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DALY CITY, Calif. – The credit card reform proposal that Democratic presidential candidate John Kerry introduced on August 27 contains elements that credit unions fought in court two years ago, but the credit union associations appear keen to downplay the potential conflict. Speaking before a primarily middle class audience in Daly City California, Kerry unveiled a four-page package of proposals that would reform certain unpopular credit card practices as well as attack some predatory lending practices that are already against the law and seek to better protect members of the military from some loan practices. Among the credit card practices Kerry targeted were raising credit card interest rates if a cardholder was reported late on even one of their payments to other creditors. The proposal also called for card issuers to print detailed disclosures of the cost of the credit card balance if the cardholder made only minimum payment on the card. “Companies will be required to inform customers, in an easy-to-read box on each bill, how much time and money will be required to pay off a bill with only minimum payments,” the Kerry campaign said. In June of 2002 NAFCU, and eventually CUNA, joined several national bank card issuers and banking groups opposing a California law which, had it come into force, would have mandated bank and credit union card issuers providing just that sort of disclosure. The credit union/banker legal team fought back the law on several grounds, including the argument that federal regulations from the Office of the Comptroller of the Currency and NCUA precluded the state change and that, since the California law would have only targeted state chartered credit unions, it would have been unfair to federally chartered institutions. But under a Kerry administration the credit card proposal would likely do away with these objections since it would be a national proposal that would affect all card issuers equally. In many ways, the proposal could be seen as a holdover from the previous California fight. For example, the campaign went out of its way to point out the endorsement of its proposal by eight state attorneys general, including Bill Lockyer of California and the attorneys general from Arizona, Connecticut, Iowa, Minnesota, New Mexico, New York and Wisconsin. Different parts of the proposal also specifically cited the overturned California law. The credit union associations downplayed the importance of Kerry’s card proposal. “We plan to keep talking to both campaigns about credit unions’ interests and needs,” said CUNA spokesman Pat Keefe. NAFCU spokesman John Zimmerman noted that the association didn’t believe it had enough information about the proposal to make detailed comments. “We have not seen any details or legislative language on the Senator’s proposal regarding more disclosure requirements for credit cards,” Zimmerman said. “However, we may indeed have concerns and will review details carefully when available.” But another credit union association, Card Services for Credit Unions, noted that the proposal’s focus on card management practices generally associated with large issuers might rebound to credit unions’ benefit should they be able to pick up on them. “Anything that helps focus attention, at a national level, on card practices that credit unions don’t do can only be a help,” said Sue Chrzan, spokeswoman for the association whose members are credit unions that process their card transactions with Certegy. Bert Ely, a noted banking analyst in Alexandria, Virginia, summed up the attitude of many when he noted that there was little to fight over in the proposal and that tended to mean that the issue would fall through the campaign cracks. Other analysts have noted that Kerry might not be able to bring his proposal to fruition, should he win the Presidency. “As far as I read it, most of this proposal will actually require a change of law and not merely a change of regulation,” said David John, a banking analyst for the predominantly conservative Heritage Foundation which is based in Washington DC. John agreed with other analysts that the Kerry package would likely face an uphill battle in a Congress that seems likely to still be dominated by Republicans. He also challenged the idea that the proposed disclosure statements would make a difference to consumers. “First of all, I don’t think anyone would see it,” John said. “I think consumers look for two things on their cards statements. What their next payment is, what charges they made in the previous month. I think anything else will not be read.” John pointed out that most consumers know that they are paying money for the card balances and many would pay them off if they could. But merely telling consumers that they are paying for their card balance will not empower them to pay it, John said. Other analysts have attacked the veiled attack on risk-based pricing that they believe the proposal contains in the truth in advertising reforms. Under risk based pricing, card offers which are at one interest rate are sometimes fulfilled with cards having a higher rate because the cardholder’s credit rating did not merit the lower rate. The Kerry proposal would require large disclosures of the changed rate, as well as notification to customers before an issuer changes card rates. But card analysts pointed out that the effect of this sort of regulation will be to force more people into the highest rate, which is safest from the card issuers’ perspective, and to eliminate lower income consumers from many card markets. -

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