Now that the CARD Act has been implemented, US lawmakers
are setting their sights on further credit card-related reforms –
despite warnings from the banking industry that they will limit
consumer choice. As Charles Davis reports, lawmakers are now intent
on setting up a consumer protection agency.


With a package of sweeping reforms
going into effect in February, Congress is signalling that it is
far from through regulating credit cards, much to the chagrin of
issuers already squaring off with a sluggish economy and debt-weary

The Obama administration has set
its sights on an omnibus financial services regulatory reform bill
that contains, among many other things, a stand-alone agency to
combat abusive and deceptive mortgages, credit cards, payday loans
and other consumer products, which has become a lightning rod for
Republican critics of the legislation.

The two parties are not nearly so
far apart on most of the bill, though. Representatives of the
banking industry left a 25 February meeting with Treasury Secretary
Timothy Geithner saying that they had agreed on the need to get a
bill through Congress this year.

Senator Richard Shelby, a
Republican from Alabama and the senior Republican on the panel,
said that he and the committee’s Democratic chairman, Christopher
Dodd of Connecticut, “agree on probably 90 percent” of the

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Calls for financial
services regulator

The Obama administration marked the
beginning of the reforms passed last year with calls for a single
consumer financial services regulator. Geithner praised the new law
and used the opportunity to push for regulatory reform.

“As we work with Congress on
broader reform to make our financial system safer and more stable,
we are also working to consolidate the fragmented authority of
seven separate agencies into a single, independent and accountable
Consumer Financial Protection Agency [CFPA],” Geithner said.

To bridge the divide over consumer
protection, the committee is likely to recommend that the CFPA be
set up as a division of a new bank regulatory agency, rather than
an independent agency on its own. Many Democrats favour the
independent agency approach, however, and it remains to be seen
whether they will accept such a compromise.

The CFPA is just one of several
pieces of legislation the card industry is monitoring at the
moment, as card products have drawn several other proposed laws as
well. The proposed Benefit Card Fairness Act, introduced by US
Representative Sander Levin, a Democrat from Michigan, would put a
stop to some fees on all government benefit debit cards – including
a ban on all fees for balance inquiries.

Levin’s bill also would prohibit
inactivity fees; ensure that all beneficiaries receive one free
withdrawal from an in-network ATM and one free withdrawal from a
bank teller per deposit to the card; and require customer service
by telephone and error resolution to be free.

Interchange issue will not
go away

Then there is the merchant fee
fight, which is taking place on so many different fronts that it is
getting difficult to keep score. For the short term, at least, the
industry might just be out of the woods on interchange fee
regulation. The House Financial Services Committee said recently
that it does not plan to pursue interchange legislation this year,
according to committee Chairman Barney Frank, a Democrat from

Steve Adamske, the banking
committee’s spokesperson, said that given the committee’s crowded
agenda, which involves dealing with the aftermath of the banking
crisis, plus the difficulty of getting anything through the Senate
right now, interchange legislation is not on the agenda for 2010.
Still, other proposals floating around Congress include setting or
limiting fees; requiring more disclosure; and allowing merchants to
steer customers away from higher-cost cards.

Last year, lawmakers pushed two
bills to regulate interchange, including one that would require
banks to enter into collective-bargaining agreements with retailers
to set interchange rates. Another would enable merchants to
introduce surcharges and allow them to opt not to accept cards with
high interchange rates, such as those tied to rich rewards

The industry dodged another bullet
recently, as the Federal Reserve released rules on private-label
cards that had issuers breathing a sigh of relief. The rules were
far less intrusive than initially feared.

Specifically, retailers had worried
they would be required to verify income or assets by collecting
copies of customer pay stubs, tax returns or bank statements. But
the final version of the rule, which the Fed released in February,
allows issuers to estimate income and assets using computer

The rules require retailers and
their issuing partners to consider some additional information
about customers who apply for private-label or co-branded cards at
the cash register, including their income and existing obligations,
but stopped short of the more extensive rules that issuers

CARD Act comes into

Under the Credit Card
Accountability, Responsibility and Disclosure (CARD) Act, which
took effect 22 February, all issuers granting line increases or new
accounts have to consider the applicant’s ability to make the
minimum monthly payment. Part of the Fed’s rules defines “ability
to pay”, and says the assessment must include “a review of the
consumer’s income or assets as well as current obligations.”

The rules apply to all issuers, but
had the potential to particularly hurt retailers that take
applications and almost immediately issue cards at the point of

Many general-purpose card issuers –
and even some retailers offering store cards – have already
collected income information from credit applicants, because it has
been a criterion for underwriting. Some store cards, however, have
traditionally used less stringent underwriting, to facilitate
on-the-spot issuance and to encourage customers to spend more money
at the retailer.

The income and liabilities
requirement is only one additional pressure attached to store
cards. Many issuers have raised interest rates or finance charges
across store-card portfolios – or even, in the case of Alliance
Data Systems, started charging cardholders for receiving paper

While the battle over the CFPA rages on, it is clear that the
industry’s efforts at shaping the regulatory landscape are not
meaningless, but it is equally clear that the threats just keep on