CU Trades Work to Minimize the Damage From Credit Card Legislation
The bill, sponsored by Senate Banking Committee Chairman Christopher Dodd (D-Conn.) and the panel's ranking Republican, Sen. Richard Shelby (R-Ala.), would go further than the bill passed earlier this month by the House. It would expand some of the regulations approved by the Federal Reserve and the NCUA scheduled to take effect July 1, 2010.
The trade associations were especially eager to defeat an amendment that would allow merchants to give discounts to customers who pay in cash or with debit cards, rather than by credit card, because credit card companies charge higher rates-interchange fees-for processing credit card payments. The amendment was sponsored by Sen. Majority Whip Richard Durbin (D-Ill.).
The two credit union trade associations, which are allied with the American Bankers Association and the Independent Community Bankers Association on this issue, said the amendment would hurt both financial institutions and consumers.
In a letter to lawmakers, the four trade groups said the amendment would "permit merchants to discriminate against payment cards issued by a particular financial institution, including community banks and credit unions."
They also said that the rules change would adversely impact the economics of offering card products, and credit unions and banks might exit that business "and consumers and our overall economy would suffer.''
National Retail Federation Senior Vice President for Government Relations Steven Pfister said that by reinforcing retailers' ability to offer discounts, the amendment would "directly help reduce the prices that consumers pay for goods and services."
The Senate bill contained several other provisions that CUNA and NAFCU opposed, including: a requirement that a card issuer reassess customers' interest rates every six months if the issuer raises its rate; a ban on raising rates if a consumer is more than 30 days late in paying a bill; a provision mandating that gift cards be valid for at least five years with more transparent fees; and the creation of a Financial Products Safety Commission.
The Senate bill also contains provisions that were in the House-passed bill, including a ban on interest rate hikes on existing balances and double-cycle billing. Cardholders could avoid a higher rate by canceling the card before the rate increase takes effect.
CUNA and NAFCU have expressed support for some of these provisions but say that others would prevent credit unions that issue credit cards from managing risk effectively.
The groups both expressed concern that certain provisions, such as a requirement that there be a 45-day notice before rate increases, were too burdensome. They also oppose a provision mandating that credit card issuers set up a system so consumers can notify them if they want to opt out of automatic overdraft coverage on credit transactions if fees are involved.
Both associations also said that credit unions would face regulatory burdens caused by the measure taking effect earlier than the Federal Reserve-NCUA regulations. They also complained that the additional reporting requirements would be burdensome, and the interchange fee provision could result in the publication of pricing information that would be used by potential competitors.
CUNA and NAFCU also each raised individual concerns in their letters to senators.
CUNA President/CEO Dan Mica wrote that the "detailed and burdensome" procedures for establishing over-the-limit access on a card-by-card basis could curtail card use when consumers need it most.
NAFCU Senior President Vice President of Government Affairs Dan Berger wrote senators objecting to a provision mandating that all payments above the minimum be applied to balances with the highest rate. He said this could "create safety and soundness issues for financial institutions, as it minimizes their ability to manage risk."
President Obama, who has said he would like to have a bill on the subject passed by Memorial Day, sought to apply pressure on lawmakers by holding a town hall meeting on the subject in New Mexico last Thursday.