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April 1, 2009
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 repaid
  • 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 credit-card debt

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 other actions.

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 credit-card rules.

"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 immediately."

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 shop.

"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 worth."

March 3, 2009
The FTC Issues Annual FDCPA Report to Congress

The 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 FDCPA:

*       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 FDCPA.

*       Requiring collectors to conduct “reasonable” investigations responsive to the specific dispute the consumer raised.

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 recommendations include:

*       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.

The 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 possible solutions.

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 them periodically.

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.

Annual Report 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 industry.

The Commission votes to issue the reports were 4-0.



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