The Credit CARD Act is great, but not strong enough

Given the current credit crunch, Congress is moving quickly to reform the credit card industry.  Hopefully, these unprecedented, economic circumstances will give reformers the extra support needed to finally be successful. 

During the last two decades, a handful of courageous legislators in both the House of Representatives and the Senate have crafted and introduced legislation to protect consumers from the harmful practices of credit card companies.  However, few proposals have received the widespread support needed to become laws.  Detractors of credit card reform often cite that such restrictive legislation will stifle competition; will prompt credit card companies to raise interest rates; and will make it more difficult for low-income consumers to obtain credit. 

Currently, the Credit Card Holder’s Bill of Rights, introduced by New York’s Representative Carolyn Maloney, has yet to be passed by the Senate.  Even though the bill passed the House in September of last year, political pundits say that it is unlikely to pass the Senate. [Read more information about the bill.]

Last week, Senator Chris Dodd of Connecticut, who is the Chairman of the Senate Committee on Banking, Housing, and Urban Affairs, re-introduced The Credit Card Accountability, Responsibility, and Disclosure Act (“the Credit CARD Act”), which boldly protects consumers from wrongful practices and complements the Credit Card Holder’s Bill of Rights and the latest policies enacted by the Federal Reserve. Senator Dodd’s bill attempts to fill in the gaps where other pending legislation and Federal Reserve policies fall short. 

The Credit CARD Act, as summarized on Senator Dodd’s site, will

• Protect consumers from any-time, any reason interest rate increases and account changes;
• Prohibit unfair application of card payments;
• Protect cardholders who pay on time;
• Limit fees and penalties;
• Ensure that cardholders are informed of the terms of their account; and
• Protect young consumers from credit card solicitations. 

While I fully support and co-sponsor the Credit CARD Act and commend Senator Dodd’s efforts, the act must boldly address the insidious use of behavioral analytics to deny customers access to credit. Moreover, it should reinforce the Federal Trade Commission’s ruling against CompuCredit as a strong deterrent for such discrimination and ensure that no customer is denied credit based on where he or she conducts business. 

At the very least, legislation should require companies to disclose that their internal use of behavioral analytics can negatively affect a customer’s access to credit, or in more forward wording, that the poor credit of other customers where one conducts business can limit his or her access to credit.  Such action is essential to make Senator Dodd’s legislation –or any legislation concerning credit card regulation– complete and effective in protecting consumers from the new treacherous actions of credit card companies.  By adding such regulation, officials can further ensure that when passed, the legislation is not cleverly and quickly outmaneuvered by companies before it can have a real and lasting impact. 

Read more about the Credit CARD Act.

Comments

[holly]

TS....

Thanks for your comments to "Devils Advocate"..much more "well defined" and "well spoken" than I projected......obviously I was emotionally attached and you were able to convey what I was not able to convey.....cheers to you!!!!!!!!!

[TS]

Devil's Advocate,

Your premise is flawed in that those "statistical models" you're referring to are, in fact, the problem and not the justification for their business practices. The models are only as good as the criteria used to generate those models. And when the criteria is based on "penalty pricing" rather than "risk-based pricing," therein lies the problem. It is then called predatory, abusive, and unconscionable!!!!!! Anyone can manipulate data to support their objective!!!!

I believe the American people are fed up. It's not the $40 overlimit fee per se, it's:

(1) the moving target, in that card card agreement terms change almost monthly these days, becoming more and more onerous;
(2) credit limits are reduced without timely and adequate notice and cause the FICO scores to be adversely affected;
(3) cards are cancelled arbitrarily causing FICO scores to be adversely affected;
(4) insurance premiums go up due to the adverse effect on FICO scores;
(5)) mortage payments go up due to the adverse effect on the FICO scores;
(6) Job opportunities lost due to the adverse effect on the FICO scores
and so on and so on....

[Holly]

P.S. Devils Advocate.....

The definition of REDLINING is:

The practice of refusing to make Mortgage Loans or Issue Insurance Policies in specific ares for reasons other than the applicant's financial qualifications.

Redlining refers to literally or figuratively drawing a line around particular areas. Such practices contribute to the deterioration of older neighborhoods.

Redlining is often based on racial grounds rather than on any real objections to an applicant's creditworthiness.

Redlining means that the lender has made a decision that NO property in a certain area will qualify for a loan, no matter who wants to buy it.

The Federal Fair Housing Act prohibits discrimination in mortgage lending and covers not only the action of primary lenders but also activities in the secondary mortgage market.

In other words....it's illegal in the Mortgage and Insurance Industries.

Your Credit Card limit should be based SOLEY on their experience with YOU and YOUR CREDITWORTHINESS. They should not be allowed to use their "models" to suggest that you MIGHT STOP PAYING THEM.....when they have NO FOUNDATION and NO INFORMATION whatsoever to think that, IT'S SICK!!!!

You're up in our Kool-Aid not knowin the flavor!!! Go blog about something you have knowledge of!!!!

[Holly]

Devils Advocate....

You clearly do not understand what AMEX (and other card companies are doing).....what makes you think this is all about "over the limit fees"? Please do your research first -- then comment. Let me explain what Redlining is...it is profiling people based on where they shop and where they live. You state that you agree that Redlining should stop but the contents of your e-mail suggest the opposite.

How would you like it if your credit card company decided to take your credit limit away from you because you went to Target (for example) and your credit card company says that "people" who shop at "Target" don't pay their bills, so the credit card company removes your credit line, without any notice to you.

Now, keep in mind you ALWAYS pay your bills on time, and have NEVER EVER been late. You are out to dinner with friends and/or clients -- you know in your heart that you have PLENTY of avaliable credit because a week ago you paid AMEX $6,000 -- so you put your card down for that $200 meal -- the waiter comes back to your table and tells you the card declined..........now how are YOU FEELING?

This in fact is what is happening. If that senario doesn't work for you -- how about this one, you purcahse your home in the secondary market..your loan is sold to the ABC Company (which you have no control over)...then the mortgage is sold again to the XYZ Company...again, you have no control over that either. Now your sitting at that same dinner and whip out your AMEX to pay the $200 bill knowing you have plenty of room on your credit line because you just paid them $6,000 a week ago (paid over the phone so the Payment Posted within 24 hours)-- your feeling good about throwing down that card in front of everyone and BAM....waiter says the card declined, of course, you have every excuse in the book in front of your friends/clients...you paid your bill to AMEX (they are looking at you with the "YEAH RIIIIGGGGGHHHHHTTTTT look on their faces). You call AMEX to find out what the problem is and you are told that "People who have their Mortgages with the XYZ Company don't pay their bills, therefore, your credit line was removed....without notice!!

Please...Devil's Advocate THAT!!!!

We are not a bunch of bitching dead beats here!!!!

[Devl's Advocate]

I hate to play Devil's Advocate here, but is it really that *bad* that credit card companies are discriminatory based on your behavior or charge you for over-the-limit fees?

Now do not get me wrong, I think that redlining is terrible and it should be stopped immediately. But credit card companies are already doing a form of behavioral analysis: if you are late on your credit card, then what reason do they have to believe you when you say you will continue to pay on time? How does a credit card company *know* who you are other then through your actions? They cannot go around and shake everyone's hand in person or visit your house and check in to see if everything is ok. What if someone off the street were to ask you for something more than twenty dollars? What if a good friend asked for several thousand after they never repaid you for the previous thousand they got from you? My point is, if I was serious about running a credit card business and believed all the statistical models out there where one can just plug in some numbers and out pops a reliable percentage of how risky someone is, then I would want to use as much data as there is available about anyone. Again, back to the analogy of a good friend borrowing a significant amount of money from you-- wouldn't you like to know that your friend lost their job last week? (I am not saying do not give your friends money.)

Yes, on the one hand I would agree that they have gotten a bit too greedy and need to be smacked down a bit (which they already received a healthy dose of through their stocks today). But a $40 dollar fee for going over your limit actually seems quite reasonable to me. If I were lending money to millions of people, I need to make sure I have enough cash on hand to instantly pay for the transactions that occur every day (that's how it works when you use credit at the store, the store receives their money right away and then the credit company deals with getting the money back from you). A lot of the comments I have seen so far are rather narcissistic if you ask me-- everyone is so big and important: how could the credit card company personally offend them directly by slapping such a *ridiculous* fee on them? (I do not think that about Kevin Johnson though, I think you are doing something great by your protest and *actually* getting heard. I do not know how you did it, but really, keep up the good work!) But back to my point, if 10,000 people decided it was 'ok' for them to go over their limit by $50 at once, that means the credit card company is all of sudden going to have to cough up an extra $500,000 more than it anticipated. I reiterate my point, in the context that the credit limit is a legally-binding *contract* between you and the credit card company where you agree to not spend more than your limit. Credit money is *NOT* yours to begin with, what makes you think that you have a right to spend money that is not even yours? How would you feel if your friend decided to sneak an extra $100 over what you leant him because he did not realize he would be short when buying something?

[holly]

Kevin,

Wow...I really feel so much better knowing we are not just blogging to vent to someone who will listen!! I bookmarked your site and come often to read updates.

AMEX responded to my OTS complaint with a VERY LAME answer. I responded by paragraph to their letter and sent a copy to the OTS and the person at the FTC handling the CompuCredit lawsuit the FTC filed.

In my written response to AMEX I included my credit report, a copy of my credit score of 759, an MSNBC article dated 10/7/08 where AMEX spokeswoman admitted "profilig", the New York Times article dated Jan, 31, 2009...where AMEX retracted the statement of "profiling", and the FTC press release dated June 10, 2008 citing the CompuCredit lawsuit for doing the same thing AMEX is doing.

Without a doubt, AMEX is "Redlining" which is illegal.

How can I become a part of the Class Action Suit?

[Kevin D. Johnson]

Hi, Holly.

Given that I run a business full-time, my time is quite limited. However, my primary goal is to educate consumers about alarming issues in the credit card industry. Second, I hope to provide consumers with the tools to effect change either singularly or collectively through the organizations and politicians that are already doing great work. So far, we have seen tangible and immediate results from this campaign in pending legislation and admission of wrongdoing by some companies. Class-action lawsuits are also being prepared. But to be more direct, it is indeed happening.

Contrary to popular belief, politicians, in general, do not pay attention to petitions, especially those online. Letters are more powerful. As we saw with the Federal Reserves changes, letters and complaints are more effective.

As for the media coverage, it has helped to spread the word about our efforts --and it has paid off. Currently, we have thousands of consumers who are focusing their efforts on sending complaints and lobbying the government for swift action. The more media coverage, the more complaints.

[holly]

Kevin,

I'm unclear on what the purpose is? I am so very greatful that this site is up and all of your diligence to provide information. However, why isn't there some kind of petition or formation of lobby to "connect" with our elected officials. Instead of a post on a web site on what needs to be included in the CARD ACT...why aren't we banning together and making it happen?

Clearly, you are getting some media coverage...where is this going?

[holly]

Amex did the same thing to me. I also live in Illinois. I don't know where you are in the state, but I wrote to Sen Dodd and the Jerry Costello, Ill.

I also filed a complaint with the Office of Thrift Supervision and with the FTC

[Lynne]

I stumbled on this site a few weeks ago and have been watching and using my credit cards very carefully. Today, I happened to use my Amex in a grocery store because I left my debit care at home. By the time I arrived home this evening, I had an e-mail and a voice mail informing me that Amex had placed a limit (and a very small one, I might add) on my green card. I absolutely do not believe this is a coincidence. I am writing every Congress person in Illinois before I go to bed.

[Laura B.]

I just hope they pass something soon. We need help before the Fed's rules kick in in 2010. Everyone reach out to your elected officials and make sure this is on their radar. They have got to act now!