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69-006

110TH CONGRESS

REPORT

HOUSE OF REPRESENTATIVES

2d Session

110-857

--CREDIT CARDHOLDERS' BILL OF RIGHTS ACT OF 2008

SEPTEMBER 16, 2008- Committed to the Committee of the Whole House on the State of the Union and ordered to be printed

Mr. FRANK of Massachusetts, from the Committee on Financial Services, submitted the following

R E P O R T

together with

DISSENTING VIEWS

[To accompany H.R. 5244]

[Including cost estimate of the Congressional Budget Office]

CONTENTS Page
Amendment 2
Purpose and Summary 8
Background and Need for Legislation 8
Hearings 10
Committee Consideration 11
Committee Votes 11
Committee Oversight Findings 16
Performance Goals and Objectives 16
New Budget Authority, Entitlement Authority, and Tax Expenditures 16
Committee Cost Estimate 16
Congressional Budget Office Estimate 17
Federal Mandates Statement 20
Advisory Committee Statement 20
Constitutional Authority Statement 20
Applicability to Legislative Branch 20
Earmark Identification 21
Section-by-Section Analysis of the Legislation 21
Changes in Existing Law Made by the Bill, as Reported 23
Dissenting Views 32

AMENDMENT

SECTION 1. SHORT TITLE.

SEC. 2. CREDIT CARDS ON TERMS CONSUMERS CAN REPAY.

`Sec. 127B. Additional requirements for credit card accounts under an open end consumer credit plan

`127B. Additional requirements for credit card accounts under an open end consumer credit plan.'.

SEC. 3. ADDITIONAL PROVISIONS REGARDING ACCOUNT FEATURES, TERMS, AND PRICING.

SEC. 4. CONSUMER CHOICE WITH RESPECT TO OVER-THE-LIMIT TRANSACTIONS.

SEC. 5. STRENGTHEN CREDIT CARD INFORMATION COLLECTION.

SEC. 6. STANDARDS APPLICABLE TO INITIAL ISSUANCE OF SUBPRIME OR `FEE HARVESTER' CARDS.

SEC. 7. EXTENSIONS OF CREDIT TO UNDERAGE CONSUMERS.

SEC. 8. EFFECTIVE DATE.

PURPOSE AND SUMMARY

H.R. 5244, the `Credit Cardholders' Bill of Rights Act of 2008', prohibits certain unfair and deceptive credit card practices and provides consumers with tools to manage their credit card debt responsibly. The bill prohibits retroactive rate increases on existing balances except under limited circumstances, including where the consumer is over 30 days late in making payment, and requires creditors to provide consumers with a reasonable time to pay off the balance. It requires creditors to provide a written notice of any rate increase at least 45 days before the increase takes effect, and to send periodic statements to consumers no less than 25 days before the due date. The bill prohibits double cycle billing and requires creditors to allocate payments among balances so as to allow consumers to take full advantage of promotional rates and to make payments towards balances with higher rates. The bill limits overlimit fees and bans fees on interest-only balances. It prohibits creditors from knowingly issuing a credit card to a minor who is not emancipated. For credit cards on which fees in the first year exceed 25 percent of the credit limit, the bill prohibits such fees from being paid from the credit available under the card account agreement (except late or overlimit fees). The bill also provides for additional data collection to enable better oversight and regulation.

BACKGROUND AND NEED FOR LEGISLATION

It is estimated that 145 million Americans (approximately half of the population) own credit cards. According to Cardweb.com, the average household carries more than $8,000 in credit card debt (other estimates range from $2,200 to more than $9,000). The accumulation of large amounts of credit card debt can have profound implications on individual consumers and the economy more generally. Personal bankruptcies, which some analysts attribute in part to high consumer debt levels, jumped 40 percent in 2007, and the personal savings rate in the U.S. has hovered at or below 1 percent of disposable income for several years, down from 7 to 8 percent in the 1980s and early 1990s.

Credit card pricing and billing practices developed over the last twenty years appear to contribute to the large debt loads facing many consumers. Prior to 1990, credit cards were generally offered only to persons with high credit standing, carried standardized interest rates of around 20 percent, and charged few fees. In the early 1990s, credit card issuers began to adopt `risk-based' pricing, which was intended to employ a variety of factors to insure that cardholders were charged rates that reflected the default and other risks they pose to creditors. In addition, credit card issuers began to charge increased penalty fees for, among other things, late payment and over-the-limit transactions. Card issuers contend that the new pricing models enable them to offer cards to more individuals and charge lower interest rates to better credit risks. In contrast, consumer advocates allege that weakened underwriting standards are not necessarily in the best interest of cardholders, and that many cards have `teaser' rates which are unrealistically low and soon increase to a much higher maximum rate. A 2005 report by the Government Accountability Office and a 2006 report by the Board of Governors of the Federal Reserve both concluded that there was no empirical support for the proposition that `risk- based' pricing had led to lower rates. In addition, consumer advocates contend that some fees and penalty pricing are disproportionate to the risk posed by the consumer and are mainly intended to increase fee income. According to Cardweb.com, the average late fee rose to $35 in 2007, up from less than $13 in 1994. Similarly, average fees charged for exceeding a credit limit more than doubled to $26 a month from $11.

Retroactive Rate Increases on Pre-existing Balances. One of the most controversial common practices is the retroactive application of increased interest rates to consumers' pre-existing balances. According to a 2008 survey by Consumer Action, most card issuers (77 percent) reserve the right to increase a consumer's interest rate on outstanding and prospective balances under `any time, any reason' clauses. Issuers contend that these clauses are necessary to insure they are able to price for risk. In contrast, consumer advocates argue that retroactive application is unfair and unjustified. Moreover, these advocates dispute whether this practice is truly risk-based given that individuals can be re-priced through no fault of their own. For instance, many consumers who are in good standing with their particular card issuer nonetheless can see their interest rates increase if there is a change in market conditions. Even when the consumer poses an additional risk (i.e. frequent late payments), consumer advocates assert that accounts should only be `re-priced' prospectively. Some economists argue that retroactive re-pricing on existing balances has an anticompetitive effect on the market since consumers can't select cards on this basis or avoid the increases.

A number of other practices can have negative impacts on consumers, including, but not limited to:

Double-Cycle Billing. Under this practice, issuers charge consumers interest on the portion of balances repaid during a grace period, when the consumer pays some but not all of the outstanding balances. This is viewed as unfair because consumers are paying interest on portions of debt already repaid.

Payment Allocation. When a consumer's account consists of balances with two or more interest rates, typically all of the payments made to the account are applied first to the balance with the lowest interest rate, allowing the higher rate balance to grow more rapidly. This practice is viewed as unfair because it does not provide consumers with the full benefit of lower promotional interest rates.

Late Payment. Consumer advocates allege that many issuers fail to promptly credit consumer payments, arbitrarily change due dates, provide unreasonably short times for bill payment, and otherwise make timely payments by cardholders difficult. They argue that this practice is harmful to consumers given the often severe consequences for late payments (in the form of retroactive interest rate increases, penalty interest rates, finance charges, and late fees).

REGULATORY DEVELOPMENTS

In May 2008, the Federal Reserve, Office of Thrift Supervision, and National Credit Union Administration proposed rules prohibiting unfair or deceptive practices regarding credit cards and overdraft services. The legal standard for declaring a practice unfair or deceptive requires that the practice represent a market failure that substantially adversely affects consumers. Among other provisions, the proposed rules include five key protections for consumers:

(1) Banks would be prohibited from increasing the rate on a pre-existing credit card balance (except under limited circumstances) and must allow the consumer to pay off that balance over a reasonable period of time.

(2) Banks would be prohibited from applying payments in excess of the minimum in a manner that maximizes interest charges.

(3) Banks would be required to give consumers the full benefit of discounted promotional rates on credit cards by applying payments in excess of the minimum to any higher-rate balances first, and by providing a grace period for purchases where the consumer is otherwise eligible.

(4) Banks would be prohibited from imposing interest charges using the `two-cycle' method, which computes interest on balances on days in billing cycles preceding the most recent billing cycle.

(5) Banks would be required to provide consumers a reasonable amount of time to make payments.

HEARINGS

The Subcommittee on Financial Institutions and Consumer Credit held a hearing on March 13, 2008, entitled `The Credit Cardholders' Bill of Rights: Providing New Protections for Consumers.' The following witnesses testified:

The Subcommittee on Financial Institutions and Consumer Credit held a hearing on April 17, 2008, entitled `Legislative Hearing on H.R. 5244, The Credit Cardholders' Bill of Rights: Providing New Protections for Consumers'. The following witnesses testified:

Panel One:

Panel Two:

Panel Three:

Panel Four:

COMMITTEE CONSIDERATION

The Committee on Financial Services met in open session on July 31, 2008, and ordered H.R. 5244, the `Credit Cardholders' Bill of Rights Act of 2008', as amended, favorably reported by a record vote of 39 yeas and 27 nays.

COMMITTEE VOTES

Clause 3(b) of rule XIII of the Rules of the House of Representatives requires the Committee to list the record votes on the motion to report legislation and amendments thereto. A motion by Mr. Frank to report the bill, as amended, to the House with a favorable recommendation was agreed to by a record vote of 39 yeas and 27 nays (Record vote no. FC-120). The names of Members voting for and against follow: 

RECORD VOTE NO.FC-120
------------------------------------------------------------------
Representative   Aye Nay Present   Representative Aye Nay Present 
------------------------------------------------------------------
Mr. Frank          X                   Mr. Bachus       X         
Mr. Kanjorski      X               Ms. Pryce (OH)       X         
Ms. Waters         X                   Mr. Castle       X         
Mrs. Maloney       X                Mr. King (NY)       X         
Mr. Gutierrez      X                    Mr. Royce       X         
Ms. Velazquez      X                    Mr. Lucas       X         
Mr. Watt           X                     Mr. Paul       X         
Mr. Ackerman       X               Mr. LaTourette                 
Mr. Sherman        X                 Mr. Manzullo       X         
Mr. Meeks          X                    Mr. Jones   X             
Mr. Moore (KS)     X                 Mrs. Biggert       X         
Mr. Capuano        X                    Mr. Shays   X             
Mr. Hinojosa       X              Mr. Miller (CA)       X         
Mr. Clay           X                  Mrs. Capito                 
Mrs. McCarthy      X                   Mr. Feeney       X         
Mr. Baca           X               Mr. Hensarling       X         
Mr. Lynch          X             Mr. Garrett (NJ)       X         
Mr. Miller (NC)    X              Ms. Brown-Waite                 
Mr. Scott          X             Mr. Barrett (SC)       X         
Mr. Green          X                  Mr. Gerlach       X         
Mr. Cleaver        X                   Mr. Pearce       X         
Ms. Bean           X               Mr. Neugebauer       X         
Ms. Moore (WI)     X               Mr. Price (GA)       X         
Mr. Davis (TN)     X               Mr. Davis (KY)       X         
Mr. Hodes          X                  Mr. McHenry       X         
Mr. Ellison        X                 Mr. Campbell       X         
Mr. Klein          X                   Mr. Putnam       X         
Mr. Mahoney (FL)   X                Mrs. Bachmann       X         
Mr. Wilson         X                   Mr. Roskam                 
Mr. Perlmutter     X                 Mr. Marchant       X         
Mr. Murphy         X                 Mr. McCotter       X         
Mr. Donnelly       X                 Mr. McCarthy       X         
Mr. Foster         X                   Mr. Heller       X         
Mr. Carson         X                                              
Ms. Speier         X                                              
Mr. Cazayoux       X                                              
Mr. Childers       X                                              
------------------------------------------------------------------

The following amendments were disposed of by record votes. The names of Members voting for and against follow:

An amendment by Mr. Ackerman, No. 1a, prohibiting fees for payment of credit card accounts by electronic fund transfers, to the Committee Print (Maloney amendment in the nature of a substitute), was not agreed to, by a roll call vote of 27 ayes and 39 nays (Record vote no. FC-115): 

RECORD VOTE NO.FC-115
------------------------------------------------------------------
Representative   Aye Nay Present   Representative Aye Nay Present 
------------------------------------------------------------------
Mr. Frank          X                   Mr. Bachus       X         
Mr. Kanjorski      X               Ms. Pryce (OH)       X         
Ms. Waters         X                   Mr. Castle       X         
Mrs. Maloney       X                Mr. King (NY)       X         
Mr. Gutierrez      X                    Mr. Royce       X         
Ms. Velazquez      X                    Mr. Lucas       X         
Mr. Watt           X                     Mr. Paul       X         
Mr. Ackerman       X               Mr. LaTourette       X         
Mr. Sherman        X                 Mr. Manzullo       X         
Mr. Meeks          X                    Mr. Jones   X             
Mr. Moore (KS)     X                 Mrs. Biggert       X         
Mr. Capuano        X                    Mr. Shays                 
Mr. Hinojosa       X              Mr. Miller (CA)       X         
Mr. Clay           X                  Mrs. Capito       X         
Mrs. McCarthy        X                 Mr. Feeney       X         
Mr. Baca           X               Mr. Hensarling       X         
Mr. Lynch          X             Mr. Garrett (NJ)       X         
Mr. Miller (NC)    X              Ms. Brown-Waite                 
Mr. Scott          X             Mr. Barrett (SC)       X         
Mr. Green          X                  Mr. Gerlach       X         
Mr. Cleaver        X                   Mr. Pearce       X         
Ms. Bean             X             Mr. Neugebauer       X         
Ms. Moore (WI)       X             Mr. Price (GA)       X         
Mr. Davis (TN)       X             Mr. Davis (KY)       X         
Mr. Hodes          X                  Mr. McHenry       X         
Mr. Ellison        X                 Mr. Campbell       X         
Mr. Klein          X                   Mr. Putnam       X         
Mr. Mahoney (FL)     X              Mrs. Bachmann                 
Mr. Wilson           X                 Mr. Roskam       X         
Mr. Perlmutter     X                 Mr. Marchant       X         
Mr. Murphy           X               Mr. McCotter                 
Mr. Donnelly         X               Mr. McCarthy       X         
Mr. Foster           X                 Mr. Heller       X         
Mr. Carson         X                                              
Ms. Speier         X                                              
Mr. Cazayoux         X                                            
Mr. Childers         X                                            
------------------------------------------------------------------

An amendment by Mr. Hensarling, No. 1c, regarding predatory borrowing, to the Committee Print, was not agreed to by a record vote of 30 yeas and 37 nays (Record vote no. FC-116): 

RECORD VOTE NO. FC-116
------------------------------------------------------------------
Representative   Aye Nay Present   Representative Aye Nay Present 
------------------------------------------------------------------
Mr. Frank              X               Mr. Bachus   X             
Mr. Kanjorski          X           Ms. Pryce (OH)   X             
Ms. Waters             X               Mr. Castle   X             
Mrs. Maloney           X            Mr. King (NY)   X             
Mr. Gutierrez          X                Mr. Royce   X             
Ms. Velazquez          X                Mr. Lucas   X             
Mr. Watt               X                 Mr. Paul   X             
Mr. Ackerman           X           Mr. LaTourette                 
Mr. Sherman            X             Mr. Manzullo   X             
Mr. Meeks              X                Mr. Jones   X             
Mr. Moore (KS)         X             Mrs. Biggert   X             
Mr. Capuano            X                Mr. Shays   X             
Mr. Hinojosa           X          Mr. Miller (CA)   X             
Mr. Clay               X              Mrs. Capito   X             
Mrs. McCarthy          X               Mr. Feeney                 
Mr. Baca               X           Mr. Hensarling   X             
Mr. Lynch              X         Mr. Garrett (NJ)   X             
Mr. Miller (NC)        X          Ms. Brown-Waite                 
Mr. Scott              X         Mr. Barrett (SC)   X             
Mr. Green              X              Mr. Gerlach   X             
Mr. Cleaver            X               Mr. Pearce   X             
Ms. Bean               X           Mr. Neugebauer   X             
Ms. Moore (WI)         X           Mr. Price (GA)   X             
Mr. Davis (TN)         X           Mr. Davis (KY)   X             
Mr. Hodes              X              Mr. McHenry   X             
Mr. Ellison            X             Mr. Campbell   X             
Mr. Klein              X               Mr. Putnam   X             
Mr. Mahoney (FL)       X            Mrs. Bachmann   X             
Mr. Wilson             X               Mr. Roskam   X             
Mr. Perlmutter         X             Mr. Marchant   X             
Mr. Murphy             X             Mr. McCotter   X             
Mr. Donnelly           X             Mr. McCarthy   X             
Mr. Foster             X               Mr. Heller   X             
Mr. Carson             X                                          
Ms. Speier             X                                          
Mr. Cazayoux           X                                          
Mr. Childers           X                                          
------------------------------------------------------------------

A substitute amendment by Mr. Watt, No. 1d(2), regarding the effective date, for the Hodes amendment to the Committee Print, was agreed to by a record vote of 57 yeas, 10 nays, and 1 pass (Record vote no. FC-117): 

RECORD VOTE NO. FC-117
------------------------------------------------------------------
Representative   Aye Nay Present   Representative Aye Nay Present 
------------------------------------------------------------------
Mr. Frank          X                   Mr. Bachus   X             
Mr. Kanjorski      X               Ms. Pryce (OH)   X             
Ms. Waters                  Pass       Mr. Castle   X             
Mrs. Maloney       X                Mr. King (NY)   X             
Mr. Gutierrez      X                    Mr. Royce   X             
Ms. Velazquez        X                  Mr. Lucas   X             
Mr. Watt           X                     Mr. Paul   X             
Mr. Ackerman       X               Mr. LaTourette                 
Mr. Sherman        X                 Mr. Manzullo   X             
Mr. Meeks          X                    Mr. Jones   X             
Mr. Moore (KS)       X               Mrs. Biggert   X             
Mr. Capuano        X                    Mr. Shays   X             
Mr. Hinojosa       X              Mr. Miller (CA)   X             
Mr. Clay           X                  Mrs. Capito   X             
Mrs. McCarthy        X                 Mr. Feeney   X             
Mr. Baca           X               Mr. Hensarling   X             
Mr. Lynch          X             Mr. Garrett (NJ)   X             
Mr. Miller (NC)    X              Ms. Brown-Waite                 
Mr. Scott          X             Mr. Barrett (SC)   X             
Mr. Green          X                  Mr. Gerlach   X             
Mr. Cleaver        X                   Mr. Pearce   X             
Ms. Bean           X               Mr. Neugebauer   X             
Ms. Moore (WI)     X               Mr. Price (GA)       X         
Mr. Davis (TN)     X               Mr. Davis (KY)   X             
Mr. Hodes            X                Mr. McHenry   X             
Mr. Ellison        X                 Mr. Campbell       X         
Mr. Klein          X                   Mr. Putnam   X             
Mr. Mahoney (FL)   X                Mrs. Bachmann   X             
Mr. Wilson           X                 Mr. Roskam   X             
Mr. Perlmutter       X               Mr. Marchant   X             
Mr. Murphy         X                 Mr. McCotter   X             
Mr. Donnelly       X                 Mr. McCarthy   X             
Mr. Foster           X                 Mr. Heller   X             
Mr. Carson         X                                              
Ms. Speier         X                                              
Mr. Cazayoux       X                                              
Mr. Childers         X                                            
------------------------------------------------------------------

An amendment by Mr. Price, No. 1i, regarding damages for viola- tions limited to individual actions, to the Committee Print, was NOT AGREED TO by a record vote of 30 yeas and 37 nays (Record vote no. FC-118): 

RECORD VOTE NO. FC-118
------------------------------------------------------------------
Representative   Aye Nay Present   Representative Aye Nay Present 
------------------------------------------------------------------
Mr. Frank              X               Mr. Bachus   X             
Mr. Kanjorski          X           Ms. Pryce (OH)   X             
Ms. Waters             X               Mr. Castle   X             
Mrs. Maloney           X            Mr. King (NY)   X             
Mr. Gutierrez          X                Mr. Royce   X             
Ms. Velazquez          X                Mr. Lucas   X             
Mr. Watt               X                 Mr. Paul   X             
Mr. Ackerman           X           Mr. LaTourette                 
Mr. Sherman            X             Mr. Manzullo   X             
Mr. Meeks              X                Mr. Jones   X             
Mr. Moore (KS)         X             Mrs. Biggert   X             
Mr. Capuano            X                Mr. Shays   X             
Mr. Hinojosa           X          Mr. Miller (CA)   X             
Mr. Clay               X              Mrs. Capito                 
Mrs. McCarthy          X               Mr. Feeney   X             
Mr. Baca               X           Mr. Hensarling   X             
Mr. Lynch              X         Mr. Garrett (NJ)   X             
Mr. Miller (NC)        X          Ms. Brown-Waite                 
Mr. Scott              X         Mr. Barrett (SC)   X             
Mr. Green              X              Mr. Gerlach   X             
Mr. Cleaver            X               Mr. Pearce   X             
Ms. Bean               X           Mr. Neugebauer   X             
Ms. Moore (WI)         X           Mr. Price (GA)   X             
Mr. Davis (TN)         X           Mr. Davis (KY)   X             
Mr. Hodes              X              Mr. McHenry   X             
Mr. Ellison            X             Mr. Campbell   X             
Mr. Klein              X               Mr. Putnam   X             
Mr. Mahoney (FL)       X            Mrs. Bachmann   X             
Mr. Wilson             X               Mr. Roskam   X             
Mr. Perlmutter         X             Mr. Marchant   X             
Mr. Murphy             X             Mr. McCotter   X             
Mr. Donnelly           X             Mr. McCarthy   X             
Mr. Foster             X               Mr. Heller   X             
Mr. Carson             X                                          
Ms. Speier             X                                          
Mr. Cazayoux           X                                          
Mr. Childers           X                                          
------------------------------------------------------------------

A substitute amendment by Mr. Castle, No. 1h, expressing the sense of the Congress regarding proposed consumer protection regulations, for the Committee Print, was not agreed to by a record vote of 28 yeas and 39 nays (Record vote no. FC-119): 

RECORD VOTE NO. FC-119
--------------------------------------------------------------------
Representative    Aye Nay Present    Representative Aye Nay Present 
--------------------------------------------------------------------
 Mr. Frank              X                Mr. Bachus   X             
 Mr. Kanjorski          X            Ms. Pryce (OH)   X             
 Ms. Waters             X                Mr. Castle   X             
 Mrs. Maloney           X             Mr. King (NY)   X             
 Mr. Gutierrez          X                 Mr. Royce   X             
 Ms. Velazquez          X                 Mr. Lucas   X             
 Mr. Watt               X                  Mr. Paul   X             
 Mr. Ackerman           X            Mr. LaTourette                 
 Mr. Sherman            X              Mr. Manzullo   X             
 Mr. Meeks              X                 Mr. Jones       X         
 Mr. Moore (KS)         X              Mrs. Biggert   X             
 Mr. Capuano            X                 Mr. Shays       X         
 Mr. Hinojosa           X           Mr. Miller (CA)   X             
 Mr. Clay               X               Mrs. Capito                 
 Mrs. McCarthy          X                Mr. Feeney   X             
 Mr. Baca               X            Mr. Hensarling   X             
 Mr. Lynch              X          Mr. Garrett (NJ)   X             
 Mr. Miller (NC)        X           Ms. Brown-Waite                 
 Mr. Scott              X          Mr. Barrett (SC)   X             
 Mr. Green              X               Mr. Gerlach   X             
 Mr. Cleaver            X                Mr. Pearce   X             
 Ms. Bean               X            Mr. Neugebauer   X             
 Ms. Moore (WI)         X            Mr. Price (GA)   X             
 Mr. Davis (TN)         X            Mr. Davis (KY)   X             
 Mr. Hodes              X               Mr. McHenry   X             
 Mr. Ellison            X              Mr. Campbell   X             
 Mr. Klein              X                Mr. Putnam   X             
 Mr. Mahoney (FL)       X             Mrs. Bachmann   X             
 Mr. Wilson             X                Mr. Roskam   X             
 Mr. Perlmutter         X              Mr. Marchant   X             
 Mr. Murphy             X              Mr. McCotter   X             
 Mr. Donnelly           X              Mr. McCarthy   X             
 Mr. Foster             X                Mr. Heller   X             
 Mr. Carson             X                                           
 Ms. Speier             X                                           
 Mr. Cazayoux           X                                           
 Mr. Childers           X                                           
--------------------------------------------------------------------

The following other amendments were considered:

An amendment in the nature of a substitute by Mrs. Maloney (Committee Print), No. 1, was agreed to, as amended, by voice vote.

An amendment by Mr. Hensarling, No. 1b, regarding reported history of irresponsible borrowing, was not agreed to by voice vote.

An amendment by Mr. Hodes, No. 1d, regarding the effective date, was agreed to, as amended by the Watt substitute, by voice vote.

An amendment by Mr. Castle, No. 1d(1), regarding a change of effective date, to the Hodes amendment, was agreed to by voice vote.

An amendment by Mr. Hensarling, No. 1e, striking failure to make timely payments, was offered and withdrawn.

An amendment by Mr. Ellison, No. 1f, limiting fees paid from subprime cards, was agreed to by voice vote.

An amendment by Mr. Hensarling, No. 1g, regarding extensions of credit to underage consumers, was agreed to by voice vote.

An amendment by Mrs. Maloney, No. 1j, regarding failure to make timely payments, was agreed to by voice vote.

COMMITTEE OVERSIGHT FINDINGS

Pursuant to clause 3(c)(1) of rule XIII of the Rules of the House of Representatives, the Committee has held hearings and made findings that are reflected in this report.

PERFORMANCE GOALS AND OBJECTIVES

Pursuant to clause 3(c)(4) of rule XIII of the Rules of the House of Representatives, the Committee establishes the following performance related goals and objectives for this legislation:

H.R. 5244 prohibits certain unfair and deceptive credit card practices and provides consumers with tools to manage their credit card debt responsibly.

NEW BUDGET AUTHORITY, ENTITLEMENT AUTHORITY, AND TAX EXPENDITURES

In compliance with clause 3(c)(2) of rule XIII of the Rules of the House of Representatives, the Committee adopts as its own the estimate of new budget authority, entitlement authority, or tax expenditures or revenues contained in the cost estimate prepared by the Director of the Congressional Budget Office pursuant to section 402 of the Congressional Budget Act of 1974.

COMMITTEE COST ESTIMATE

The Committee adopts as its own the cost estimate prepared by the Director of the Congressional Budget Office pursuant to section 402 of the Congressional Budget Act of 1974.

CONGRESSIONAL BUDGET OFFICE ESTIMATE

Pursuant to clause 3(c)(3) of rule XIII of the Rules of the House of Representatives, the following is the cost estimate provided by the Congressional Budget Office pursuant to section 402 of the Congressional Budget Act of 1974:

U.S. Congress,

Congressional Budget Office,

Washington, DC, September 8, 2008.

Hon. BARNEY FRANK,
Chairman, Committee on Financial Services,
House of Representatives, Washington, DC.

DEAR MR. CHAIRMAN: The Congressional Budget Office has prepared the enclosed cost estimate for H.R. 5244, the Credit Cardholders' Bill of Rights Act of 2008.

If you wish further details on this estimate, we will be pleased to provide them. The CBO staff contact is Mark Booth.

Sincerely,

PETER R. ORSZAG.

Enclosure.

H.R. 5244--Credit Cardholders' Bill of Rights Act of 2008

Summary: H.R. 5244 would amend the Truth in Lending Act to restrict a number of billing practices applied to consumer credit cards, including those related to changes in interest rates and calculations of balances to which interest rates are applied. It would direct the Board of Governors of the Federal Reserve System (Federal Reserve), in consultation with other financial regulatory agencies, to issue regulations implementing the new standards. It also would increase the information that the Federal Reserve is required to collect on the financial activities of credit card issuers, and would require the Federal Reserve to report to the Congress on the sources of industry income from such operations.

Provisions in the legislation affecting the workload of the Federal Reserve and financial regulatory agencies would affect revenues and direct spending, respectively, but CBO estimates that those effects would not be significant.

H.R. 5244 contains no intergovernmental mandates as defined in the Unfunded Mandates Reform Act (UMRA) and would impose no costs on state, local, or tribal governments. The bill would impose private-sector mandates, as defined in UMRA, on issuers of credit cards. The bill would require creditors to submit detailed information on a semiannual basis to the Board of Governors of the Federal Reserve and prohibit creditors from performing certain credit card billing and issuing practices. Based on information from the Federal Reserve and industry sources, CBO estimates that the aggregate cost of those requirements would likely exceed the annual threshold established in UMRA for private-sector mandates ($136 million in 2008, adjusted annually for inflation) in at least one of the first five years the mandates are in effect.

Estimated cost to the Federal Government: For this estimate, CBO assumes that this legislation will be enacted early in fiscal year 2009. CBO estimates that enacting H.R. 5244 would affect direct spending and revenues, but that those effects would not be significant.

Under this legislation, the Board of Governors of the Federal Reserve, in consultation with other financial regulatory agencies, would be required to issue regulations implementing the new credit card billing standards specified by the bill. In May 2008, the Federal Reserve (for banks), the Office of Thrift Supervision (for savings associations), and the National Credit Union Administration (for credit unions) proposed regulations covering some of the same practices addressed by H.R. 5244. The agencies proposed those regulations under authority granted by the Federal Trade Commission Act to prohibit unfair or deceptive practices. If finalized, such regulations would be enforced by those agencies along with the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation.

According to the Federal Reserve and other agencies, the regulatory activities required by H.R. 5244 would have no significant effect on their workload or budgets. In addition, the additional data collection and reporting requirements on the Federal Reserve are not anticipated to have a significant effect on its workload. The budgetary effects on the Federal Reserve are recorded as changes in revenues (governmental receipts). Costs incurred by the other financial regulatory agencies affect direct spending, but most of those expenses are offset by fees or income from insurance premiums. Thus, CBO estimates that enacting this bill would reduce revenues by less than $500,000 over the 2009-2018 period and would have a negligible net effect on direct spending.

Estimated impact on state, local, and tribal governments: H.R. 5244 contains no intergovernmental mandates as defined in UMRA and would impose no costs on state, local, or tribal governments.

Estimated impact on the private sector: The bill contains several private-sector mandates as defined in UMRA because it would require creditors to submit detailed information to the Federal Reserve on a semiannual basis and prohibit creditors from performing certain billing and issuing practices. The aggregate cost for creditors to comply with those mandates would likely exceed the annual threshold established in UMRA for private-sector mandates ($136 million in 2008, adjusted annually for inflation) in at least one of the first five years the mandates are in effect. The bill also includes several requirements that are contained in rules proposed by the Federal Reserve. The Federal Reserve expects that rulemaking process to be completed by the end of 2008.

Information collection requirements

Under current law, the Federal Reserve collects data semiannually from a large sample of creditors. Those data are readily compiled by creditors and the cost of submitting the data is minimal. The bill would require the Federal Reserve to collect additional data from the sample creditors on various transactions, fees imposed, finance charges, repayments of balances, and on the number of accounts affected by certain transactions. To comply with the mandate, creditors would need to start to compile data on individual accounts based on the categories defined in the bill. According to the Federal Reserve and industry representatives, creditors would need to develop and implement new software programs and systems to compile the required data. Based on information from the Federal Reserve and industry sources, the mandate would affect a large number of creditors and the cost to set up those systems could be significant.

Over-the-limit fees

The bill would require creditors to allow cardholders to establish a credit limit that cannot be exceeded. As such, creditors would be prevented from completing any transaction that would put the cardholder in excess of their credit limit. Under current practice, most cardholders are allowed to exceed their credit limit and are charged a fee for doing so. Under the bill, creditors would be prohibited from charging over-the-limit fees on accounts for which the cardholder has requested a credit limit that cannot be exceeded. Because the bill also would require creditors to notify their cardholders of the option to establish a credit limit and provide the necessary tools for cardholders to do so, the Federal Reserve and industry representatives believe that many cardholders would elect to use the option. According to the Federal Reserve and industry sources, this requirement could significantly affect the amount that creditors collect in fees each year. The industry currently collects billions of dollars in such fees annually. Even if a small percentage of cardholders elected to use this option, creditors could lose a significant amount of fees.

Standards for issuing cards

In addition, the bill would prohibit creditors from allowing individuals to pay any fees through the credit made available to them by the credit card when the terms of the credit card include fees in the first year totaling more than 25 percent of the credit limit. According to the Federal Reserve and industry experts, credit cards with such fees are typically issued to individuals who have low credit scores, and thus, those credit cards typically carry a higher-than-average interest rate. The Federal Reserve believes that demand for such cards would fall under the bill because some customers in this market would no longer be able to pay the fees. The loss in net income to creditors could be substantial inasmuch as the industry currently collects billions of dollars in interest and fees from such cards.

The bill also would prohibit creditors from issuing credit cards to individuals less than 18 years of age unless they are an emancipated minor. According to industry representatives and the Federal Reserve, individuals under 18 years old account for only a minuscule amount of credit cardholders. Therefore, CBO estimates that the cost to creditors to comply with this mandate would be small relative to the annual threshold established in UMRA.

Credit account features

H.R. 5244 would impose several new requirements on creditors regarding account pricing, terms, and disclosures. The bill would prohibit creditors from imposing a fee on credit cardholders that do not pay their trailing interest balance. In addition, the bill would require creditors to provide a service through which a cardholder can determine their payoff balance. The bill also would prohibit creditors from informing credit bureaus of a cardholder's line of credit until the cardholder has activated his or her card. Finally, the bill would prohibit creditors from using the term `prime rate' unless its use is based on the definition provided in the bill. The cost for creditors to comply with those mandates would likely be minimal because compliance would involve only a small adjustment in current procedures, because certain fees prohibited generate a small portion of fee-income for the industry, and because creditors are unlikely to engage in the prohibited acts.

Proposed regulations

In addition to the mandates on creditors that would be imposed by the bill, H.R. 5244 includes several requirements that the Federal Reserve has already included in proposed regulations. According to the Federal Reserve, the agency plans to finalize those regulations by the end of 2008. In general, those regulations would impose requirements on how creditors collect interest charges and fees. The mandates contained in the bill that are not included in the Federal Reserve's regulations would become effective one year after the date of enactment of H.R. 5244. Because the Federal Reserve would likely issue final regulations before that date, CBO has not identified those provisions as new mandates.

Estimate prepared by: Federal Revenues: Mark Booth; Federal Spending: Kathleen Gramp; Impact on State, Local, and Tribal Governments: Elizabeth Cove; Impact on the Private Sector: Jacob Kuipers.

Estimate approved by: Frank Sammartino, Deputy Assistant Director for Tax Analysis and Peter H. Fontaine, Assistant Director for Budget Analysis.

FEDERAL MANDATES STATEMENT

The Committee adopts as its own the estimate of Federal man- dates prepared by the Director of the Congressional Budget Office pursuant to section 423 of the Unfunded Mandates Reform Act.

ADVISORY COMMITTEE STATEMENT

No advisory committees within the meaning of section 5(b) of the Federal Advisory Committee Act were created by this legislation.

CONSTITUTIONAL AUTHORITY STATEMENT

Pursuant to clause 3(d)(1) of rule XIII of the Rules of the House of Representatives, the Committee finds that the Constitutional Authority of Congress to enact this legislation is provided by Article 1, section 8, clause 1 (relating to the general welfare of the United States) and clause 3 (relating to the power to regulate interstate commerce).

APPLICABILITY TO LEGISLATIVE BRANCH

The Committee finds that the legislation does not relate to the terms and conditions of employment or access to public services or accommodations within the meaning of section 102(b)(3) of the Congressional Accountability Act.

EARMARK IDENTIFICATION

H.R. 5244 does not contain any congressional earmarks, limited tax benefits, or limited tariff benefits as defined in clause 9 of rule XXI.

SECTION-BY-SECTION ANALYSIS OF THE LEGISLATION

Section 1. Short Title. This Act may be cited as the `Credit Cardholders' Bill of Rights Act of 2008'.

Section 2(a). Prohibits creditors from raising rates retroactively on existing balances, subject to exceptions in section 2(b), and specifies acceptable arrangements for the consumer to pay back the existing balance. Defines `existing balance' as the balance as of 14 days after notice of the rate increase under section 2(c). Requires creditors to allow the consumer to repay the existing balance using a method at least as beneficial to the consumer as a five-year amortization period or doubling of the percentage of the balance included in the minimum payment before the rate increase. Prohibits creditors from assessing a fee based on an existing balance that is protected from a rate increase.

Section 2(b). Creditors may increase the annual percentage rate (APR) on an existing balance only (1) if the rate is pegged to a variable index, (2) as a result of the expiration or loss of a promotional rate (as long as the APR is not increased to a penalty rate), or (3) if the minimum payment is not received within 30 days after the due date.

Section 2(c). For any rate increase, requires a 45-day notice to the consumer that fully describes the changes in the APR in a complete and conspicuous manner and the extent to which such increase would apply to an existing balance.

Section 3(a). Prohibits creditors from imposing finance charges based on balances for any days not included in the most recent billing cycle (double cycle billing). Provides exceptions for balances for deferred interest accrued over multiple cycles and for adjustment of finance charges following resolution of a billing error dispute.

Section 3(b). If the outstanding balance at the end of a billing cycle is only from interest accrued during the preceding billing period on an outstanding balance that was fully repaid during the preceding billing period, then no fees, such as late fees, may be imposed on such balance attributable only to interest before such end of the billing period, and any failure to pay such balance does not constitute a default on the account. Such balance remains a legally binding debt obligation.

Section 3(c). Requires creditors to provide on each statement a telephone number and Internet address for cardholders to request a payoff balance.

Section 3(d). Prohibits creditors from reporting the issuance of any credit card to a credit bureau until the cardholder uses or activates the card. The fact of the inquiry or application for the card can be reported.

Section 3(e). Prohibits any use of the term `fixed rate' except to refer to a rate that will not change for any reason over a set period of time.

Prohibits any use of the term `prime rate' except to refer to the prime rate published by the Federal Reserve in the H.15 release. Provides that every statement shall display a `due date' for payment and that payments received (by mail or electronic transfer) by 5 P.M. local time at the location specified by the creditor for the receipt of payment on that date shall be timely for all purposes. Evidence provided by a consumer in the form of a postal receipt that the payment was sent no less than 7 days before the due date creates a presumption of timely payment, which may be rebutted by the creditor for fraud or dishonesty with respect to the mailing date.

Section 3(f). Where the cardholder has two or more balances on a card at different interest rates, requires a creditor to allocate the cardholder's payments on a pro rata basis, reflecting the proportion each balance comprises of the total outstanding balance on the account. Allows the creditor to credit a larger portion of the payment toward the balance with the higher rate than is proportional, at the creditor's election. Creates an exception for accounts with promotional rate balances: any payment above the required minimum payment on such accounts may only be allocated to the promotional rate balance if all other balances have been paid off. Creates a similar exception for deferred interest balances, except that a creditor may allocate the entire amount paid by the consumer in excess of the required minimum payment to a deferred interest balance in the two billing cycles before the deferred interest arrangement expires. Requires creditors to give the same grace period for promotional rate and deferred interest accounts that they do for other accounts.

Section 3(g). Requires periodic statements to be sent by the creditor to the consumer not less than 25 days before the due date.

Section 4. Provides that a consumer may elect to prohibit creditors from completing any transaction in excess of the consumer's credit limit (a `hard' credit limit). Creditors must notify cardholders of this option annually and on any statement that has an overlimit fee. Bars any overlimit fee for transactions that exceed the credit limit where the consumer has elected a hard credit limit. For consumers who have not elected a hard credit limit, an overlimit fee may be imposed once during a billing cycle if the credit limit is exceeded on the last day of such billing cycle, and an overlimit fee may be imposed only once in each of the two subsequent billing cycles with respect to such charges in excess of the credit limit, unless the consumer obtains a higher credit limit during any such subsequent billing cycle or reduces the outstanding balance below the credit limit as of the end of such billing cycle. Prohibits overlimit fees due solely to credit holds, unless the actual amount of the transaction exceeds the credit limit.

Section 5. Requires the Federal Reserve to collect additional data regarding credit card transactions and fees and rates charged by creditors, and to submit an annual report to Congress.

Section 6. For any credit card account which has fees in the first year totaling over 25 percent of the credit limit, prohibits payment of any fees through the credit made available by the card except for late fees and over-the-limit-fees.

Section 7. Prohibits knowing issuance of credit cards to persons under 18 who are not emancipated minors. Provides that a signed application is adequate proof of age.

Section 8. Provides for a six-month period for the issuance of regulations by the Federal Reserve, and for a one-year period for the bill's requirements to take effect. Sets forth a Sense of Congress that the bill should not impede the promulgation of final regulations under existing law by December 31, 2008, and such regulations should apply to credit card transactions after 30 days from the date of promulgation.

CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

TRUTH IN LENDING ACT

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TITLE I--CONSUMER CREDIT COST DISCLOSURE

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CHAPTER 2--CREDIT TRANSACTIONS

Sec.
121. General requirement of disclosure.
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127B. Additional requirements for credit card accounts under an open end consumer credit plan.
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Sec. 127. Open end consumer credit plans

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Sec. 127B. Additional requirements for credit card accounts under an open end consumer credit plan

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Sec. 136. Dissemination of annual percentage rates

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DISSENTING VIEWS

The way that consumers pay for products and services is dramatically changing, with electronic payments (credit and debit cards) now accounting for more than half of all transactions. Given the crucial role that credit cards have come to play for individual consumers and the economy, it is both timely and appropriate to consider new ways to protect consumers from unfair and deceptive credit card practices, and to ensure that they receive useful and complete disclosures about the terms and conditions governing their cards. But policymakers must realize that in endeavoring to protect consumers, they may end up imposing significant costs on the U.S. economy, because such measures might both raise the costs of credit for some and unfairly limit access to credit to others.

To protect consumers who use credit cards, the Federal Reserve proposed new rules on May 2, 2008. Utilizing its statutory authority under the Federal Trade Commission (FTC) Act to prevent `unfair or deceptive acts or practices,' the Federal Reserve promulgated new rules that will address many of the practices that consumers find confusing. The Federal Reserve has also moved to require credit card issuers to make more effective and transparent disclosures so that cardholders will have a more complete understanding of their credit card terms. This extensive rule-writing process incorporates wide-ranging consumer testing conducted by the Federal Reserve staff to ensure that the new rules will be effective, and provides for a public comment period to evaluate the proposed rule. That comment period closed on August 4. But rather than await the results of the Federal Reserve's work, the Committee instead chose to mark up H.R. 5244, `The Credit Cardholder's Bill of Rights Act,' on July 31.

Rather than allowing the Federal Reserve to finish the job we gave them by statute--and before the comment period on the Federal Reserve's proposed rules had even closed or the Federal Reserve had time to digest the more than 40,000 comment letters that it received from consumer advocates, industry representatives, and other regulators--this Committee interjected itself in the process. A far better course would have been the one suggested by the 14 Members of this Committee--seven Democrats and seven Republicans--who wrote to the Chairman to ask for hearings on the Federal Reserve's proposed rules before deciding whether passing legislation limiting credit card practices was necessary or appropriate.

The Majority cannot credibly contend that the powers granted by the FTC Act are inadequate or that the regulators are stalling. Nothing in this ill-conceived legislation strengthens the Federal Reserve's consumer protection mandate. The FTC Act is a sweeping statute that provides the Federal Reserve with the extensive authority to issue rules prohibiting banks from engaging in acts or practices that are unfair or deceptive. The FTC Act also provides the same authority to the Office of Thrift Supervision (OTS) for thrifts and the National Credit Union Administration (NCUA) for credit unions. Working jointly with the OTS and NCUA, the Federal Reserve has identified credit card practices that it believes are problematic and has developed uniform rules to address them. And these rules will soon take effect: Federal Reserve Board Chairman Bernanke has promised to implement them before the end of the year.

Further, it is not as if the Committee and the regulators were addressing different issues. H.R. 5244 has been designed to address consumer concerns about card companies accruing finance charges because of two-cycle billing computation methods; increasing interest rates retroactively; allocating payments to maximize interest rate charges; and providing inadequate time to make payments. The proposed regulations cover these exact same concerns.

Because the regulators are so near the end of a careful, considered rulemaking process addressing the very same issues covered by this bill, passing H.R. 5244 was an unnecessary exercise in partisan political posturing. We can understand racing to beat the clock. We cannot understand racing to beat the Fed.
Spencer Bachus.
Jeb Hensarling.
Dean Heller.
Randy Neugebauer.
Thaddeus McCotter.
Judy Biggert.
John Campbell.
Geoff Davis.
Ed Royce.
Kevin McCarthy.
Kenny Marchant.
Michele Bachmann.
Michael N. Castle.
Ginny Brown-Waite.
Thomas Price.