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<p>ARLINGTON, VA – NAFCU has joined four other bank trade groups and five large bank credit card issuers in a suit against the California attorney general to prevent the state from putting into effect a law that would dramatically change the way credit unions and banks manage California residents’ credit card accounts. Enacted in October and due to come into effect on July 1, the law would require credit unions and banks with customers resident in California to issue specific disclosures and set up toll free numbers if they allow their California customers to make monthly payments of less than 10% on their credit cards. The lawsuit in the U.S. District Court for the Eastern District of California seeks an injunction blocking the law from going into effect, claiming that it violates protections against state interference in federal banking regulation. In addition to NAFCU, the plaintiffs include the American Bankers Association, America’s Community Bankers, Consumer Bankers Association and Independent Community Bankers of America. The large card issuers include Chase Manhattan Bank N.A., Citibank (South Dakota) N.A., First USA Bank N.A., Household Bank (SB), N.A. and MBNA America Bank, N.A. NAFCU got involved with the suit after its members reported that the law would have serious impact on their business, according to John Zimmerman, NAFCU Public Relations Manager. The members’ concern over the law’s impact was judged to outweigh the potential negative impact of being seen to come down against a law perceived to be “pro-consumer.” Concerns about the possible impact on credit unions’ consumer image led CUNA’s Consumer Protection Subcommittee to vote to continue to “monitor” the issue, but the Subcommittee refrained from advising the Association get involved in the suit. Eric Richard, CUNA’s General Counsel, said that the Subcommittee had conducted a cost benefit analysis of the suit and had concluded that the there had been enough issues recently, such as repeal of the CAP regulation and bankruptcy, on which credit unions had been perceived to be against consumer interests. Given that others were bringing the suit anyway there would be little benefit in CUNA getting involved, Richard said. Henry Kertman, Director of Public Relations for the California Credit Union League declined to comment on why the League had not joined the suit nor to address the rumor that the League had declined to get involved out of fear of offending California legislators who had backed the law. He also observed that the litigants were national trade associations and national card issuers and that they might have a different set of concerns, namely the interstate commerce implications of the law, driving the suit. Everyone agrees, however, that should it take effect on July 1 the law will severely impact how credit cards are managed, and likely sold, in California and possibly other states as well. According to a memo explaining the measure, provided by NAFCU, the intent of the bill appears to be to force credit card issuers to require customers to repay 10% of their balance monthly and “punishes” those card companies who fail to comply by forcing them to take certain measures. First, card issuers that do not require their customers to pay 10% of their balances will have to include two statements on the first page of their invoices in at least eight point capitalized type [see sidebar]. The issuer can choose not to include the second statement in favor of a similar statement using the credit card’s actual balance, interest rate and time to pay the bill if it so desires. Second, card issuers that fail to require 10% monthly payments have to establish a toll free number and staff it with people, as opposed to an automated service or recording, who can estimate for callers the amounts of time it will take them to pay off their credit cards if they pay the minimum balance only. A notice similar to the others must be included to alert the card holder to the existence of the 800-number and the card issuer must keep the number staffed from 8:00 a.m. to 9:00 p.m. pacific time, seven days a week. Third, card issuers who want to avoid the previous two requirements must include customized statements with each bill that explain how long paying off the account will take at the minimum payment and refer the cardholder to a consumer credit counseling service in their county of residence. Such a statement must be provided instead of the other two statements if the cardholder has made minimum payments six months in a row. Jennette Gayer, spokeswoman with the California Public Interest Research Group (CALPIRG), a leading consumer organization, declined to comment on the suit because she had not yet seen it, but said CALPIRG supported the law because the organization had become aware of measures the credit card industry was taking “to make it easier for people to stay in debt longer.” “We have long been aware of ways the credit card companies are making it easier for people go into debt and stay there,” Gayer said, citing measures like increased fees, smaller minimum payments and shortened grace periods. [email protected]</p>

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