The credit card reforms enacted by Congress and signed by the
president last year are set to take effect on Monday. Unsurprisingly,
credit card issuers have already found several ways to get around the
reforms.
Harvard professor Elizabeth Warren, chairwoman of the bailout
oversight panel, said on Thursday that the shortcomings of the credit
card reforms show the need for an independent agency that protects
consumers from the financial industry.
"[The Credit Card Accountability, Responsibility, and Disclosure Act]
is a good first step but it isn't enough alone," said Warren on a
conference call with reporters hosted by the U.S. Public Interest
Research Group. "The credit card industry and the entire consumer credit
industry is broken. We need an agency, a cop on the beat that is
flexible and responsive."
The House of Representatives approved a financial regulatory reform
bill that includes a Consumer Financial Protection Agency. It's fate in
the Senate is uncertain.
Warren described a new credit card trick to get around new
restrictions on arbitrary interest rate increase and "hair trigger" rate
increases for barely-late payments.
"Last week, somebody showed me a letter from their bank that raised
their interest rate from 9.9 percent to 29.9 percent -- not because the
person had done anything wrong or failed to pay, just a rate increase --
but then gave a so-called 'rebate' back to 11.9 percent," Warren said.
"So now the company can impose its 29.9 percent rate increase anytime it
wants because that is the actual rate on the card. In other words, this
issuer has just figured out a way to slide slightly over from the rule
of the CARD Act and avoid the intent of the rule in order to go back to
the practices that Congress has deemed abusive."
That's a new one. In September, the Center for Responsible Lending issued a report titled "Dodging Reform"
identifying eight new tricks credit card issuers had come up with. The
Federal Reserve, when it promulgated rules for the industry to follow
the reforms, squashed two of the evasions identified by the
Center.
U.S. PIRG's Ed Mierzwinski said the Fed should have adopted a broad
anti-evasion provision. Without one, the game of legislative
whack-a-mole will continue.
"The Fed could have had a broader anti-evasion provisions as well,
which we all asked for in our comments and didn't get," said
Mierzwinski. "The fed gave us obvious protections against a couple of
provisions but they should have given us a big hammer and they didn't."
A reporter asked Warren about a potential backup plan in case the
Senate fails to deliver the CFPA.
"Right now there is no Plan B," said Warren. "The CFPA is the only
provision designed to protect families directly. I think right now all
the chips are on the table."
