U.S. PIRG Consumer Blog: Credit card hearing a success

We had a lively credit card hearing today in the U.S. House Financial Institutions and Consumer Credit Subcommittee. The hearing was a response to the Fed's recent issuance of a 700 page proposed re-write to credit card disclosure laws. One panel had six federal or state agency heads; the second had Kathleen Keest (her testimony) of the Center for Responsible Lending and me (my testimony) representing consumers, along with four industry witnesses and a small business representative. The hearing lasted about 4 hours, not including another hour or so of floor vote breaks. A surprising number of Representatives stayed and engaged both panels. Representatives of both parties had detailed and deeply-held concerns about a variety of unfair credit card practices. The bankers were contrite and generally said: "We don't do that anymore." A few highlights: First, Chair Carolyn Maloney (D-NY) announced she would hold a credit card summit with consumer groups, regulators and credit card companies.

Chair Maloney also repeatedly asked non-responsive Federal Reserve Governor Frederic Mishkin why the Fed hadn't used existing and exclusive authority to better regulate the industry. Then she asked the other regulators whether they wanted similar authority.

To her credit, FDIC Chair Sheila Bair -- who in her written and oral statements had said that "While improving existing disclosures is an important and positive step, the FDIC remains concerned about whether information can be provided in an effective way to mitigate the effect of [the unfair] practices noted above." -- indicated yes.

Spencer Bachus (R-AL), ranking member of the full Financial Services Committee, repeatedly asked industry witnesses why consumer bill payments are always allocated to the lowest interest rate portion of a balance and what the safety and soundness reason for doing this could possibly be. Many cards have one interest rate for balance transfers, another generally higher rate for purchases and a third even higher rate for cash advances. One might think that payments would be allocated first to the highest cost portion of your loan, or that a portion of each payment would be pro-rated to each, but that isn't how the banks do things. They pay off the "Zero-interest" balance transfer portion first, and let your cash advances at high rates pile up more interest. Rep. Bachus also kept reminding the banks just how many calls and letters he gets on this issue.

David Scott (D-GA) said that "credit card issuers are now bordering on being sophisticated financial predators" and said that some of their practices were "downright low-down." He then went on describe his support for a number of reforms that coincidentally happen to be included in a comprehensive bill, S 1395, introduced by Senator Carl Levin following his own hearing on these matters. Among the Levin bill items mentioned by Scott: it caps penalty interest rate increases and it prohibits collecting interest on fees.

Rep. Emanuel Cleaver (D-MO) repeatedly engaged Comptroller John Dugan of the Office of the Comptroller of the Currency on a point raised in my testimony: that the OCC had not announced any formal public enforcement actions against any Top Ten bank since 2000. The Comptroller responded with the OCC's standard response-- that informal and examination-related intervention has been adequate to police the activities of the Top Ten issuers. The OCC and U.S. PIRG disagree on this point.

A new member, Paul Hodes (D-NH) summed up the tone of the hearing and the views of a lot of the members present when he said: "I have no patience with the credit card industry."

We look forward to working with Chair Maloney on further investigations and inquiries.