April 1, 2009
LAWMAKERS HEAR CRIES FOR CREDIT CARD REFORM
Senate panel passes tough new rules to curb abuses
Far-reaching credit-card rules are moving forward in
Washington after a Senate committee approved reforms on
Tuesday that would restrict fees and charges, increase
disclosure and protect younger consumers.
The reforms are crucial and overdue, advocates say,
while critics continue to warn about customers losing
access to credit if issuers can't properly price risk.
In a 12-11 vote, the Senate Banking Committee is pushing
forward with the new restrictions as American households
grapple with tightening budgets.
"Members of Congress get lots and lots of comments on
credit-card abuses. The negative impact on consumers is
broad and widespread, and the outcry is loud," said
Travis Plunkett, legislative director with the Consumer
Federation of America.
Some major provisions approved on Tuesday would:
Prohibit "universal default," a practice through which
issuers use a consumer's history with another
creditor to raise interest rates
Prohibit "anytime, any reason" hikes in rates
Prohibit charging interest on debt that has been
Require 45 days of notice before any rate increase
Require full disclosure in statements of payment due
dates and late-payment penalties
Prohibit issuing credit cards to consumers under 21
unless they show they can repay the debt, or complete
a certified financial literacy course
Prohibit double-cycle billing, a practice in which
charges are computed based on outstanding balances in
billing cycles before the most recent cycle
Limit certain abusive fees and penalties, such as
charging interest on credit-card transaction fees, or
charging a fee to allow a consumer to pay a
A House subcommittee is working on credit-card reform
legislation on Wednesday, and the Federal Reserve
approved its own set of credit-card rules late last
year, though they have not taken effect. With consumers
under intense pressure during the downturn, and the
government funneling billions into financial
institutions, there's a fire under lawmakers to act on
helping consumers, experts said.
"The likelihood is very high to pass something this
year," said Ed Mierzwinski, consumer program director
with U.S. Public Interest Research Group. "The American
people really don't like credit-card companies."
The Senate's version of the credit-card legislation is
stronger than current rules and comparable proposals in
the House, consumers advocates say. In December, the Fed
and other regulators approved rules to curb lenders'
ability to increase interest rates, give consumers
enough time to pay bills and improve disclosure, among
Throughout the regulatory and lawmaking process,
industry has said there could be unintended and negative
impacts on consumers.
"Making credit available is a very risky business and
the committee's action today will unfortunately make it
harder -- not easier -- for banks to continue doing so,"
said Ken Clayton, senior vice president of card policy
with the American Bankers Association. "Credit-card
lenders of all sizes will likely have to pull back on
providing reasonably priced credit to a wide range of
consumers and small businesses."
The Fed's rules go into effect July 1, 2010. As the
economy continues to suffer, consumer advocates and some
legislators say sooner is better when it comes to
"The companies should have been preparing already,"
Mierzwinski said. "Banks don't need 18 months to stop
robbing people. We need to ban unfair practices
Mierzwinski said the Senate committee version approved
on Tuesday calls for implementation within nine months
of enactment, while a House proposal would give the
industry 90 days. Credit-card companies say the Fed's
reforms are far-reaching enough, requiring the full
implementation period, and that new laws from Congress
certainly won't cut the time needed to make changes.
"We are talking about hundreds of millions of accounts,"
Clayton said. The industry can't "turn on a dime."
He added that new laws from Congress will force
regulators to revise their own rules, which could hurt
consumers: "It's not just frustrating, it's very costly.
It takes resources away from making loans."
Also Tuesday, the Senate Banking Committee attached an
amendment to the credit-card bill that aims to protect
the value of gift cards. The amendment would require
that cards remain valid for at least five years and
prohibit a dormancy or service fee unless the gift card
contains less than $5 after 24 consecutive months of
inactivity and the fee does not exceed $1 per month.
Among people who received a gift card during the 2006
holiday season, 27% had not used one or more of them
almost a year later, according to 2007 research from
Consumer Reports. The most common reason for not
spending gift cards was that people didn't have time to
"In recent years it's become increasingly common for
Americans to give friends and loved ones gift cards
instead of apparel or other items. So, I want to make
sure that these gift cards maintain their fair value,"
said the proposal's co-sponsor Sen. Mark Udall, D-Colo.,
in a statement. "This bill would bring greater
transparency and a five-year guarantee for gift cards to
ensure customers are protected and getting their money's
March 3, 2009
F.T.C. URGES REFORM OF DEBT COLLECTION LAWS
The FTC Issues Annual FDCPA Report to Congress
Federal Trade Commission issued a report today
recommending that the debt collection legal system be
reformed and modernized to reflect changes in consumer
debt, the debt collection industry, and technology. The
report describes the changes the FTC believes will
provide better consumer protection without unduly
burdening the debt collection industry. The Commission
also issued its 31st annual report to Congress on the
Fair Debt Collection Practices Act, which summarizes its
enforcement of the FDCPA during 2008.
The FDCPA was enacted in 1977 to protect consumers from
abusive, unfair, and deceptive practices by third-party
debt collectors. Its primary government enforcer is the
FTC, which in October 2007 hosted a two-day workshop for
consumer groups, industry, academia, and government
agencies to explore how collection industry changes have
affected consumers and businesses.
In the workshop report issued today, the Commission
cites major problems in the flow of information within
the collection system. The report recommends changes in
the law to require that collectors have better
information, making it more likely that their efforts
will be for the right amount and be directed to the
right consumer. It also recommends that they be required
to provide consumers with better information explaining
their rights under the FDCPA. To improve the flow of
information, the report recommends these changes to the
Requiring that the “validation notices” that collectors
are required to send to consumers also disclose the name
of the original creditor; break down the debt by
principal, total interest, and total fees; and inform
consumers of certain rights they already have under the
Requiring collectors to conduct “reasonable”
investigations responsive to the specific dispute the
According to the workshop report, debt collection laws
should be modernized to reflect changes in technology.
Recognizing that the law generally should allow debt
collectors broad use of communication technology to
contact consumers, the report recommends that the law
prevent consumers from incurring charges for these
contacts or otherwise being subject to unfair,
deceptive, or abusive acts and practices. The report
Prohibiting collectors from contacting consumers via
their mobile phones, including by text messaging,
without prior express consent; and
Requiring collectors who use new payment technologies to
obtain express verifiable authorization from consumers
before accessing their accounts.
workshop report recognizes that certain debt collection
litigation and arbitration practices appear to raise
substantial consumer protection issues. Because the
workshop record lacks sufficient information for the FTC
to determine the nature and extent of these issues, the
report announces that the agency will convene regional
roundtables this year with state court judges and
officials, debt collectors, collection attorneys,
consumer advocates, arbitration firms, and other
interested stakeholders to learn more and develop
The workshop report also recommends that Congress give
the Commission authority to issue rules under the FDCPA.
This would help ensure that legal requirements keep pace
with changes in the marketplace.
The report states that private actions, not FTC actions,
were intended by Congress to be the primary means of
promoting industry compliance with the FDCPA, and notes
that the amounts of statutory damages that consumers can
obtain in lawsuits under the FDCPA have not changed
since 1977. To increase deterrence, the report
recommends increasing the damage amounts to reflect
inflation since then, and, in the future, to increase
Emphasizing the agency’s intention to continue its
aggressive enforcement of the FDCPA, the report notes
that the FTC has modified its law enforcement approach
in order to obtain tough permanent injunctive and
equitable relief, including substantial monetary
judgments and, for some defendants, bans on collecting
debts. The Commission also has taken more actions
against the individuals, and not just the companies,
responsible for illegal collection practices.
to Congress on the FDCPA
The Annual Report to Congress on the
FDCPA summarizes the number and types of consumer
complaints the Commission received about third-party
debt collectors in 2008, and law enforcement actions the
agency brought against debt collectors last year. The
FTC received more than 78,000 complaints about
third-party debt collectors in 2008. While this is a
slight decrease as a percentage of all complaints
received compared to 2007, the FTC continued to receive
more complaints about debt collectors than any other
The Commission votes to issue the reports were 4-0.