DODD DEMANDS STRICT REGULATIONS TO REVIEW AND REDUCE CREDIT CARD RATE HIKES
July 9, 2009
Increases Since January 1st, 2009 Will Be Subject to Review Every Six Months
Calls On Regulators to Act to Protect Customers
WASHINGTON – Today, Senate Banking Committee Chairman Chris Dodd (D-CT) sent a letter to the Chairman of the Federal Reserve and the heads of key regulatory agencies directing them to write and enforce robust rules to implement new requirements that credit card companies review rate increases on their customers implemented since January 1st of this year.
The Credit Card Accountability, Responsibility, and Disclosure Act enacted in May cracks down on abusive, misleading and deceptive practices employed by some credit card companies. Among strong new consumer protections, the bill prevents arbitrary interest rate, fee and finance charge increases on a customer’s existing balance.
Recent media reports indicate that some companies have been raising rates on customers before the law goes into effect. However, the Credit CARD Act includes a provision that will require credit card companies to review every six months any account where the interest rate has been raised since January 1, 2009 and reduce the rate if the customer has become less of a credit risk or the circumstances that warranted the increase are no longer present.
In his letter, Chairman Dodd directed the agencies to immediately notify all credit card companies under their jurisdictions that they will be held accountable for all interest rate increases during this time period and will be subject to the review requirement once it takes effect. He went on to call on the Federal Reserve to draft regulations that provide clear, robust requirements for the review of rate increases and the agencies enforcing the regulations to hold the credit card companies strictly accountable for conducting thorough reviews and decreasing rates where warranted.
Below/attached, is the letter:
July 9, 2009
Ben S. Bernanke Sheila C. Bair
Board of the Governors of the Federal Deposit Insurance Corporation
Federal Reserve System 550 17th Street, NW
20th Street and Constitution Avenue, NW Washington, DC 20429
Washington, DC 20551
John C. Dugan John E. Bowman
Comptroller of the Currency Acting Director
Office of the Comptroller of the Currency Office of Thrift Supervision
250 E Street, SW 1700 G Street, NW
Washington, DC 20219 Washington, DC 20552
Michael E. Fryzel
National Credit Union Administration
1775 Duke Street
Alexandria, VA 22314
Dear Chairman Bernanke, Chairman Bair, Comptroller Dugan, Director Bowman, and
I am disturbed by recent reports in the press that some credit card companies are allegedly raising interest rates on their customers’ existing balances without justification. As you know, the Credit Card Accountability Responsibility Disclosure (Credit CARD) Act enacted in May will protect cardholders by curbing such abusive practices. Press reports indicate, however, that some companies are raising rates now to get around these consumer protection provisions before they take effect and before regulations can be promulgated to enforce them.
I urge you to do everything in your power to protect cardholders from these abusive practices. In particular, as the Federal Reserve drafts regulations and the agencies enforce them going forward, I invite your diligent attention to Section 101(c) of the Credit CARD Act which will require credit card companies to review every six months any account where the interest rate has been raised since January 1, 2009, and reduce the rate if the review indicates that the cardholder has become less risky or the circumstances that warranted the increase are no longer present.
In addition to any future interest rate increases, all interest rate increases that have taken place this year will become subject to the mandatory 6-month review. I ask you to immediately notify all credit card companies under your respective jurisdictions that they will be held accountable for all interest rate increases during this time period and will be subject to the review requirement once it takes effect.
This January look-back was designed to address reports of credit card companies arbitrarily raising rates after the December 2008 promulgation of the UDAP regulations that would have taken effect in July 2010, and to deter companies from doing the same before the provisions of the Credit CARD Act take effect.
However, the look-back provision will serve as a deterrent only if it will be implemented and enforced effectively. I therefore expect the Federal Reserve to draft regulations that provide clear, robust requirements for the review of rate increases, and the agencies enforcing the regulations to hold the credit card companies strictly accountable for conducting thorough reviews and decreasing rates where warranted.
Congress will closely monitor both the development of the implementing regulations and their enforcement.
I understand that not all credit card companies under your respective jurisdictions have engaged in abusive practices. Nonetheless, experience has shown we must maintain vigilant watch to protect the financial interests of the American people. I hope that you will take seriously the need to protect cardholders from abuses by credit card companies, and I look forward to working with you on this important task.
Christopher J. Dodd
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