Hearing of the Financial Institutions and Consumer Credit Subcommittee of the House Financial Services Committee - The Credit Cardholders' Bill of Rights: Providing New Protections For Consumers

Statement

BREAK IN TRANSCRIPT

REP. MAXINE WATERS (D-CA): Thank you very much, Madam Chairwoman. I appreciate so very much that you have taken up this issue and you're providing leadership to get Congress involved in the kind of oversight that we really have the responsibility for, but we don't oftentimes do.

We're all credit card users. So many of us are very familiar with the abuses of the industry and many of us have complained from time-to-time about abuses that we have witnessed or we've been involved in. But none of us took up a comprehensive effort to try and deal with the problems as we see them.

This is so important because we cannot negotiate our lives without the use of credit cards. We must have credit cards in order to reserve a hotel room, to get on the plane, to purchase goods and items, and so it's a very necessary part of our lives. And being that it is such a very necessary part of our lives, we must understand what our responsibility and our role is not only to protect our own personal interests but the interest of our constituents.

The credit cardholders' bill of rights certainly does go straight to the heart of some of these issues, and I'm very pleased that the number one item listed in the bill of rights is an item that deals with arbitrary interest rate increases. I think that is such an abuse. As a matter of fact I'm reminded of some of the problems that we are experiencing and learning about as we look at the foreclosure problem, and the subprime meltdown.

What we're finding is the financial services community came up with all kinds of exotic products. None of us understood those products here in Congress and our regulatory agencies did not take a look at no documentation loans, they did not explore some of these "arms" that were being created or how they were being originated and initiated and by whom. And I see some of the same kinds of abuses as we look at these credit cards. As a matter of fact, I just learned that if you have a credit card and you decide that --- well, if you decide that you're going to open up a credit account at a department store when they have these special offers and you make purchases on that same day they extend the credit to you, that your other credit cards issuers can then increase your interest rates, because they consider that if you open up an account at a department store on some kind of special offer where you take out the goods on that day that somehow you have created another risk. Most people don't know that. And sometimes when folks go into a department ---

REP. MALONEY: Gentlewoman's time has expired.

REP. WATERS: Thank you very much, I appreciate the opportunity.

BREAK IN TRANSCRIPT

REP. WATERS: Thank you very much, Madam Chair, I've had to be I and out, but I have tried to spend as much time as I possibly can, so I can learn the responsibility of these various regulatory agencies. And it would be very nice if regulation and oversight for credit cards could all be combined in one agency I suspect.

Because these agencies are looking at these various institutions in total, it is necessary to look at them not only in relationship to the other services that they provide, but the credit cards also, but only one of you have rulemaking authority. Is that right?. Two. Which two?

MS. GRUENBERG: The Federal Reserve and the Office of Thrift Supervision.

REP. WATERS: So how -- well, in the rulemaking that you describe where you will be taking a look at some of the chairwoman's proposals in her legislation, which who will be responsible for taking those recommendations into consideration?

MS. GRUENBERG: We are working together on doing that. They -- because of the way it is structured there will be separate rules, but the rules should be identical. One would be the OTS would issue rules for its risks, and the rules that we issue with the Federal Reserve will cover all banks, and that will included banks that are supervised by the OCC and the FDIC --

(Cross talk.)

REP. WATERS: Who has the responsibility for the creation of new products?

MS. GRUENBERG: Creation of new --

REP. WATERS: New credit cards -- products, who has that responsibility? For example, when a credit card company decides that it is going to have retroactive interest rate increases, or other practices that we have heard here, who has the responsibility for seeing those new products before they are introduced to the consumer?

MS. GRUENBERG: The regulatory agencies -- that would be normal business practice of the financial institutions. Certainly, their array of products would likely be looked at during a supervisory examination. But they don't come to a regulatory agency for approval to introduce new products.

REP. WATERS: Well, I thought somebody had the responsibility for protecting the consumer against the product that would do them harm -- who said that?

MS. WILLIAMS: Congresswoman Waters, maybe I can --

REP. WATERS: Yes.

MS. WILLIAMS: -- jump in here a little bit. It's part of our regular supervisory process, and the dialogue that we have with the national banks that are credit card issuers, it is fairly customary that we are having discussions with them about new products that they are thinking of offering, and changes in product features and terms.

And there's a lot of flexibility under the current law, and the terms and conditions that can be provided. When a product is been offered, if it is offered in a way, or if it is structured in a way that's inherently unfair or deceptive, we have enforcement authority, and we have the ability again as part of our regulatory oversight ---

REP. WATERS: May I just stop you at this time?

MS. WILLIAMS: Sure.

REP. WATERS: I have a great respect for disclosures.

But I really don't want to be told about something that you have seen. And you have the ability to determine whether or not it was unfair in your discussions. That brings us to where we are now.

Here we are with the chairwoman of this subcommittee having the wisdom and the foresight to take a look at all of these deceptive practices, and try and place something in law. But you have all of this before, we -- it ever hits at the public, you've seen it, you have -- I don't know what -- I am not sure what your authority is. You discus it, and it goes it is instituted, and then we get -- may be get some disclosure to tell us what it is.

But what I am interested in is, I am interested in consumer protection, and I am not interested in the Congress of the United States having to do this kind of work every few years when we have all of these regulatory agencies running over each other that is supposed to be providing some protection for us. Now, that's my feeling. Tell me why I am wrong?

MS. WILLIAMS: Congresswoman, we are interested in consumer protection too, very much, and

REP. BACHUS: Why don't --

MS. WILLIAMS: -- but we do -- we take supervisory actions; we take enforcement actions to deal with some of these practices of the board --

REP. WATERS: Did you see the practice of the interest rate increases on unsuspecting customers, who have signed a contract or gotten involved with the credit card company based on an interest rate only to have it increased maybe one, two, or three times after they were entered -- did you see that before it happened?

MS. WILLIAMS: We are very, very strongly in favor of improved disclosures--

REP. WATERS: Did you see what -- did you see that practice before it was introduced to the consumer?

MS. WILLIAMS: I don't know what the particular practice you are referring to. But the practices are --

(Cross talk.)

REP. WATERS: All right, I am talking about the first practice in the Credit Card Bill of Rights. You have a copy of that?

MS. WILLIAMS: I am sorry --

REP. WATERS: The first practice that is spoken to in the Credit Card Bill of Rights. Where is it? Somebody hand me the Credit Card Bill of Rights here so. We can all get on the same page. Universal default is that what it is?

MS. WILLIAMS: Yes.

REP. WATERS: Did you have an opportunity to discuss universal defaults.

MS. WILLIAMS: The term, "universal default" is one term that's used for what I've --

(Cross talk.)

REP. WATERS: You don't understand what it is?

MS. WILLIAMS: -- yes

REP. WATERS: you don't understand what universal default is?

MS. WILLIAMS: Yes.

REP. WATERS: Did you see it before it became practiced?

MS. WILLIAMS: That has been a practice for sometime, and we do see it as it's implemented.

REP. WATERS: So you did nothing to deem that that was an unfair practice an abusive practice, and perhaps would be harmful to consumers.

MS. WILLIAMS: We have taken actions where the nature of that practice has not been adequately disclosed to the consumers in --

(Cross talk.)

REP. WATERS: So as you see your responsibility it was to disclose it, to let the consumers know that you are going to get ripped off, that your interest rates are going to be increased, and that's the extent of your authority, is that right?

MS. WILLIAMS: We don't have rulemaking authority in this area; we have the authority to take case-by-case --

(Cross talk.)

REP. WATERS: All right, let me ask the whole panel who has rulemaking authority in this area? Who saw the practice, the product, before it was introduced to the consumer, and what did you do about it?

REP. MALONEY: After this is answered the gentlewoman's time has expired. But that's an important question, and if we could start with you, Mr. Gruenberg, and go down the panel.

Thank you very much Congresswoman.

REP. WATERS: Is it going to be answered?

MR. GRUENBERG: Yes ma'am.

REP. WATERS: All right. Thank you.

BREAK IN TRANSCRIPT

REP. WATERS: Thank you very much. Ms. Braunstein, I'd like you to speak directly to the question that I was raising earlier.

Did you see the practice, the universal default, did you see the practice before it was implemented?

MS. BRAUNSTEIN: I can't speak for the entire agency.

REP. WATERS: No I just want --

MS. BRAUNSTEIN: I know -- for myself, personally it was implemented, no. We became aware of it you know, after -- obviously after credit cards issuers were dealing universal defaults.

REP. WATERS: Well, what I am trying to determine, if I may Madam Chair, what good is a regulatory agency with the responsibility to see new products, new practices, and see that they are unfair there may be abusive, and you do nothing about it until the Congress at the United States implements a terribly long procedure in order to correct it.

Will, this Chairwoman or this committee, has to that on every unfair practice that is implemented. Or what are you good for, what do you do?

REP. MALONEY: The gentlewoman's time has expired, but Ms. Braunstein, if you could respond to her very pointed question and she has raised a concern that many of members of Congress feel for their constituents.

MS. BRAUNSTEIN: Well, the first step that we took we were, have been concerned about credit card practices and the first thing that we did was to improve disclosures. Because we felt that that was an important first step in this process, and then we have moved forward to addressing unfair and deceptive practices head-on through this UDAP rulemaking and we are doing that. And we are moving forward.

REP. MALONEY: Thank you very much. The gentlelady's time has expired and the Chair recognize in the spirit of bipartisan cooperation in this committee, Ms. Biggert, Ranking Member Biggert.

BREAK IN TRANSCRIPT

REP. WATERS: Thank you very much, Madame Chair.

Let me start with Mr. Carey.

I don't know whether or not you've said this already or not but do you support the credit card -- Ms. Maloney's bill?

MR. CAREY: Congresswoman, I think the work that Congresswoman Maloney and her staff and the other people that have worked on is a terrific first step.

I actually do, however, support credit card reform through the tools that the Federal Reserve has to them with the amendments to Regulation Z as well as their work in UDAP.

REP. WATERS: Tell me --

MR. CAREY: I do support her -- I do support the direction and where she is going.

REP. WATERS: Which of the points in the Credit Cardholders' Bill of Rights do you disagree with? Do you have it before you, the nine points of the bill?

MR. CAREY: No, I don't have that document before me. I'm reasonably familiar with it.

REP. WATERS: Arbitrary interest rate increase?

MR. CAREY: Again, I think that's something that needs to be looked at through a rulemaking process because of the consequences that may occur. But I do believe that that's something that ought to be looked at, and there ought to be, you know, robust debate around that. And I think the regulatory process that the Fed is working on will do that.

REP. WATERS: The second is credit cardholders who pay on time should not be penalized.

MR. CAREY: I --

REP. WATERS: Do you think that's a good idea?

MR. CAREY: I'm not aware of any issuer who penalizes the customer, who is -- so I support that.

REP. WATERS: There has been a lot of discussion about due date gimmicks.

MR. CAREY: Well, again, I think from the reputable issuers you wouldn't get a disagreement.

REP. WATERS: Do you think that the disclosure that is done and that is discussed so much today is enough to protect consumers and -- that there's no need for the -- for the Congress to produce legislation on all these issues?

MR. CAREY: I believe that, again, that the Federal Reserve has the power to first look at all of those issues that people are -- and consumers are concerned about, and to come up with a solution that makes the most sense for consumers and for consumer lending.

REP. WATERS: They have been looking at all of these practices. Do you think they've done a good job?

MR. CAREY: It's -- their first work hasn't been done and they are actually in sort of a middle phase, they are -- as they announced today, they were --

REP. WATERS: Well, I'm talking about historically. As I understand it, they see your products before they hit the market and they have an opportunity to discuss them, to talk with you about them and to do disclosure. Do you think that they could perhaps engage you a little bit more and discuss why perhaps some of these practices would be harmful to the consumer?

MR. CAREY: I'm absolutely convinced certainly through the attention of this committee that in fact will occur.

REP. WATERS: Mr. Sharnak?

MR. SHARNAK: Yes.

REP. WATERS: Which of these points of Ms. Maloney's bill do you disagree with?

MR. SHARNAK: So -- as I said in my testimony, we support the goals of the legislation. We don't do universal default. We don't raise people's rates on -- for any other reason than if they violate their terms and conditions on that specific account. We don't change due dates, we don't penalize people that pay on time.

So we don't engage in a lot of those practices, so I'm not going to try to defend that.

There are -- as I did say, there are a couple of provisions in Mrs. Maloney bill that we think need to be amended. There needs to be a distinction between what we call on-account and off-account behavior, because it is very different.

I do think that payment allocation, as I said in my testimony, as written will make credit less available to certain groups, low rate interest to certain people. So those are the two provisions and the one specifically on on-account, off-account, the 45-day notice for on- account behavior, where it's been disclosed upfront in the application process, in the terms and conditions, we don't think that that should go forward.

REP. WATERS: Do I have more time, Ms. Maloney? I don't want to take more than my time.

REP. MALONEY: Well, your time is expiring --

REP. WATERS: Thank you.

REP. MALONEY: -- Chairwoman, but I do want to say that there is a distinction in the bill on on-account and off-account behavior. And I just want to just point that out.

REP. WATERS: So does the Chair have the liberty to explain that because evidently there is a difference of opinion here?

REP. MALONEY: Well, we -- in the bill, on-account behavior -- off-account -- on on-account behavior, you cannot retroactively put interest rates on the actions there. On off-account behavior you can notify and go forward with it, but there is a distinction in the bill on it.

BREAK IN TRANSCRIPT

Source