Accepted or expected to be in votes today
Universal default:
Congress is codifying the unwise decision of the Federal Reserve last year to
ban so-called universal default. Under this longstanding practice, credit
card issuers would sometimes raise rates as a result of defaults on a
different credit card or loan, because these defaults may have signaled
a weakening in a consumer’s credit profile. This is a sensible risk management
practice similar to insurance companies raising rates for drivers who get
traffic tickets, even if it wasn't while driving the car that was
insured. The issue is that the overall risk profile is changed because
of certain types of behavior, and issuers could price this into rates.
With the looming ban of this practice from the Fed rules – even before this law was enacted – credit card issuers may have reacted by limiting credit lines for all card holders because of the loss of the ability to engage in this type of risk-based pricing. So responsible card holders who never miss a payment are now paying the price for these misguided rules and will likely pay a higher price with the implementation of these rules being rushed in the bill that passed today.
Introductory or “teaser” rates: The sharp restriction of card issuers offering introductory rates for new credit card holders – a lower rate that increases after a set period – will most likely mean that consumers simply never get the benefit of the lower rates and pay the higher rate right from the beginning. Today, savvy consumers with good credit can sign up for new cards year after year and continue the lower rates almost indefinitely. Consumer web sites and other forums tell consumers effective methods to do this, and competition in credit card issuing resulted in a variety of rates for consumer to choose from. Deceptive or misleading practices can be dealt with without raising rates for consumers, as the restrictions in this bill will do.
Restrictions on college students: 18-20 year-olds are old enough to fight for their country and make other adult decisions. The bill’s restrictions on credit card eligibility solely based on age are discriminatory and paternalistic. These severe restrictions also go against the goal of establishing good credit for young adults and teaching them to manage credit wisely.
Defeated
Interchange fees:
The House Rules Committee's rejection yesterday of the amendment by
Peter Welch (D-VT), and Bill Shuster (R-PA), to put back-door price
controls on merchant interchange fees was a wise decision in the best interests
of consumers. The amendment would have been a massive subsidy for some of the
nation’s biggest retailers at the expense of consumers and the community banks
and credit unions that issue credit cards. Experience with interchange fee
controls in Australia demonstrate that consumers pay for this cost shifting
through higher fees on the consumer side and fewer “rewards” such as airline
miles, with no corresponding decline in retail prices. Conservatives and
liberals in Congress, such as Debbie Wasserman Schultz (D-FL), have recognized
that price controls on interchange fees can harm consumer interests. The
House acted wisely in separating the issue of merchant fees from consumer fees,
and the Senate should follow suit and reject similar amendments.
CEI is a non-profit, non-partisan public policy group dedicated to the principles of free enterprise and limited government. For more information about CEI, please visit our website at www.cei.org.
