[Congressional Record (Bound Edition), Volume 155 (2009), Part 10]
[Senate]
[Pages 13332-13333]
[From the U.S. Government Publishing Office, www.gpo.gov]




             CREDIT CARDHOLDERS' BILL OF RIGHTS ACT OF 2009

  Mr. KYL. Mr. President, I opposed this legislation because it will 
likely have the unintended consequence of restricting credit to those 
who need it most. The major economic issue at play is the ability of 
financial institutions to utilize risk-based pricing to determine how 
much to charge an individual for credit. Risk-based pricing essentially 
permits a lender to charge a higher price to individuals who are at a 
great risk for nonpayment. More sophisticated pricing has also expanded 
credit to those who otherwise would not be eligible for a credit card.
  Financial institutions that offer credit cards face four major risks. 
One, the lending they provide is not secured by collateral. Two, a 
creditor has no way of knowing when a cardholder loses his job and the 
income he would need to repay his debt. Three, a borrower can max out 
the full amount of

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his limit without advance notice. And four, unlike other forms of 
lending, credit cards are relatively more susceptible to fraud.
  Since it is impossible for a lender to know when a borrower will 
default, credit card companies carefully monitor their cardholders' 
activity. A delinquent payment, exceeding one's credit limit or 
bouncing a check acts as an early warning sign that help firms identify 
higher risk cardholders. In order to manage these risks, credit card 
companies use certain practices to protect themselves from the 
possibility of default.
  Any legislation or regulation that restricts the ability of credit 
card issuers to adequately price risk could have several unintended 
consequences. Investors who in the past may have been attracted to the 
relatively higher returns afforded securitized credit card assets may 
shift their funds into alternative sources of lending. As a result, 
credit card companies may increase interest rates on all card holders, 
increase monthly minimum payments, reduce credit limits or simply issue 
fewer cards.

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