Statement: Ellison Introduces Universal Default Reform Act of 2007

Welcome to the members of the press, my colleagues who are able to join me, and those of you who have worked tirelessly for consumer and economic justice in this country.

We're here today to introduce legislation that is at the heart of the idea of economic justice. Unfair credit practices affect thousands of our citizens on a daily basis and steadily eat away at the earnings of working families across this nation. We're here to end the practice known as universal default, a prime example of the harmful practices of some credit card issuers.

With the introduction of the Universal Default Reform Act of 2007 today, we take one small - but very important - step toward ending this and other harmful lending practices. I thank my colleagues for their support - as well as those of you here today who bring the voices of the victims of this predatory practice.

Universal default is the popular term for a practice that allows creditors to increase the rate on your credit card to the default rate EVEN WHEN you haven't missed a single payment on their card!

Common credit card terms state, and I'll quote from the example we have here, "The reasons (for a change in the annual percentage rate ‘APR') may be based on information in your credit report, such as your failure to make timely payments to another creditor, amounts owed to other creditors, the number of credit accounts outstanding, or the number of credit inquiries."

This means that you may have two credit card accounts - card A and card B. You're a loyal, timely and responsible customer of card A, but you've missed a payment on card B. And because you've missed as little as one payment on card B, it can be used as justification for boosting your APR to as high as 32% on both cards A and B! This practice doesn't just stop with your credit cards - but can extend to every other outstanding loan you may have - even including your home mortgage payments. This is unfair, predatory, and an inexcusable practice that must end!

I learned first-hand of this practice from a young family in my district. Hard-working, middle income families trying to make ends meet; both husband and wife worked and neither made much more than minimum wage. But they paid their bills on time…and worked hard to be responsible citizens in their community. The roof on their house needed repair and because they couldn't afford to hire anyone, the husband went about fixing it himself. He fell and was injured; they had no health insurance so the hospital bills accumulated. He applied for one of the endless credit card offers that appeared daily in his mail box - offers that seemed too good to be true. They were. Before long, he had missed a payment or two and the universal default practices we will end with this legislation had kicked in and nearly ruined his families' dreams.

This isn't just an arbitrary case. According to a Consumer Action Study , complaints concerning universal default increased 450% from November 2004 to April 2005!

Some private lenders have already voluntarily ended this predatory practice and we applaud them for taking this step toward greater consumer justice. However, the changes cannot be limited to voluntary actions by the issuers. This could arguably create an uneven playing field for the lenders, allowing other companies to justify continuing the use of universal default in order to remain competitive with other companies.

The Universal Default Reform Act of 2007 is the first of many reforms I intend to introduce in a much greater campaign toward consumer justice. I am proud to have the support of my House colleagues here today and those who are original co-sponsors of this important reform legislation. I have spoken with my Colleagues from the other side of the aisle and expect that many of them will join me in our efforts for consumer justice. Righting a wrong - a fundamental issue of fairness - like universal default is not a Republican or a Democratic issue. It is about strengthening the fabric of middle class American families.

I am equally honored to have Senator Jon Tester of Montana, a member of the Senate Banking, Housing and Urban Affairs Committee, as the sponsor of companion legislation in the Senate. I stand shoulder to shoulder with Senator Tester's sentiments: "Universal default and similar practices aren't common sense and they don't fly where I'm from," Tester said. "We need to be promoting policies that are fair for Americans and protect consumers. This legislation fits that mold."

I concur wholly and thank the Senator for his support and fine work.

I also want to thank these other fine folks here today who have been working on consumer justice issues as long, or longer than I have and I am really looking forward to working with them in this good fight.

Joining me today is Congressman Emmanuel Cleaver who is a champion on consumer justice issues, and serves with me on the Financial Services Committee; Reverend Gloria Sweringa, current Chair of Maryland ACORN; Beatriz Ibarra, a policy analyst from the National Council of La Raza; and Michael Calhoun, President of the Center for Responsible Lending.

On issues of consumer justice we speak with one voice. Today Legislators turn that voice into a loud chorus that will work tirelessly to swing that pendulum of consumer fairness back to the people where it belongs.

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