After years
of Republican majorities in the US Congress, the recent shift in
legislative power has energised would-be reformers and captured the
full attention of the cards industry’s lobbyists, who have their
work cut out for them in a crowded Democratic agenda.
Charles Davis reports.

Proposed regulations that had long sought even a hearing before the
Republican-led US Congress now regularly dominate the legislative
schedule, as new committee chairs in both houses seek to make names
for themselves. Of the many newly empowered Democrats in Congress,
Senator Chris Dodd, the chair of the Senate Banking Committee, has
made credit card industry practices a focal point of a series of

Dodd has been clear that his committee will scrutinise a host of
credit card lending practices, fees, penalties and interest

“No industry in America is more deserving of oversight by
Congress,” the Consumer Federation of America testified to Dodd’s
committee at a January hearing. The federation unveiled a report
noting that credit cards are the third-highest source of Better
Business Bureau complaints, following only mobile phone services
and new car dealers – hardly good company, in the eyes of many US

On the House of Representatives side, Representative Barney Frank,
a Democrat from Massachusetts, has assumed the chair of the House
Financial Services Committee and has been equally outspoken about
the need for greater oversight, although his early focus has been
on other financial services products such as mortgages and payday

Threat of legislation

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Not to be outdone, Senator Carl Levin, a Democrat from Michigan,
may wield the most powerful gavel of all, as the new chairman of
the Senate’s permanent subcommittee on investigations.

Levin recently told consumer activists that he plans to hold
hearings this year on credit card issuer abuses and introduce
legislation to correct them.

“You can make all your [credit card] payments on time and still
find yourself in the crosshairs of a powerful industry that is
thriving, in part, on unfair and confusing practices,” Levin

He called for greater disclosure of lending practices and an end to
the industry practice of “universal default”, in which a late
payment on an unrelated account can trigger finance charges and
higher fees.

The industry must regulate itself more closely, Levin said, or
“Congress and the regulators, including the Federal Reserve, the
Federal Trade Commission and the Office of the Comptroller of the
Currency, must take action”.

An aide to Levin said the senator’s office is actively
investigating three issues: what the aide described as “vanishing
grace periods” in which cardholders who make partial payments of
their bills are charged interest on the part of the debt they have
just paid; payment allocation rules that apply payments to the
balance with the lowest interest rate first; and the fees charged
to customers to pay bills online or by phone.

If it isn’t broke, why fix it?

For years, the credit card industry has stymied would-be reformers
by arguing to a sympathetic majority of politicians that
legislation wasn’t necessary because issuers would self-regulate or
face the wrath of free markets. Consumers angry with their issuers
could simply take their business and go elsewhere, they argued, and
it was an article of faith that the competition would take
advantage of issuers that grew too greedy.

The industry is maintaining the ‘if it isn’t broke, why fix it?’
approach, but the shifting sands of political reality may present
the end of the industry’s nonchalance. In a Congress with such slim
majorities, everyone is essentially eyeing re-election even as the
chair takes the gavel.

Republicans who supported the credit card industry with the
confidence of a seemingly invincible majority now risk the wrath of
populist uprisings over consumer issues, and Democrats who found
themselves locked out of conference committees on consumer issues
now control the votes. The result is a feeling that in this
Congress, as far as consumer protection is concerned, anything can

Already, no fewer than a dozen significant credit card bills are
floating around Washington, in the form of new or revived bills.
Among them are Dodd’s Senate Bill 499, the Credit Card
Accountability Responsibility Act of 2005; Senate Bill 393, the
Credit Card Minimum Payment Warning Act of 2005; and the Credit
Card Bill of Rights, introduced in two bills last year by Senator
Robert Menendez, a Democrat from New Jersey.

For now, the industry is watching and waiting, counting the votes
and testifying repeatedly, and often to a much more hostile
committee than in recent years. Despite the bluster, the odds of
any significant reform seem slight. Those who work with consumers
on credit-related woes sense an opportunity, however, and know they
may have the best chance in years at meaningful reform.

“It is not just one or a handful of credit card companies that
engage in abusive practices, but a great number of the top ten
credit card issuers,” said Michael Donovan, a partner with the law
firm of Donovan Searles, who testified in January before the House
Banking Committee on behalf of the National Consumer Law Center.
“It is this pattern of heavy-handed and manipulative conduct by an
entire industry that shows that credit card issuers have altered
their fundamental treatment of consumers from a fair, respectful
business relationship to an abusive, exploitative one.”

Interchange on the agenda

Legislation that goes further than increased disclosure will find
the odds stacked against it, and not only on the Republican side of
the aisle. With such thin majorities, the defection of a single
committee member can derail a bill. Take the Senate Banking
Committee, for example: its 11-Democrat majority includes Senator
Tom Carper from credit card haven Delaware and Senator Tim Johnson
from South Dakota, the processing centre of the US. Neither would
be eager to alienate the card industry, and, complicating matters
further, Johnson remains incapacitated following a stroke.

Whether Dodd can control his own caucus may be an open question,
but there is no question that the card industry is on notice: the
Senate Banking Committee’s next topic – interchange rates – could
create more political fireworks than any other issue on the