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Gauging the Credibility of Credit Cards

Banks Say Fed’s Regulations Are Enough

Representatives of the nation’s largest banks and credit card companies are working overtime this week to minimize the effect on their industry after being thrown into an unwelcome spotlight by Congress and the White House.

The industry’s trade group, the American Bankers Association, will join executives from the nation’s largest banks and credit card companies in a meeting Thursday at the White House with President Barack Obama and his top aides, including Treasury Secretary Timothy Geithner and senior adviser Valerie Jarrett.

The high-profile meeting comes as the House Financial Services Committee today considers a bill, known as the Credit Cardholders’ Bill of Rights and sponsored by Rep. Carolyn Maloney (D-N.Y.), that would codify new Federal Reserve regulations issued in December aimed at curbing deceptive credit card practices.

A separate bill in the Senate, the Credit Card Accountability, Responsibility and Disclosure Act, is sponsored by Sen. Chris Dodd (D-Conn.) and would go further than Maloney’s bill. Among other things, it would ban a company from using a consumer’s bad credit history as a reason to raise interest rates on a credit card.

Industry officials say that even with an imminent White House meeting, they still don’t know whether the administration plans to endorse current legislation or introduce a new proposal to regulate their industry. “We want to bring to the administration’s attention the broad reach of the Fed’s rules,— said Kenneth Clayton, the ABA’s senior vice president of card policy. “The rules go right to the heart of the concerns the administration has expressed.—

The action from Congress comes as the industry begins a complete overhaul of its business model in order to comply with the new consumer-protection rules issued by the Fed after years of policy work, field testing and public comments. The rules cover most of the provisions that lawmakers are considering but don’t take effect until July 2010, prompting Congress to want to act now and the credit card industry to cry foul.

“The Maloney bill is at best redundant, and the Dodd bill is overly restrictive,— said Scott Talbott, senior vice president at the Financial Services Roundtable, an industry trade group. “We don’t need any legislative action at this point.—

The industry contends that if additional regulation is instituted as it works to address the implementation challenges presented by the Fed’s rules, it could paralyze investors and limit issuers’ ability to review risks, resulting in a contraction of credit and higher prices for the very consumers and small businesses that the rules are designed to protect.

Executives from the ABA, Bank of America, American Express, Citigroup, USAA, HSBC, Wells Fargo, Barclays, Discover, JPMorgan Chase, Capital One Financial Corp., MasterCard and Visa are expected to attend Thursday’s meeting at the White House and welcome the opportunity to convey that same message to the president and his aides.

“Our biggest concern is that new policy initiatives may end up harming the consumers they intend to protect,— Clayton said. “Achieving the right balance of addressing consumer concerns while ensuring those same consumers have access to credit is difficult.—

Supporters of the legislation, mainly consumer advocacy groups, argue that the added weight of Congress is needed to put the force of law behind the new Fed rules and ensure protections are extended to all consumers

“The Fed rules are a good first step, but they do very little for families struggling with their debt,— said Lauren Saunders, managing attorney with the National Consumer Law Center. “They don’t go far enough to address the way credit card companies have escalated fees.—

A similar Maloney bill passed the House in September by a 312-112 vote, and this year’s version is expected to move quickly to the House floor after today’s vote in the Financial Services Committee.

The Dodd bill faces a tougher road in the Senate, where it only narrowly passed the Banking, Housing and Urban Affairs Committee that the Senator chairs last month. The 12-11 vote included no Republican support, and Democrat Tim Johnson of South Dakota, a credit card company hub, also voted against it.

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