Merchants Payments Coalition is taking Visa to task asking why Visa refused to consider lowering interchange fees even if fraud is reduced after merchants invest billions in new security technologies.
The U.S. House overwhelmingly approved legislation that
would push up the date of credit card reforms scheduled for next year to be effective immediately upon the signing of the bill. By a vote of 331-92 the H.R. 3639, the “Expedited CARD Reform for Consumers Act of 2009” was passed. The Senate has also taken up a similar measure but it appears, at this point, unlikely to pass. The “Credit CARD Act” had three staged implementation dates: August 2009, February, 2010, and August, 2010. “H.R. 3639” moves up the remaining dates by which banks and credit card issuers would have to comply and applies to the largest card issuers that control over 80% of the credit card market. The House also approved an amendment, offered by Carolyn McCarthy (D-NY) and Betsy
Markey (D-CO), permitting card issuers that adopt a moratorium on interest rate increases on current balances and new balances incurred before Feb. 22 to be exempt from the earlier effective date for a provision that requires an issuer to apply customer payments to the highest rate balance. The bill exempts small credit card issuers and
gift card providers. However, both would have to comply with the later
deadlines previously laid out in the “Credit CARD Act.”
The Financial Services Committee unanimously passed H.R. 3639, the
“Expedited CARD Reform for Consumers Act of 2009, which moves up the
effective date for credit card reforms from February 22nd to December
1st. The bill now moves to the House floor for consideration. The
committee voted to keep the original effective date of February 22nd for
prepaid gift cards and for small credit card issuers with under 2
million cardholder accounts. Meanwhile, the ABA says banks are working
diligently to implement the “CARD Act” by next February, as Congress
required, but it would be extremely difficult, if not impossible, for
them to meet the new deadline contemplated by this bill. Moving up the
implementation date will place additional strain on institutions and is
likely to further restrict access to credit at a time when consumers,
small businesses and the broader economy need it the most. The ABA also
noted that federal regulators are still in the process of finalizing
rules pursuant to the “CARD Act.” If H.R. 3639 were enacted it would
create a scenario where card issuers are required to comply with rules
that are not yet in place. This would expose banks to significant risk
of litigation and also cause a lot of confusion for both banks and their
customers. The result could be a dramatic pull-back in lending.
The “Fairness and Accountability in Receiving (FAIR) Overdraft Coverage
Act” introduced this week by Senate Banking Committee Chairman Chris
Dodd (D-CT) drew broad endorsements from consumer groups. The bill would
require financial institutions to obtain explicit permission from all
their customers before enrolling them in a system of fee-based
overdraft coverage for debit card and ATM transactions. Other provisions
require that an overdraft fee charged on any transaction be reasonable
and that its size bear some relationship to the cost of covering the
overdraft; prohibit reordering of customer transactions to trigger
otherwise avoidable overdraft fees; limit the number of overdraft fees
per person to six a year and no more than one a month. At that point,
financial institutions would have to enroll the consumer in a lower-cost
program or stop charging for covering overdrafts. Rep. Carolyn Maloney
(D-NY) has also introduced similar legislation in the House.
In a major decision, Bank of America announced it will not implement
any change in terms (risk or economic based) re-pricing of consumer
credit card accounts between now and the effective date of the “CARD
Act” early next year. Senate Banking Committee Chairman Chris Dodd
called on credit card companies to follow BofA’s commitment to not raise
interest rates or change terms on customers until consumer protections
included in the “Credit CARD Act” go into effect. In April Chairman Dodd
and Sen. Charles Schumer wrote a letter to Federal Reserve Chairman Ben
Bernanke calling on him to use emergency authority to freeze interest
rate increases on existing balances for consumer credit cards.
Rep. Carolyn Maloney and Sens. Charles Schumer and Mark Udall are
reintroducing credit card reform legislation. The “Credit Cardholdersâ
Bill of Rights Act of 2009” seeks to ban arbitrary interest rate
increases, due date “gimmicks,” “excessive” fees and other “misleading”
terms. The new bill also requires card companies to fairly credit and
allocate payments and enable cardholders to set limits on their credit.
Rep. Maloney notes that the new bill sets no rate caps, fees, or price
controls, nor does it dictate any business models to card companies.
Last September, the “CCBOR” (HR 5244) passed the House, 312-112 but died
in the Senate. It would have banned universal default, double-cycle
billing, and retroactive rate hikes. In December, the Federal Reserve
released final regulations that would ban many of these practices, but
the new rule does not take effect until July 2010. The CCBOR introduced
this week would take effect 90 days after the President signs it.
The FTC has filed a lawsuit charging CompuCredit and Jefferson Capital Systems with deceptive marketing practices in selling credit cards to consumers in the subprime market. The FDIC also issued notice of administrative charges against CompuCredit and two banks that issued credit cards marketed by CompuCredit. The FTC alleges that CompuCredit violated the “FTC Act” by misrepresenting the amount of credit that would be available immediately to consumers, failing to disclose up-front fees, failing to disclose that certain purchases could reduce a consumer’s credit limit and misrepresenting a debt collection program as a credit card offer. CompuCredit says the claims asserted by the FTC and FDIC regarding CompuCredit’s past credit card marketing practices are untrue and without merit. The FDIC repeatedly determined over the years that the marketing materials fully disclosed fees and terms in compliance with consumer protection laws. CompuCredit says it intends to vigorously contest these unsupported allegations and is confident that it will prevail. The Company also noted that the FDIC retained CompuCredit for the express purpose of marketing credit cards to customers of a bank directly controlled by the FDIC. Specifically and ironically, the FDIC retained CompuCredit in June 2002 to serve as its marketing partner for a portfolio of the Nextbank credit card.
The National Retail Federation and National Council of Chain Restaurants applaud the Senate passage of legislation that would protect retailers and restaurants from frivolous lawsuits over credit card expiration dates printed on customers’ receipts. At issue is a provision in the Fair and Accurate Credit Transactions Act (FACTA) intended to prevent credit card fraud. Under FACTA, merchants were told they could no longer print more than the last five digits of a credit or debit card number “or” the card’s expiration date on receipts after December 4, 2006. Many merchants interpreted the law as meaning they could either truncate the card number or leave off the expiration date, but that they were not required to do both. Most truncated the card number but some continued printing the expiration date, reasoning that the expiration date was of no value without the full card number. Merchants have been hit with more than 300 class acts lawsuits contending that FACTA required them to take both steps, and seeking fines as high as $1,000 per incident, the maximum allowed under the 2003 law. FACTA does not allow individuals to sue, instead giving enforcement authority to the Federal Trade Commission, but the lawsuits were brought under state laws citing FACTA. The legislation would protect merchants from lawsuits for expiration dates printed between the time the FACTA rule went into effect and the time the measure is signed into law. But merchants would still be required to both truncate card numbers and leave off expiration dates going forward.
Congresswoman Carolyn Maloney (D-NY), Chair of the Financial Institutions and Consumer Credit Subcommittee, announced that she has secured the 100th co-sponsor for her “Credit Cardholders Bill of Rights” (H.R. 5244), she introduced in February to reform major credit card industry abuses and improve consumer protections. Rep. Maloney also held the second of two planned legislative hearings on the bill in her Subcommittee. The “Credit Cardholders’ Bill of Rights” requires card companies to give cardholders advance notice of any interest rate hike; gives cardholders the right to say “no” to borrowing money at a higher interest rate than they originally agreed to; stops tricks and traps that make cardholders incur rate hikes and pricey fees; empowers cardholders to set limits on their credit; shields cardholders from misleading terms; protects vulnerable consumers from fee-heavy subprime cards; and requires Congress to provide better oversight of the credit card industry.
The Merchants Payments Coalition says the “Credit Card Fair Fee Act”, for the first time, deals with the biggest credit card fee of all — the interchange fee. The bgroup says it welcomes the effort to stop the price-fixing practices of the credit card industry and create a transparent market-based process. The MPC also said that currently, credit card interchange rates are set in secret and hidden from view. Raising interchange fees is how VISA and MasterCard encourage banks to issue more credit and debit cards — as long as rising rates are kept top secret, consumers have no way of knowing the extra costs they are paying through higher prices.
A new survey has found that consumers paid about $17.5 billion in fees for $15.8 billion in abusive overdraft loans. In addition, the report finds that debit card overdrafts are now the single largest source of overdraft fees. The non-profit Center for Responsible Lending research also identified several unfair bank practices including the posting charges against a checking account quickly while intentionally delaying the posting of deposits; lowering account balances by re-ordering debits to clear higher-dollar items first; and failing to warn a customer during debit card point-of-sale or ATM transactions if they are about to overdraw their account so that they may cancel the transaction if they choose. Meanwhile, the American Bankers Association says overdraft protection is a valued service and penalty fees are avoidable for consumers who inadvertently overdraw their deposit accounts. The ABA says that banks have traditionally covered overdrafts, under certain circumstances, and that today overdraft protection practices are automated with specific criteria and have limits on the coverage. Additionally, current technology makes real-time notification of debit card overdrafts cost prohibitive.
NY-based National Envelope Corporation has unveiled card sleeves and mailing envelopes to help shield contactless payment cards in transit. The new “Smart Card Guard” uses a thin protective metallic barrier that is incorporated into a specially produced, easy-to-print substrate. The new product was developed late last year and tested early this year by InfoGard Laboratories. The Company said the new product was developed in response to a 2006 study by researchers at the University of Massachusetts-Amherst. The test of 20 smart cards showed encryption levels were not nearly strict enough to prevent easy interception of personal information. National Envelope manufactures approximately 50 billion envelopes a year via 21 manufacturing facilities in the U.S. and Canada. A report released last week by Packaged Facts projects that total contactless credit and debit cards in the U.S. will reach 109 million by 2011 from the current 27 million. (CF Library 5/2/07)