Blumenthal: Fed Misses Critical Deadline To Roll Back Credit Rates, Fees

By KENNETH R. GOSSELIN The Hartford Courant

Even as a sum of new protections for credit card users went into effect last Monday, the state attorney general disparage a key federal banking regulator for disrupting those efforts.

Attorney General Richard Blumenthal attacked the U.S. Federal Reserve for failing to meet another critical deadline Monday for implementing a provision that takes effect in August that could roll back interest rates and penalty fees.

Apply Today! Discover More

Consumer advocates say an extensive cross-section of cardholders have seen their interest rates and fees go up in advance of the credit card reforms implementation. On Aug. 22, credit card companies must start going over accounts of cardholders whose interest rates and fees have been increased since Jan. 1, 2009.

If market adapts, the cardholder's credit risk or other factors have develop, the credit card issuer must decrease rates and fees.

The Federal reserve was supposed to have rules ready on Monday, sketching details about what rate and fee hikes would likely be reversed.

Blumenthal said he would call for Fed chairman Ben Bernanke to give an explanation for why the rules are not ready and when they would be. By not meeting the deadline, the Federal reserve leaves the impression that protecting consumers is their least priority.

"By failing to meet the deadline, they send the message that it's business as usual despite the new act," Blumenthal said. "That message really needs to be met."

A spokesman for the Federal Reserve said Monday, "The Federal Reserve will announce proposed rules shortly for this provision under the credit card act."

The spokesman would not reveal detail or comment on why the deadline was not met.

Blumenthal has pushed credit card issuers to remove increases immediately to levels of Jan. 1, 2009 and has urged the Fed to support those efforts.

For months, Blumenthal has disparaged credit card issuers for raising rates and fees in advance of reforms taking effect. U.S. Sen. Christopher Dodd, the legislation's motivator, has reiterated those concerns, most recently at a press conference in Hartford last week.

Blumenthal is a candidate for Dodd's seat in Congress.


VIA Hartford Courant

Keyword: Credit Card

Articles from March 2010
More articles from Year 2010

Comments (0)

UPDATE: New Credit Card Regulations Allow Room For Maneuvering


By Meena Thiruvengadam Of DOW JONES NEWSWIRES

WASHINGTON (Dow Jones)--The credit card game rules have officially changed thanks to new credit card regulations, effective Monday, consumers now have the right to steadier interest rates, "reasonable" penalty fees, and clearer, more informative billing statements.

"Credit card customers will see a cessation to many abusive practices that have driven Americans into debt," said Sen. Chris Dodd, chairman of the Senate Banking Committee and chief author of the legislation supporting the new rules, with President Barack Obama and U.S. Treasury Secretary Timothy Geithner also commending the rules.
Geithner called them a "critical step forward" for the protection of the consumer while Obama said they tip the balance of power back to the consumer. "We are holding the credit card companies liable," Obama said in a statement.
The rules require credit card companies to give consumers forty-five days notice before increasing the interest rates or fees, to apply payments to higher interest balances first and to mail bills at least twenty-one days before payments are due. They also prohibit card companies from increasing rates on customers who pay unrelated bills late.
But the rules are not perfect.

"Large credit card companies are already coming up with new tricks and traps to juice as much money as possible from consumers," said Travis Plunkett, legislative director for the Consumer Federation of America. Some credit card issuers raised rates and fees in advance before the law takes effect to evade its protections, he said.

Plus, card companies still can charge for paper statements, raise minimum monthly payments, and charge whatever fees or interest rates they choose, the Center for Responsible Lending, a nonprofit organization aimed at eliminating financial abuses, said.

The loopholes are giving lawmakers, officials and others fodder for their continued push for the introduction of a Consumer Financial Protection Agency, or CFPA.

The CFPA has been envisioned as the government's primary means for consumer protection, but it stands in the way for financial sector regulatory reform plans taking shape on Capitol Hill.

Consumer groups are supporting Geithner on the issue. Plunkett said credit card consumers need a "cop on the beat" to help restrict abuses by credit card companies.

The Center for Responsible Lending said, "Until a strong regulatory regime is in place to restrict abusive practices, consumers will have a hard time tracking all the possible "gotcha" tactics issuers continue to use."

VIA WSJ

Keyword: Credit Cards

Articles from March 2010
More articles from Year 2010

Comments (0)

Report: Interchange Fees Obstructs Economic Growth, Job Creation

By Linda Lisanti

INDIANAPOLIS -- Less than 20% of the interchange fees charged by credit card companies actually includes the cost of processing transactions, according to a recent report by former U.S. Under Secretary of Commerce Robert J. Shapiro, entitled: "The Costs of 'Charging It' in America: Assessing the Economic Impact of Interchange Fees for Credit Card and Debit Card Transactions."

The conclusion of the report -- appointed by the Consumers for Competitive Choice (C4CC) coalition and co-authored by economist Jiwon Vellucci -- were released yesterday during a teleconference -- onthe same day the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009 went into effect.

Under the act, the credit card industry is required transparency with consumers in calculating fees and interest rates However, some groups like C4CC have criticized the legislation for their failure addressing the critical issue of interchange fees.

Banks and credit card companies appropriated $48 billion in interchange fees from Americans in 2008 alone -- up 300% in less than a decade. According to the Indianapolis-based consumer coalition, every dollar spent on the fees is a dollar not being spent on hiring employees or passing savings on to consumers.

In yesterday's teleconference, Shapiro said the report was directed at disclosing why interchange fees, also known as swipe fees, are so high in the United States compared to other countries, and what the consequences are of having such high fees in the economy.

As to why the fees are so high, Shapiro said the U.S. credit card industry doesn't have free market competition since 80% of all consumer transactions happened on 3 cards -- Visa, Mastercard and American Express -- and 4 banks, including giants Bank of America and Citigroup, is in lead of the issuance side of credit cards.

"There is a lot of competition within this handful of companies," he said, observing the credit card companies and banks compete with each other through large rewards they offer that are financed by the fees. "The competition is driving these fees higher rather than driving them lower."

Interchange fees average between 1% and 3% of the value of every purchase. This is not the same with the fees charged in other countries, according to Shapiro.

More than half of these charges are passed on to consumers through higher prices, he added. The report discovered that the average American household, even without using the cards themselves, pays $230 every year in higher retail prices caused by credit card fees not related with the cost of processing transactions. "That lessens the real demand for goods and services because $230 a year is going to these fees," said Shapiro.

Also according to the report, if interchange fees were cut to the actual cost of processing the transactions and add an average profit level, the resulting rise in economic activity would produce nearly 242,000 new jobs across the U.S. economy.


"Although the CARD act [contains] significant changes and reforms, this should be just the beginning. The next stage should be amending the swipe fees," he concluded.


VIA CSNEWS

Keyword: Credit card

Articles from March 2010
More articles from Year 2010

Comments (0)