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Maloney Bides Time for Measure on Credit Cards

An ailing economy and bolstered Democratic gains this year could help Rep. Carolyn Maloney (D-N.Y.) next year in her fight to strengthen regulations on the multibillion-dollar credit card industry.

Passage of the legislation is unlikely this year, putting off this battle for the 111th Congress.

Maloney, now in her eighth term representing New York City’s Upper East Side, serves as chairwoman of the Financial Services Subcommittee on Financial Institutions and Consumer Credit. She said her bill — the Credit Cardholders’ Bill of Rights Act (H.R. 5244) — would play a significant role in restoring consumer confidence in the skidding economy. Credit card companies, which have beat back previous regulatory efforts, say her bill could restrict credit to needy consumers.

Her bill could become a centerpiece of a Democratic consumer-protection agenda that seeks to rebalance the relationship between businesses, the government and citizens.

Other potential elements of such an agenda in the 111th Congress might include reining in other parts of the financial services sector as well as strengthening protections of the nation’s supply of food, drugs and consumer products.

Maloney said lawmakers, at least in the majority, have learned that disengagement from financial markets can exact a significant price.

“We’ve been criticized heavily by the public, by the press for not acting more quickly on the subprime mortgage crisis, and we are now trying to act on the credit card challenge,” Maloney said. “When you look out for the consumer, you look out for the economy as a whole.”

A central provision of Maloney’s bill would eliminate universal default, a practice by which a card issuer raises the interest rate on a card based on a change in the cardholder’s credit score or a late payment with another lender.

It also would prohibit “any time, any reason” repricing and the practice of double-cycle billing. The latter refers to calculating a cardholder’s average daily balance over two billing periods rather than one month.

The bill, Maloney said, “lets cardholders say no to interest rate increases that are totally unrelated to how they performed on their card [and] that basically lure people into higher rates and fees.”

The measure has won the backing of several consumer groups, including Consumers Union, the Consumer Federation of America, Consumer Action and the Center for Responsible Lending. In addition, the Federal Reserve is proposing rules that echo many of its provisions.

The credit card industry asserts that the regulations envisioned in Maloney’s bill would effectively tighten access to credit — at precisely the time when more Americans need it.

In May, the Fed proposed rules that, much as Maloney would do, seek to protect consumers from unexpected increases in the rate charged on pre-existing credit card balances.

The proposed rules would also prohibit issuers from applying payments in excess of the minimum in a manner that maximizes interest charges.

But even with the Fed giving a nod to some of her proposals, Maloney intends to write the prohibitions into law. “I would say that regulation, although they are moving forward with it, is not enough. Only a law has the strength to really eliminate unfair and deceptive credit card practices. And though they are in place, regulations can be changed very easily,” Maloney said.

In what may be a sign that Maloney and her allies have momentum on the issue, some major credit card companies have begun to voluntarily adopt some of Maloney’s proposals.

Citi announced that it is ending universal default on all Citi-branded consumer credit cards, and Chase has said it would use a method called average daily balancing in lieu of double-cycle billing.

Still, the American Bankers Association has voiced concern about unintended consequences.

Many of the practices are calculated within complicated risk-pricing models, in what the industry says is an effort to provide credit services at a reasonable cost. Tinkering with parts of the system, they argue, could possibly close off credit to needy consumers or increase costs across the board.

“She’s very open to negotiations and willing to take input and examine an issue before moving forward,” said Scott Talbott, senior vice president of government affairs at the Financial Services Roundtable, one of the groups that has been wary of some of Maloney’s proposals.

Talbott said that his group has been working closely with Maloney on the credit card bill despite their differences. “We don’t always agree on everything, but she’s been very amenable and very agreeable on working with us on this,” Talbott said.

While credit card legislation is probably Maloney’s highest-profile legislative venture, it’s hardly her only one. Maloney has introduced more bills in this Congressional session — 70, including five that passed — than anyone else in the House. She’s also the author of the National Security Foreign Investment Reform and Strengthened Transparency Act of 2007 (PL-110-49), which overhauled the review process of direct foreign investment through the Committee on Foreign Investment in the United States.

Maloney said she intends to push further examination of sovereign-wealth funds. These foreign-owned investment vehicles have grown because of surplus investment capital overseas combined with troubles in the U.S. financial sector. Critics say these funds allow foreign interests to play too big a role in U.S. commerce.

Maloney said she supports creation of an international code of conduct that would include greater disclosure of sovereign wealth fund activities and governance. Separately, she wants to shore up capital adequacy standards for all internationally active banks and for all domestic institutions.

Maloney also serves as vice chairwoman of the Joint Economic Committee. The panel has experienced a bump in attention this year, both from the renewed focus on the economy and from the aggressive approach of the panel’s chairman, Democratic Sen. Charles Schumer, a fellow New Yorker.

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