WASHINGTON — Senator Hillary Rodham Clinton (D-N.Y.), in the midst of a heated race for the Democratic primary nomination, issued a comprehensive plan at the end of January aimed at ensuring fair access to credit on reasonable terms for Americans.

Clinton said she sees families across America struggling to cope with spiraling household debt, facing a vicious credit cycle, and suffering abusive rates and penalties. Middle-class Americans dealing with resetting adjustable-rate mortgages and rising health care, college, and energy costs are depending more and more on credit cards just to stay afloat, she noted.

Clinton cited the following statistics:

- Americans have a record $940 billion in revolving debt, and the average person carries up to nine different credit cards.

- The average family carries thousands in credit debt; over 10% of credit card users carry a balance of $10,000 or more.

- Credit card holders in the bottom two income quintiles–already paying on average the highest starting interest rates–are more than twice as likely to pay penalty interest rates as those in the top two income quintiles.

Sen. Clinton asserted that cracking down on predatory credit card companies is an important step in lifting American families out of poverty and that for three decades credit card companies and major banks have been subject to less and less regulation. Clinton said that most state regulations today do not apply to credit card companies, and federal law sets few restrictions on what they can do.

To help reverse these trends and protect American families, she said, her Fair Credit for Families Agenda will:

(1) Immediately impose a 30% cap on annual interest rates for credit cards and work toward a lower cap;

(2) Prevent credit card companies from unfairly increasing interest rates, or charging interest in unfair or unreasonable ways;

(3) Require that credit card companies provide clear, easy-to-understand information about credit card terms and fees;

(4) Create a new Financial Product Safety Commission to police credit products;

(5) Crack down on abusive payday lenders and refund anticipation loan providers; and:

(6) Empower communities to help families control their own financial destiny through improved financial literacy and better borrowing opportunities.

According to a Government Accountability Office survey of 28 credit cards issued by the nation's leading banks, up to a quarter of card issuers charged penalty rates over 30%. And African-Americans, Hispanics, single women, and low-income families are most likely to be saddled with high interest rates. To rein in already extreme rates, her plan would cap all credit cards at 30%–a cap that would apply to the stated interest rate and the effective rate and also address abuses in payday and refund anticipation loans.

Clinton would direct the Office of the Comptroller of the Currency to make recommendations on a lower interest rate cap linked to a standard benchmark, plus a margin to provide for a reasonable profit. This cap would not preempt lower state law caps.

Professor Elizabeth Warren has noted that credit products are “regulated by a tattered patchwork of federal and state laws that have failed to adapt to changing markets,” Clinton cited. Her plan would bolster enforcement efforts against abusive practices, she said. The new agency would oversee lending banks and financial institutions, establish a set of fair rules and guidelines for financial products–including disclosure and reporting rules–and develop new protections against predatory and abusive lending practices. Clinton would streamline federal oversight and enforcement beyond the FPSC, and give states concurrent enforcement authority against national banks for violations of federal law.

Many credit card deals include clauses that allow lenders to raise rates “at any time for any reason,” so long as they give 15 days notice to the consumer, said Clinton. Her plan would require lenders to obtain written consent from a borrower before any rate increases or change in terms become effective; new rates could not apply to old transactions; they could only charge interest on the money they lend, not on the fees they impose. And as some credit card companies collect interest on late penalties, over-limit fees, and other hidden charges, her plan would prevent that.

Credit card companies would only collect interest on the unpaid portion of the previous month's bill, forbidding “double-cycle billing.” They'd be required to apply payments to the portion of the outstanding balance with the highest interest rate, establish uniform rules for late fees and payment deadlines and make clear disclosures of card terms and consequences of making only minimum payments.

In 2005, payday lenders earned $4.2 billion in excessive loan fees, and Americans paid $960 million in finance charges associated with refund anticipation loans, according to the Center for Responsible Lending, and the Consumer Federation of America. Unbanked or underserved households are adversely impacted by this practice, which Clinton described as Americans borrowing their own money at high interest rates. Her plan would prevent payday lenders from evading more stringent state laws. The plan would also provide competitive federal grants for states to design financial education curricula and to develop public-private partnerships that incorporate them into area high schools.

To help “unbanked” Americans access safe affordable banking services, Clinton's plan would promote regional alliances among city and state governments and public-private partnerships to encourage the unbanked to enter the financial mainstream. It also has called for $50 million in funding to reinvigorate the First Accounts pilot programs in all 50 states. Under President Bill Clinton, the Treasury Department launched a pilot initiative to expand access to mainstream financial services, and early results were encouraging, but the Bush administration stopped funding the program in 2002. Sen. Clinton said her own program would be fully funded and implemented in low-income communities across the country if she were to become president.

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