Accountability key to enforcing new law
By Suzanne Smither
The Obama Administration is taking a number of steps to ensure accountability from both credit card issuers and regulators under the Credit CARD Act of 2009. And one congressional watchdog is going the extra mile to ensure tough enforcement to protect the four out of five American households with credit cards.
As U.S. Sen. Chris Dodd (D-CT) remarked shortly before the Senate vote on the legislation he spearheaded: “Cardholders should not need a microscope to read what a statement says and a law degree to understand what it means.”
Effective Feb. 22, 2010, the new law requires issuers to post credit card contracts, confusing documents usually available only in hard copy, on the Internet in plain language and a reader-friendly format. Those agreements must also be provided to the Federal Reserve Board to post on its Web site.
These procedures are in place to enable regulators and consumer advocates to do a better job of monitoring changes in credit card terms and evaluating whether current disclosures and protections are adequate.
Penalties will increase significantly – up to $5,000 per offense – for issuers that violate the terms of their agreements with cardholders.
Regulators will be required:
to report annually to the Congress on their enforcement
of credit card protections;
to request public input every other year on trends in the
credit card market and potential cardholder protection
issues to determine what new regulations or disclosures
might be needed; and
based on this input, either to update the applicable rules,
or to publish findings if they deem further regulation
unnecessary.
The Credit CARD Act also strengthens oversight of credit card industry practices by requiring the Federal Trade Commission to issue rules that prevent deceptive marketing of free credit reports.
Shortly after the Credit CARD Act was signed into law, Dodd, Chairman of the Senate Committee on Banking, Housing and Urban Development, became concerned about reports of credit card companies raising interest rates on good customers without apparent reason.
On July 9, the senator sent a letter to Federal Reserve Chairman Ben Bernanke 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 Jan. 1, 2009.
“Press reports indicate ... 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,” Dodd wrote.
He urged the regulators “to do everything in your power to protect cardholders from these abusive practices.” He pointed out that the new law requires “credit card companies to review every six months any account where the interest rate has been raised since Jan. 1, 2009, and reduce the rate” if the cardholder presents less of a risk or circumstances triggering the rate increase no longer exist.
Dodd's letter continued: “In addition to any future interest rate increases, all interest rate increases that have taken place this year will become subject to the mandatory six-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.”
The senator pledged that “Congress will closely monitor both the development of the implementing regulations and their enforcement.”
Sources: The White House Office of the Press Secretary,
www.whitehouse.gov
Office of U.S. Sen. Chris Dodd,
http://dodd.senate.gov