Credit CARD Act of 2009 didn’t break the world, it fixed a broken marketplace

Twelve years ago today I was in the Rose Garden for the signing of the Credit CARD Act. It ended many unfair practices by banks intended to gouge consumers.

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Ed Mierzwinski
Senior Director, Federal Consumer Program

Author: Ed Mierzwinski

Senior Director, Federal Consumer Program

202-461-3821

Started on staff: 1977
B.A., M.S., University of Connecticut

Ed oversees U.S. PIRG’s federal consumer program, helping to lead national efforts to improve consumer credit reporting laws, identity theft protections, product safety regulations and more. Ed is co-founder and continuing leader of the coalition, Americans For Financial Reform, which fought for the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, including as its centerpiece the Consumer Financial Protection Bureau. He was awarded the Consumer Federation of America's Esther Peterson Consumer Service Award in 2006, Privacy International's Brandeis Award in 2003, and numerous annual "Top Lobbyist" awards from The Hill and other outlets. Ed lives in Virginia, and on weekends he enjoys biking with friends on the many local bicycle trails.

Twelve years ago today I was in the Rose Garden for the signing of the Credit CARD Act. It ended many unfair practices by banks intended to gouge consumers. As I explain in just 3 minutes (starting at 36:08) in this 2013 CFPB Chicago field hearing video, over the years the banks had ratcheted up a series of diabolical, punitive moves to tighten down the thumbscrews on card holders, even though credit card lending had long been the most profitable form of consumer lending, according to the Federal Reserve Board’s annual reports to the Congress.

Also in the Rose Garden in 2009 were consumer, civil rights, labor, women's, senior and other groups that had banded together to support Representative Carolyn Maloney’s Credit CARD Act. She persisted, even when a phalanx of bank lobbyists wrongly claimed her bill would break the world. Oh snap(!), those were the same Wall Street guys who just the year before had broken the world(!) by destroying the mortgage marketplace and the economy in 2007-2008 in reckless actions that led to the Great Recession. Millions lost their homes and jobs and trillions of dollars in retirement savings, but I digress.

From 1989 until the run-up to the 2009 CARD Act, I only recall two hearings, and no votes, on reforming credit card practices. In 1994, Rep. Joe Kennedy (MA) (father of the current Congressman) held a hearing on college credit card marketing which featured two sisters who became mired in credit card debt after some frat brothers came through their dorm urging everyone to apply for cards because credit card vendors had promised to fund the kegs for a beer blast if enough students applied. Then, in 2001, the House Financial Services Committee held another hearing. As I recall, full committee Chairman Mike Oxley (OH) owed full committee Ranking Member John LaFalce (NY) a favor for something else and agreed to the hearing. The banks were outraged. [Note: in the 2013 video, I say “only 2 hearings since 1999,” but I meant since 1989.]

So, the Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009 was a response to a variety of increasingly extractive practices by banks seeking to squeeze ever-higher profits in unfair ways. Chris Dodd (CT) was its Senate sponsor but its pivotal moment came when its House sponsor and longtime champion Rep. Carolyn Maloney (NY) insisted on demanding a committee vote after it appeared that the conservative Democrats on the committee wouldn’t support the bill and it was suggested that Representative Maloney should accept the alternative of completing a similar Federal Reserve regulation. She persisted. After a long recess for floor votes, the bill passed committee and then the floor overwhelmingly. In that committee vote, no Democrats opposed and an unheard of 10 Republicans backed the 42-19 win.

The Credit CARD Act (CreditCards.com summary) banned a series of unfair practices designed to increase late payment revenue and increase credit card debt owed, at higher interest rates. While credit cards had always been profitable, 1999 deregulation (The Gramm-Leach-Bliley Act) placed hard-charging new Wall Street CEOs over much of the credit card industry. Their demand: More profit!

Credit card banks began changing bill due dates, shortening the period between when bills were mailed and when bills were due, saying that payments that arrived after 11am on the due date were late, making bills due on a Sunday and declaring payments that arrived on Monday late. But more late payment fees from more consumers weren't enough. Not enough profit, said the CEOs! Their next scheme was not only to charge a late payment fee but also ratchet up your interest rate to as much as 36% APR, retroactively on existing balances. Still not enough profit, said the CEOs! The banks then imposed universal default, saying consumers who’d always paid on time but were late to any other creditor were in default and that their APRs must go up. Still not enough profit, said the CEOs! So, the banks imposed “we can change the rules at any time, including for no reason” clauses and raised everyone’s rates! This change occurred after the Congress had gifted the banks a so-called bankruptcy reform in 2005 that gave them more power over debtors. When it passed, they had supposedly pinky-swore they were done asking for Congressional favors. Not a good look for them, raising everyone's rates and opposing the CARD Act after such a gift!

The Credit CARD Act fixed all those abuses and also gave college students and other young people important new protections. It didn’t break the world. It fixed a badly-broken, out-of-control marketplace by realigning the incentives of sellers and consumers. Credit cards are still profitable but a lot less unfair. But, remember, the CARD Act was passed when the banks were at their absolute rock-bottom of political influence. In 2010, Congress also created the CFPB to keep watch on the big banks, credit card companies, payday lenders and debt collectors. It is critical that we fight to keep the CFPB strong because the banks are up to their old tricks, peddling more outrageous deregulatory ideas to the Congress and backing those lobbyists and PR flacks with buckets of campaign cash.

 

Cover photo of credit cards by Sean MacEntee via Flickr Some Rights Reserved.

Ed Mierzwinski
Senior Director, Federal Consumer Program

Author: Ed Mierzwinski

Senior Director, Federal Consumer Program

202-461-3821

Started on staff: 1977
B.A., M.S., University of Connecticut

Ed oversees U.S. PIRG’s federal consumer program, helping to lead national efforts to improve consumer credit reporting laws, identity theft protections, product safety regulations and more. Ed is co-founder and continuing leader of the coalition, Americans For Financial Reform, which fought for the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, including as its centerpiece the Consumer Financial Protection Bureau. He was awarded the Consumer Federation of America's Esther Peterson Consumer Service Award in 2006, Privacy International's Brandeis Award in 2003, and numerous annual "Top Lobbyist" awards from The Hill and other outlets. Ed lives in Virginia, and on weekends he enjoys biking with friends on the many local bicycle trails.