should not be penalized. The so-called double 
cycle billing is a confusing practice that certain card companies 
employ to charge cardholders more interest. It affects cardholders who 
go from paying off their balances in full to carrying a balance. Here 
is how it works.
  Most card companies charge interest on the remaining unpaid balance 
from a cardholder's previous billing cycle. Card companies that use 
double cycle billing, however, charge cardholders interest on the 
entire balance from the previous cycle even if the cardholder paid part 
of it off. Card companies that use double cycle billing are effectively 
charging interest on balances that have already been paid. How fair is 
that? The Credit Cardholders' Bill of Rights bans this really unfair 
practice called double cycle billing.
  Here is a real-world example. A cardholder usually pays off her 
credit card

[[Page H6392]]

in full every month, but one month she charged $100 and only paid $50 
by the due date. If she had a credit card that calculated payments on a 
single cycle, she would have been given credit for paying that $50 and 
only charged interest in the next billing cycle on the remaining $50 
that she owed. But since her card company uses double cycle billing, 
she was charged interest on the $100 from the previous billing cycle 
plus the remaining $50 that she still owes. Under my bill, card 
companies would be prohibited from billing on a double cycle and 
charging interest on debt that has already been paid.
  Another principle of this legislation is that cardholders should be 
protected from due date gimmicks. Currently, card companies are allowed 
to mail billing statements out as few as 14 days before the statement 
is due. Mail delays and a host of other problems mean that cardholders 
on that schedule find themselves with less than a week to get their 
payments back to their card company, increasing the likelihood that 
they will have a late payment.
  The Credit Cardholders' Bill of Rights gives cardholders more time to 
pay their bills. It requires card companies to mail billing statements 
25 calendar days before the statement's due date. It also requires that 
payments made before 5:00 p.m. eastern standard time on the due date 
are considered timely. The bill also prohibits card companies from 
charging late fees when a cardholder presents proof of mailing his or 
her bill within 7 days of the due date.

                              {time}  1800

  Another is that the bill and the cardholders should be protected from 
misleading terms and statements. Card companies can currently define 
the terms ``fixed rate'' and ``prime rate'' pretty much any way they 
want to. This can lead to obvious confusion among cardholders.
  The Credit Cardholders' Bill of Rights prevents card companies from 
using these terms in a misleading or in a deceptive manner by 
establishing single set definitions that every company must use. For 
example, the term ``fixed rate'' must be a rate that will not change or 
vary for any reason over a defined period of time. The Credit 
Cardholders' Bill of Rights also gives cardholders who get pre-approval 
for a card the right to reject that card up until the moment they are 
to use it or to activate it without having their credit adversely 
impacted.
  I would like to say that, also, another principle is that cardholders 
deserve the right to set limits, and card companies should not impose 
excessive fees on cardholders. Most card companies currently don't give 
cardholders the option of setting real limits on their own accounts. 
Instead, card companies allow the cardholder to exceed that amount and 
assess fees and/or a rate increase for doing so.
  The Credit Cardholders' Bill of Rights would require card companies 
to offer consumers the option of having a fixed credit card limit that 
cannot be exceeded, and it would prevent card companies from charging 
over-the-limit fees on a cardholder with a fixed credit limit.
  The bill also limits the amount of consecutive over-the-limit fees 
card companies can charge to a more reasonable number of three. Here is 
a real-world example.
  A cardholder had a credit limit of $2,000 on her card. Things got a 
little tight around the holidays, and she used her card more than 
normal, accidentally going over her limit by $50. As a result, she was 
charged a $39 late fee. In the next billing cycle, she sent the card 
company a check for $60, but that still left her over her credit limit, 
so she was charged another $39 over-the-limit fee.
  Under the Credit Cardholders' Bill of Rights, the cardholder would be 
able to set his or her credit limit and wouldn't be able to make any 
purchases that put him over his fixed limit. If a cardholder did not 
want to set a fixed limit and did so accidentally go over his limit, a 
card company would only be allowed to impose more reasonable three 
consecutive, over-the-limit fees upon the customer.
  Another principle of the bill is that card companies should fairly 
credit and allocate payments. When a credit card account has balances 
with different interest rates, a decision has to be made as to how to 
allocate payments. A cardholder pays the least amount of interest when 
any payment is allocated to the highest interest rate balance first, 
and a credit card company makes more in interest payments when the 
payment is allocated completely to the lowest rate balances. Currently, 
most credit card companies allocate payments to the lowest interest 
rate balance first while prohibiting payment on balances at higher 
interest rates until the lower rate balance is paid in full. This isn't 
very fair to the cardholder, however. In fact, many cardholders have no 
idea that their card companies are deciding to allocate their payments.
  The Credit Cardholders' Bill of Rights directs card companies to 
fairly allocate payments on balances at different interest rates, 
making payments more equitable for both cardholders and card companies.
  Here is a real-life example of that principle. A cardholder has a new 
credit card given with an introductory zero percent interest rate on 
all balance transfers. So he transferred a $1,000 balance he had on 
another card. He then went out and bought $2,000 worth of new 
equipment. When he made a $250 payment on his new card that month, he 
noticed that his interest rate for new purchases was 24 percent, but 
all of his payment went to pay down the zero percent balance. He wanted 
to pay, obviously, on the $2,000 balance since it was at such a high 
interest rate, but he was told he could not start paying on that 
balance until the original zero balance was paid in full.
  Under my bill, the $250 payment would go towards paying off both the 
lower interest balance and the higher interest balance on a 
proportional basis.
  I want to say that this bill has gained not only 155 of my colleagues 
in a bipartisan sense, but it has also gained over 45 editorials from 
across this Nation in support of the Credit Cardholders' Bill of 
Rights. I would like to share some of the comments from these 
editorials.
  From the New York Times on May 3 of this year: `` . . . consumers are 
already losing as their interest rates on the cards suddenly skyrocket. 
Fees appear mysteriously on their bills, and even the billing cycles 
get shortened to make it harder to pay on time. Congress needs to take 
up the issue now rather than wait for the Federal Reserve to create 
rules that can be too easily changed. The banking industry likes to 
boast that more than 90 percent of credit card customers have no 
problems with their little plastic cards. Given that there are more 
than 1 billion credit cards believed to be in use, that leaves a lot of 
people swamped by what is now called the `tricks and traps' of the 
credit card business.''
  The Boston Globe reports on May 31: ``Regulators and elected 
officials are starting to circle the credit card companies and not a 
moment too soon. The Federal Reserve reports that credit card debt rose 
more than 7 percent last month on top of the already burdensome average 
of $8,000 per American family. Credit and debit card delinquencies are 
at their highest levels in 18 years, and all the while, credit card 
companies are employing practices that only dig consumers deeper and 
deeper into debt.''
  The Credit Cardholders' Bill of Rights is a modest reform to bar 
credit card companies from raising interest rates on outstanding 
balances because of some action or unpaid bill in another area. It 
deserves our support.
  On May 6, USA Today reported: ``For years, Congress ignored consumer 
outrage as the industry flooded the public with solicitations, then 
squeezed customers with escalating fees and high rates. Voters should 
pay close attention this year to who is trying to get the issuers to 
act more responsibly and who is defending some of their more outrageous 
practices.''
  The Staten Island Advance on May 16 stated: ``In a sign that 
Americans are relying more on their credit cards, the total for 
revolving credit has grown in 2008 significantly faster than fixed-rate 
debt. During the past year, revolving debt has risen nearly $6 billion 
per month, or almost 8 percent, one of the fastest growth rates since 
2001. In the past 12 years, penalty fees for late payments have more 
than doubled, from an average of $13 in 1995 to $28 now.

[[Page H6393]]

Make just one late payment, and you can face a penalty interest rate of 
more than 30 percent. The fine print in most disclosure statements says 
that issuers can change the terms of the cardholder's agreement at any 
time, for any reason. There is no other contract in the world that can 
change its terms at any time.''
  In Tennessee, the Knox News reports: ``The proposed regulations 
should curb some of the more unfair practices, and if effective, it may 
help consumers.''
  The St. Petersburg Times in Florida reports: ``Americans owe more 
than $800 billion in credit card debt, and more than 1 in 3 cardholders 
are unable to make timely payment on accumulated balances. What is 
troublesome for banks can be tragic for families. With falling home 
values, stagnant wages and rising prices for basics such as food and 
fuel, Americans are relying more on credit cards to pay for 
necessities. Some lenders have taken advantage of that situation by 
bumping up fees and interest rates on credit cards, even for those who 
pay on time. Somebody needs to regulate a market that is out of control 
and takes advantage of the most naive and vulnerable consumers and is 
threatening an already fragile economy.''

  Then in Pennsylvania, on May 10, the Daily and Sunday Review stated: 
``Intervention is necessary if Americans under the thumb of the credit 
card industry are to have any hope of solvency, and even though the 
Feds' proposals are welcomed, they should not supplant far broader 
relief envisioned in the credit card bill of rights.''
  The Charleston Gazette writes: ``Yes, too many accepted cards they 
could not afford, and charged more than they earned. As the old saying 
goes, `It's easier to sign a note than to pay for it.' However, 
tricking customers who carry a balance into paying dubious fees and 
penalties is unethical.''
  The Dallas Morning News says: ``There's a huge difference between 
charging cardholders who have missed payments and willfully creating a 
system to generate unnecessary penalties. We deserve change. We should 
pass change.''
  On May 6, the Baltimore Sun said: ``Amid a severe mortgage crisis and 
credit crunch, the rules should help prevent many cardholders from 
going under because of some of the industry's worst practices, 
including high interest rates and high fees. These proposals, which 
don't take effect until the end of the year, should not prevent 
Congress from acting on its own and passing needed credit card 
reform.''
  I would like to say that credit cards are important. They benefit 
many families, and I would say that some industry groups and some banks 
have instituted best practices and have said that they voluntarily will 
no longer impose any time/any reason increases on customers who pay on 
time and who don't go over their limits. They say they will no longer 
practice double cycle billing, but many credit card companies still 
practice these really harmful and unfair policies, so we need to pass 
this legislation, and we need to give relief to consumers and level the 
playing field, not only between the consumer and the cardholder but 
between companies that are doing the right thing and those that are 
still abusing the consumers.
  I would like to say that I thank my colleagues. One hundred fifty-
five of my colleagues have joined me on the Credit Cardholders' Bill of 
Rights and over 45 editorials from across this country. I hope that my 
colleagues will read the bill, those who are not on it, and will join 
us in this effort to bring relief to America's working families.
  I yield back the balance of my time.

                          ____________________