SCHUMER, DODD CALL ON FEDERAL RESERVE TO IMPOSE EMERGENCY FREEZE ON CREDIT CARD RATES
April 23, 2009
Senators Urges Regulators To Speed Up Rule—Which Is Not Due To Take Effect Until July 2010—That Would Stop Companies From Hiking Rates On Existing Balances
Credit Card Companies Are Doubling And Tripling Rates Now To Get Ahead of Next Year’s Rule
WASHINGTON, DC—On the same day President Obama summoned the country’s major credit card issuers to the White House to discuss reforming their practices, U.S. Senators Charles E. Schumer (D-NY) and Senate Banking Chairman Christopher Dodd (D-CT) called on federal regulators to implement an emergency freeze on interest rates tied to existing balances on credit cards.
In a letter to Federal Reserve Chairman Ben Bernanke and other regulators, Schumer and Dodd noted that the Fed has already issued a new regulatory rule that would ban the practice of retroactively raising the interest rates on existing credit-card balances. But the Senators noted that the rule is not scheduled to take effect until July 2010, giving companies more than a year to hike rates on consumers preemptively to get under the deadline. Both Senators said they have heard complaints from constituents who have seen their rates double or even triple almost overnight and without explanation.
Schumer and Dodd said the Fed should invoke its emergency powers to make the rule effective immediately.
“Over the past year, the Federal Reserve has cited the financial crisis as one of the reasons for acting quickly to implement new lending facilities and programs to protect financial institutions. It is long past time for the regulatory agencies to act with the same sense of urgency to protect consumers from the behavior of those same financial companies,” the senators wrote.
Under Dodd’s leadership, the Senate Banking Committee has approved a strong credit card bill that would incorporate and go beyond many of the Fed’s planned rule changes and implement them sooner than currently proposed by the Fed. Rep. Carolyn Maloney has sponsored a related bill on the House side, where it won approval from the House Financial Services Committee earlier this week.
A copy of Schumer and Dodd’s letter appears below.
April 23, 2009
Ben S. Bernanke John E. Bowman
Chairman Acting Director
The Federal Reserve Board Office of Thrift Supervision
20th Street and Constitution Avenue, NW 1700 G. Street, NW
Washington, DC 20551 Washington, DC 20552
Michael E. Fryzel
National Credit Union Administration
1775 Duke Street
Alexandria, VA 22314-3428
Dear Chairman Bernanke, Director Bowman, and Chairman Fryzel:
We write to you today to urge you to use your emergency authority under the “good cause” exception to the Administrative Procedures Act, to immediately implement the provision in the final rules you have previously issued concerning interest rate increases on existing balances for consumer credit cards. The rules are currently scheduled to become effective in July 2010. As you are also aware, Congress is working on legislation to strengthen these rules and provide additional protections for consumers. As Congress works to pass this legislation, and before your rules become effective, issuers continue to operate using unfair and deceptive acts and practices.
Credit card providers have been aggressively raising rates on consumers now to avoid the ramifications of this rule when it goes into effect next year. Companies have increased interest rates across the board now, to increase interest rates before the new rules go into effect. Consumers describe situations to our offices in which the interest rates on their accounts have doubled or tripled overnight, without any misconduct on their part. This kind of practice clearly violates the spirit and intention of the rules, even if the delayed implementation date has the effect of making such behavior legal.
The OTS, NCUA and Federal Reserve have all used this emergency authority numerous times since 2007 to implement rules without public notice or comment, and to make final rules effective immediately. Over the past year, the Federal Reserve has cited the financial crisis as one of the reasons for acting quickly to implement new lending facilities and programs to protect financial institutions. It is long past time for the regulatory agencies to act with the same sense of urgency to protect consumers from the behavior of those same financial companies. Therefore, we strongly urge you to utilize your emergency powers to put this rule into place immediately and protect consumers from these outrageous rate increases.
Thank you for your consideration of this matter. Please don’t hesitate to contact our staffs any information or questions.
Charles Schumer Chris Dodd
United States Senator United States Senator