Credit unions dodged a bullet in the bill passed by Congress last week that will revamp the rules on credit cards; there was no provision included to change the regulation of interchange fees and the other provisions were a mixed bag.
The bill would expand some of the regulations approved by the Federal Reserve and the NCUA scheduled to take effect July 1, 2010. But credit unions and other issuers will have to speed up their preparation as the bill will take effect nine months after President Obama signs it.
The bill includes an amendment ordering further study of the interchange issue, an approach favored by CUNA and NAFCU as preferable to mandating changes that could have reduced revenue for card issuers.
The Senate passed the measure 90-5 and the House approved it 361-64. Despite the lopsided margins, passage was complicated, and there was extensive behind-the-scenes negotiating between and within the parties. Also, given the arcane rules of the Senate, the measure included an amendment allowing concealed weapons to be brought into national parks.
The bill contained 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 an interest rate. It also bans raising rates unless the consumer is more than 60 days late in payment (the credit union and banking lobbies wanted a shorter period). The bill requires that gift cards be valid for at least five years and there be more transparency on fees.
The measure also bans double-cycle billing. Credit card issuers must give 45 days notice before changing rates and cardholders could avoid a higher rate by canceling the card before the rate takes effect. In addition, card issuers must mail bills 21 days before they are due. Issuers cannot charge extra for phone, electronic transfer or online payments unless for an expedited payment.
Also, if consumers pay an amount above the minimum rate, it must be applied to the balance with the highest rate.
A credit card issuer must keep a teaser–or initial–rate in place for the first year and promotional rates for existing customers must last for at least six months.
Students and others under 21 can only have a credit card if a parent, guardian or spouse is the primary cardholder. Those with their own income can submit proof to the card company and gain an exemption. And there needs to be written permission for any credit line increase.
CUNA and NAFCU both said the bill would curb some abuses but expressed concern that it could make credit less available and make it harder for card issuers to manage risk. They also praised the exclusion of interchange fees.
“The Senate-passed legislation will help rein in a number of these abuses, but the bill also contains some elements that we feel will have the unintended consequence of raising compliance costs and making credit more expensive and less available to consumers,” CUNA President/CEO Dan Mica said in a statement. “We are gratified, however, that the Senate opted to not include language that would have threatened the integrity of the payment processing system. Efforts to affect interchange and other elements of the payment processing system would have detrimental effects on the credit unions who issue debit cards and credit cards for their members.”
NAFCU President/CEO Fred Becker said the exclusion of changes on interchange will “preserve the accessibility of credit through credit unions” and allow them to “manage risk and to continue to offer credit to their members at reasonable rates.”
Becker also said his association is working to ensure that smaller credit unions don’t face regulatory burdens that will make it too expensive to offer credit card programs and is also trying to ensure that regulators have flexibility when the bill is implemented.
—cmarx@cutimes.com