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SUPCCA in the Senate

posted by Bob Lawless

A few days ago, I blogged about H.R. 1461, the Credit CARD Act of 2007. Later that day, the Senate got into the act (pun intended) with S. 1395, the Stop Unfair Practices in Credit Cards Act or SUPCCA. Hmmm . . . . maybe they did not intend for that one to be known by an acronym. Senators Levin and McCaskill introduced the Senate bill, and it contains a number of provisions for bankruptcy and credit policy wonks.

I am going to start with a provision that will not get the attention it deserves and that is section 6 of the bill, which would amend the Truth-in-Lending Act to require more disclosure of credit card company practices. Credit card companies would have to disclose each interest rate or fee charged to cardholders and the number of cardholders subject to the interest or fee. The credit card companies also would have to disclose the number of cardholders charged interest. We do not have good data on pricing policies of the credit card companies, and this legislation would go a long way toward providing that information. Policymakers and credit card companies alike should welcome the disclosure of more data so as to lead to more efficient and rational regulatory strategies. In the long run, the availability of general pricing data from the credit card industry may have lead to the most laudatory changes the bill could have.

The Senate bill's main focus is to restrict a number of particularly sharp billing practices from the credit card industry. Senator Levin's floor statement introducing the bill and Senator McCaskill's press release explain the bill's provisions in great detail, using a number of simple examples to explain the relevant points. Most significantly, the bill would end double-cycle billing, where the credit card company bases its interest rate not only on the amount outstanding for the current month but the previous month as well. Under double-cycle billing, paying off most of a credit card bill one month will still result in interest charges for the full balance.

The Senate bill attacks a billing practice that the House bill also addresses and that is the practice where credit card companies reserve the right to make any changes to a credit card agreement they want. Thus, a consumer who agrees to a particular set of terms at the time they sign up for a card may find that they are subject to a completely different set of terms once they begin to incur debt. Most significantly, the Senate bill will:

  • For consumers not in default, prohibit credit card companies from unilaterally raising the interest rate disclosed at the time a consumer enters into a credit unless the consumer agrees in writing
  • For consumers in default, limit the interest rate increase the credit card may charge (called the "penalty rate") to no more than 7% greater than the rate before the default
  • Allow interest rate increases to apply only to future purchases, not existing balances on a credit card
  • Prohibit credit card companies from charging interest on fees they assessed on their customers
  • Allow credit card companies to impose only one over-limit fee if the company allows the customer to exceed the card limit
  • Prohibit credit card companies from charging a fee to pay a balance in full

When I was teaching at the University of Missouri, I once had the pleasure of meeting Senator McCaskill. As a former Missourian, I am proud that she has introduced this legislation with Senator Levin. Although markets generally work best in setting prices, parts of the consumer credit industry are out of control. Many consumer lenders systematically use their informational and economic advantages over American consumers to extract payments to which no rational person would agree in advance. Neither the Senate or House bill would stop responsible consumer lenders from offering loans with transparent pricing so that consumers can make informed decisions on borrowing money. Rather, as Senator Levin stated, congressional hearings back in March showed "a number of unfair, little known, and sometimes abusive credit card practices which prey upon families experiencing financial hardships and squeeze even consumers who pay their credit card bills on time." These bills would do nothing more than to put an end to many of these unfair, little known, and abusive practices.

Comments

Can anyone tell me if these bills will have an impact on debit cards?

Matt Creelman

Bob, excellent post and analysis. By the way, the Levin-McCaskill bill number has an inversion, The number is S. 1395, not S 1935 Link is here Also, for your readers, Kathleen Keest of the Center for Responsible Lending and I will be testifying on unfair credit card practices at a hearing of the House Financial Institutions Subcommittee this Thursday morning, 7 June 2007. Sould be some regulator and issuer witnesses also.
Ed Mierzwinski, U.S. PIRG

Does anyone know the current status of "Stop Unfair Practices in Credit Cards Act"?

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  • As a public service, the University of Illinois College of Law operates Bankr-L, an e-mail list on which bankruptcy professionals can exchange information. Bankr-L is administered by one of the Credit Slips bloggers, Professor Robert M. Lawless of the University of Illinois. Although Bankr-L is a free service, membership is limited only to persons with a professional connection to the bankruptcy field (e.g., lawyer, accountant, academic, judge). To request a subscription on Bankr-L, click here to visit the page for the list and then click on the link for "Subscribe." After completing the information there, please also send an e-mail to Professor Lawless (rlawless@illinois.edu) with a short description of your professional connection to bankruptcy. A link to a URL with a professional bio or other identifying information would be great.

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