Credit Card Reforms “Shouldn’t Wait,” Frank Urges

By Sarah Borchersen-Keto, CCH Washington News Bureau, Contributing Author, the CCH Federal Banking Law Reporter, Oct. 8, 2009.

Bank of America’s recent announcement that it will not raise credit card interest rates or fees ahead of new legislation due to go into effect next February suggests that the time frame for compliance is reasonable, House Financial Services Committee Chairman Barney Frank, D-Mass., said October 8.

In fact, “the case is very clear that this is the type of protection that shouldn’t wait, and we should move forward,” Frank noted, adding that in his opinion some lenders have taken advantage of the phase-in period to raise rates ahead of legislation.

Frank and Rep. Carolyn Maloney, D-N.Y., have introduced H.R. 3639, the ‘‘Expedited CARD Reform for Consumers Act of 2009,” which would move up the effective date of the remaining provisions of the Credit CARD Act, now scheduled for February and August 2010 to Dec.1, 2009.

Meanwhile, Frank said his committee will also begin a serious look at the more complex issue of interchange fees, which are collected by credit card issuers from merchants. Legislation introduced by Rep. Peter Welch, D-Vt., and Rep. Bill Shuster, R-Pa., would make interchange fees subject to full disclosure, and terms and conditions set by credit card companies would be easily accessible to consumers. Profits from interchange fees would also be prohibited from subsidizing credit card reward programs.

According to Mallory Duncan, representing the National Retail Federation and the Merchants Payments Coalition, the collective setting of interchange fees by Visa and MasterCard represents an on-going antitrust violation that costs merchants and their customers tens of billions of dollars annually.

The American Bankers Association, however, argued that merchants get enormous benefits from accepting credit cards, particularly the ability to maximize sales, guarantee payments and avoid losses from bad checks, employee theft, and other costs. ABA stated that merchants only pay a penny or two on each dollar of payment card transaction, which “is a very small price to pay for all of these benefits.”

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