[Congressional Record (Bound Edition), Volume 155 (2009), Part 8]
[Extensions of Remarks]
[Pages 10015-10016]
[From the U.S. Government Publishing Office, www.gpo.gov]




       INTRODUCING THE INACTIVE ACCOUNT CLOSURE NOTIFICATION ACT

                                 ______
                                 

                          HON. SUSAN A. DAVIS

                             of california

                    in the house of representatives

                        Thursday, April 2, 2009

  Mrs. DAVIS of California. Madam Speaker, I rise today to introduce 
the Inactive Account Closure Notification Act, which protects consumers 
from having their credit cards closed and their credit scores lowered 
against their will.
  Under current law, credit card companies can close an inactive 
account without providing any prior notification to the customer.
  Often, the customer does not know his or her credit card account is 
being closed until after the fact.
  Because of the way credit scores are calculated, unilateral account 
closures can lower the credit scores of consumers.
  In addition, because credit card companies are only closing inactive 
accounts that do not carry a balance and do not incur fees or finance 
charges, the consumers that are seeing their credit scores penalized 
are likely to be the most responsible borrowers.
  Just the other day, I heard from a woman in my district who recently 
had her credit card terminated for inactivity.
  She had never missed a payment on her card and had excellent credit 
prior to her account being closed.
  Her credit card company gave her no early warning that it was 
planning to terminate her account.
  Had she received notification that the company was planning to close 
her account due to inactivity, she would have been more than happy to 
use the card again.
  She even called the company to see if it would be willing to reopen 
her account if she used her card, but was told no.
  These stories are not unique to my home district of San Diego. 
Consumers all over the country are going through the same exact 
experience.
  I request permission to enter into the Record an article from the 
Wall Street Journal from March 11 of this year detailing the havoc 
these account closures are wreaking on the credit scores of consumers 
across our nation.
  The bill I am introducing today--the Inactive Account Closure 
Notification Act--will protect consumers by requiring credit card 
companies to provide customers with a 60-day notification before they 
can close their accounts for inactivity.
  During this 60-day period, customers can use their credit cards to 
prevent their accounts from being closed.
  If an account has been closed for inactivity, a customer will still 
have 30 days to contact the credit card company requesting that his or 
her account be reopened.
  With lenders dramatically tightening their standards in the current 
economic climate, even a small dent in a consumer's credit score can 
severely impact his or her ability to take out a mortgage, start a 
small business, buy a car, or pay for college.
  Responsible consumers deserve to have advance warning that their 
credit cards will be closed and their credit scores will be lowered.
  Help me protect our consumers.
  I urge the adoption of the Inactive Account Closure Notification Act 
and yield back my time.

             [From the Wall Street Journal, Mar. 11, 2009]

              Credit Card Issuers: Buy Something or Else!

                          (By Kelli B. Grant)

       One of the biggest causes of the financial crisis was that 
     Americans were borrowing (and spending) more money than they 
     could afford to pay back.
       So how are credit-card issuers reacting to consumers' 
     attempts to live a more financially responsible lifestyle? 
     They're threatening to cut their credit cards off if they 
     don't spend enough.
       Loretta Maxwell of Troy, Mich., thought her credit score of 
     790 buffered her against most of the fallout of the credit 
     crunch. When Chase closed her $6,000-limit card in December 
     without warning after two years of inactivity, she called to 
     fight it. She was

[[Page 10016]]

     unsuccessful. ``If you're not using it, they entice you to do 
     so, and then the moment you don't spend enough, they cut your 
     limit,'' she says. (Chase says it is standard practice is to 
     review inactive accounts. ``Inactive cards with large open 
     credit lines present a real risk of fraudulent use and large 
     potential liabilities for Chase,'' says spokeswoman Stephanie 
     Jacobson.)
       Maxwell's experience is far from an isolated incident. Most 
     major issuers, including Chase, Bank of America, American 
     Express and Citibank have been slashing credit lines and 
     closing the accounts of those who don't spend on their card 
     regularly. While these issuers are required to notify you in 
     writing of an account closing, there's no requirement that 
     they do so in advance. Even when they do give early notice, 
     the only way a cardholder can stop their account from getting 
     shut down is to start spending again.
       In December, Discover reported that it closed three million 
     accounts during 2008 due to inactivity, and plans to cull up 
     to two million more. A Discover spokeswoman says the issuer 
     is constantly reevaluating cardholder's credit and assessing 
     whether they have the most appropriate credit line and 
     product. Capital One is suspending accounts that have been 
     inactive for at least a year, warning account holders they 
     only have 60 days to redeem their rewards. ``Some of these 
     accounts had literally never been used,'' says spokeswoman 
     Pamela Girardo. A spokeswoman for Bank of America, meanwhile, 
     says the bad economy prompted it to close accounts with zero 
     balances that have been inactive for more than a year. 
     American Express spokeswoman Lisa Gonzalez says it 
     periodically reviews inactive accounts for cancellation. 
     Citibank did not respond to requests for comment.
       From a business perspective, cutting off certain customers 
     is a smart financial move, says Sanjay Sakhrani, an analyst 
     with investment bank Keefe, Bruyette & Woods. Closing rarely-
     used accounts lowers a card issuer's risk profile by keeping 
     their potential liabilities (i.e., the amount of credit 
     available they extend to cardholders) from outweighing their 
     assets. Inactive accounts also cost the issuer money to 
     maintain, without providing the benefit of income from 
     interest or merchant fees, he says.
       For consumers, however, closing accounts can be 
     devastating--especially to their credit score. Your credit 
     utilization ratio--the amount of your debt in relation to the 
     amount of your available credit--comprises 30% of your score, 
     says Craig Watts, a spokesman for Fair Isaac Corporation, the 
     company that calculates and issues the FICO credit score that 
     most lenders use. So when an account is closed, you have less 
     credit available to you--and the ratio immediately jumps 
     higher. A person with a solid credit score of 720 or so, 
     whose utilization ratio jumps from 35% to 75% after one of 
     their accounts is closed is likely to see their score drop by 
     ``several dozen points,'' to somewhere in the 600s, he says. 
     That's a far cry from the 760 (or higher) consumers need to 
     get the best rates from lenders.
       One thing that somewhat softens the blow is that FICO 
     factors in closed accounts when calculating the longevity of 
     your credit history, which accounts for 15% of your score. 
     While lenders may make a note on your report indicating 
     whether the account was closed by them or you, the 
     information isn't used in the scoring formula, says Watts.
       Ironically, an excellent credit score can actually serve as 
     more of a bulls-eye than a shield, says Dennis Moroney, a 
     research director and senior analyst for consulting firm 
     Tower Group. He says banks figure they can limit cardholder 
     backlash by targeting consumers with few debts and plenty of 
     other accounts. That way, a closed account won't have as much 
     of a detrimental effect on their creditworthiness.
       Even years of loyalty and regular spending won't spare some 
     cardholders. David Good of Houston, used to be devoted to 
     American Express, with which he had two credit cards: an 
     unlimited charge account and a $7,500 revolving account. Yet 
     a solid credit score, eight years of on-time payments and 
     fairly frequent purchases on the cards--including more than 
     $100,000 last year alone--weren't enough to save his 
     accounts. In December, Good received a written notice that 
     the issuer had closed both due to ``low activity in the past 
     six months.'' ``I was shocked,'' he says. ``They lost my 
     trust, totally.'' (American Express declined to comment on 
     Good's or any other individual's accounts.)
       New Yorker Veronica Eady Famira was vacationing in Germany 
     when she discovered that her $1,500-limit Delta SkyMiles card 
     from American Express had been shut down. ``I must have spent 
     $300 in cellphone charges calling banks,'' she says. ``I was 
     pretty stranded.'' Adding insult to injury, Famira had just 
     earned a free companion ticket on the card valued at up to 
     $400 for a domestic flight--now she can't redeem the ticket.

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