Credit-Card Bill Obama Bound

Congress sends legislation to president; interchange relief, discounts slighted

Greg Lindenberg, Editor, CSP

WASHINGTON -- Congress on Wednesday sent President Barack Obama a bill with sweeping new rules for the credit-card industry that will affect just about every American, reported the Associated Press. The House voted 361 to 64 for the bill on Wednesday. The Senate had already approved the measure by a 90 to 5 vote on Tuesday.

Lyle Beckwith, senior vice president of government relations for the National Association of Convenience Stores (NACS), told CSP Daily News, "Our major concern with the credit-card bill was trying to get interchange language placed into it. [image-nocss] The bill does have a GAO [Government Accountability Office] study on interchange that is due in 180 days, which should give some good support at that time."

Retailers want interchange fees, which are levied on merchants for each transaction, mitigated and made more transparent.

He added, "We're disappointed that an amendment to allow discounting for debit and cash was not allowed in, but the debate over that amendment has elevated the interchange and discounting debate to a much higher level. Many members of Congress were agitated by the arguments the banks and credit-card [companies] were using against the...amendment, and they have realized that those arguments...don't hold much water."

Beckwith urged retailers to continue letting their elected officials know "how problematic these fees are and what the cost to their business is, how they cannot negotiate them and how the costs will be passed onto the consumers [regardless of payment method]. All consumers are paying the price for these outrageous fees."

The new restrictions will protect debt-ridden consumers from many of the surprise charges common in the industry, such as over-the-limit fees and a charge to pay the bill by phone.

As banks scramble to make up for the lost revenue, cardholders who pay off their balance in full each month could see annual fees become the norm and lucrative rewards programs canceled.

Some of the changes, including a requirement that cardholders receive 45-days' notice before their rates are raised, are already on track to take effect in July 2010 under new regulations by the Federal Reserve. But the legislation would put these changes into law and go further in restricting when and how banks charge people and who could get a card. For example, the bill would require people under 21 to prove first that they can repay the money or that a parent or guardian is willing to pay off their debt if they default.

And consumers who see their interest rate skyrocket because they have been late on a payment would get a chance at their older, lower rate if they pay their bill on time each month for six months.

The banking industry opposed the measure and said it could restrict credit at a time when Americans need it most.

The practice of charging higher rates and fees to cardholders with risky credit was devised as a means to protect lenders against the risk of default while keeping costs low for consumers who paid their bills on time, said Edward Yingling, president and CEO of the American Bankers Association, which opposes the legislation. He said the new rules will limit the card companies' ability to price according to risk. The result, he added, will be that every cardholder will have to pay a higher interest rate to cover the cost when other customers default. Lenders also will be more reluctant to issue cards in general.

"Less credit will be available generally, which means some consumers and small businesses will not be able to obtain credit cards at all, particularly younger people and startup small businesses," Yingling said.

Senator Christopher Dodd (D-Conn.), chairman of the Banking Committee, who championed the bill, said this argument is absurd and "a little like Chicken Little."

White House spokesperson Robert Gibbs said Obama looked forward to signing the bill as quickly as possible.

Click herefor previous CSP Daily News coverage.