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[Senate Report 111-16]
[From the U.S. Government Publishing Office]

                                                        Calendar No. 54
111th Congress                                                   Report
                                 SENATE
 1st Session                                                     111-16

======================================================================

 
  AMENDING THE CONSUMER CREDIT PROTECTION ACT, TO BAN ABUSIVE CREDIT 
 PRACTICES, ENHANCE CONSUMER DISCLOSURES, PROTECT UNDERAGE CONSUMERS, 
                         AND FOR OTHER PURPOSES

                                _______
                                

                  May 4, 2009.--Ordered to be printed

                                _______
                                

 Mr. Dodd, from the Committee on Banking, Housing, and Urban Affairs, 
                        submitted the following

                              R E P O R T

                         [To accompany S. 414]

    The Committee on Banking, Housing, and Urban Affairs, to 
which was referred the bill (S. 414) to amend the Consumer 
Credit Protection Act, to ban abusive credit practices, enhance 
consumer disclosures, protect underage consumers, and for other 
purposes, having considered the same, reports favorably thereon 
with an amendment and recommends that the bill as amended do 
pass.

                              INTRODUCTION

    The Committee on Banking, Housing, and Urban Affairs met in 
open session on March 31, 2009, and ordered S. 414, the 
``Credit Card Accountability Responsibility and Disclosure Act 
of 2009,'' as amended, favorably reported to the Senate for 
consideration.

                      HEARING RECORD AND WITNESSES

    On Thursday, January 25, 2007, the Committee held a hearing 
entitled ``Examining the Billing, Marketing and Disclosure 
Practices of the Credit Card Industry, and Their Impact on 
Consumers.'' At that hearing, the Committee heard testimony 
from Elizabeth Warren, Leo Gottleib Professor of Law, Harvard 
Law School; Michael Donovan, Esq., Donovan & Searles; Carter 
Franke, Executive Vice President of Marketing, JP Morgan Chase 
& Co.; Robert Manning, Professor of Finance, Rochester 
Institute of Technology; John Finneran, President of Corporate 
Reputation and Governance, CapitalOne Financial; Tamara Draut, 
Director, Economic Opportunity Programs, Demos; Richard Vague, 
CEO, Barclaycard USA; and Travis Plunkett, Legislative 
Director, Consumer Federation of America.
    On February 12, 2009, the Committee heard testimony from 
Travis Plunkett, Legislative Director, Consumer Federation of 
America; James Sturdevant, Esq., The Sturdevant Law Firm; Ken 
Clayton, Sr. VP & General Counsel, Card Policy Council, 
American Bankers Association; Lawrence Ausubel, Professor of 
Economics, University of Maryland; Todd Zywicki, Professor, 
George Mason University School of Law; and Adam J. Levitin, 
Associate Professor of Law, Georgetown University Law Center, 
at its hearing on ``Modernizing Consumer Protection in the U.S. 
Financial Regulatory System: Strengthening Credit Card 
Protections.''

                 PURPOSE AND SUMMARY OF THE LEGISLATION

    The ``Credit Card Accountability Responsibility and 
Disclosure Act of 2009'' was developed to implement needed 
reforms and help protect consumers by prohibiting various 
unfair, misleading and deceptive practices in the credit card 
market.
    The bill contains numerous provisions which provide 
protection to consumers from unreasonable interest rate 
increases. The bill prohibits retroactive rate increases on 
existing balances, and requires creditors to provide a written 
notice of any rate increase at least 45 days before the 
increase takes effect. The bill protects consumers from rate 
increases based on information not related to the consumer's 
behavior with regard to the credit card account. The bill 
prevents interminable penalty rates by requiring issuers to 
lower penalty rates that have been imposed on a cardholder 
after 6 months if the cardholder commits no further violations. 
The bill also extends to consumers the right to cancel an 
account with the opportunity to repay the balance under 
existing terms.
    The bill also provides a number of protections from 
unreasonable credit card fees. The bill restricts over-limit 
fees, and permits consumers to request a fixed credit limit in 
order to prevent such fees. The bill also limits currency 
exchange fees, and bans fees on interest-only balances. The 
bill ensures that interest on credit card balances is computed 
in a fair manner, and requires creditors to allocate payments 
towards balances with higher rates first.
    The legislation enhances the supervision of credit card 
issuers and the transparency of their practices and includes 
measures that seek to protect consumers against misleading use 
of terms in credit card statements and solicitations. Among 
other provisions, the bill establishes a single definition of 
the terms ``fixed'' and ``prime'' with regard to interest 
rates, and requires additional disclosure of minimum payment 
information, including the total interest incurred if only 
minimum payments were made. The bill also gives consumers more 
time to make their payments by requiring creditors to provide 
consumers with a reasonable time to pay off the balance and to 
send periodic statements to consumers no less than 25 days 
before the due date.
    The bill provides that no gift cards or prepaid general-use 
cards be sold with an expiration date of less than five years, 
and generally prohibits dormancy, inactivity, and service 
charges and fees on any such card.
    The bill also limits the marketing of credit cards to 
individuals under age 21. Under this legislation, credit card 
issuers would be unable to make pre-screened credit card 
solicitations to individuals under age 21 unless the consumer 
expressly opted into receiving these solicitations. Extension 
of credit to consumers under 21 would be limited to those 
circumstances where the consumer could demonstrate an 
independent means to repay obligations under the card 
agreement, the consumer had the signature of a parent or 
guardian indicating joint liability for the consumer's debts on 
the account, or the consumer had completed an approved 
financial literacy course.
    The legislation further strengthens protections for 
consumers by increasing existing penalties for credit card 
companies that violate the Truth in Lending Act.
    Additionally, the bill will provide for additional data 
collection from credit card issuers to enhance oversight and 
regulation. The bill also amends the Federal Trade Commission 
Act to provide each federal banking agency the authority to 
prescribe regulations governing unfair or deceptive practices 
with respect to the depository institutions it supervises.
    The bill requires that the GAO conduct a study of credit 
card interchange fees and a study of the advisability of 
establishing a Credit Card Safety Rating Commission.

                  BACKGROUND AND NEED FOR LEGISLATION

    Revolving consumer credit in the United States has more 
than quadrupled over the past two decades, from $238.6 billion 
in December 1990 to a peak of $977 billion in September 
2008.\1\ Over the same period, households' credit card debt 
also increased significantly. Today, nearly 75 percent of 
American households have a general-purpose credit card, 
compared to only 16 percent of households in 1970.\2\ In the 
current economic downturn, households are increasingly using 
credit cards for routine expenses.
---------------------------------------------------------------------------
    \1\Federal Reserve Statistical Release G.19: Consumer Credit 
Outstanding (Historical). Available at: http://www.federalreserve.gov/
releases/g19/hist/cc_hist_sa.html
    \2\Thomas A. Durkin. ``Credit Cards: Use and Consumer Attitudes, 
1970-2000.'' Federal Reserve Bulletin, September 2000 (Vol. 86 Issue 
9); Brian K. Bucks et al., ``Changes in U.S. Family Finances from 2004 
to 2007: Evidence from the Survey of Consumer Finances.'' Federal 
Reserve Bulletin, February 2009 (Vol. 95).
---------------------------------------------------------------------------
    As usage of credit cards has grown, the variety of fees and 
practices has also increased. As the GAO mentioned in its 2006 
report on credit card disclosures, ``After 1990, card issuers 
began to introduce cards with a greater variety of interest 
rates and fees, and the amounts that cardholders can be charged 
have been growing.''\3\ GAO's analysis found that some issuers 
charged up to three different interest rates for different 
types of transactions; penalty fees that more than doubled 
since 1990; penalty rates above 30 percent; and various new 
fees for foreign currency exchange, bill payment by telephone, 
cash advances, and balance transfers that were not necessarily 
incorporated in written disclosures. The six largest credit 
card issuers, who represent above three-quarters of the credit 
card market, earned approximately $7.4 billion in revenue in 
2005 from over-limit and late payment fees alone.\4\ In 2008, 
penalty rates averaged 16.9 percentage points above the 
standard rate, more than doubling from an 8.1 percentage point 
difference between standard and penalty rates in 2000.\5\ Among 
28 popular credit cards, the average late fee rose to $34 in 
2005, up from about $13 in 1995, and average fees charged for 
exceeding a credit limit more than doubled to $31 a month from 
$13.\6\
---------------------------------------------------------------------------
    \3\Government Accountability Office, Credit Cards: Increased 
Complexity in Rates and Fees Heightens Need for More Effective 
Disclosures to Consumers. GAO-06-929, at 5.
    \4\Government Accountability Office, Credit Cards: Increased 
Complexity in Rates and Fees Heightens Need for More Effective 
Disclosures to Consumers. GAO-06-929, at 72.
    \5\Joshua M. Frank. ``Priceless or Just Expensive? The Use of 
Penalty Rates in the Credit Card Industry.'' Center for Responsible 
Lending, December 16, 2008.
    \6\Government Accountability Office, Credit Cards: Increased 
Complexity in Rates and Fees Heightens Need for More Effective 
Disclosures to Consumers. GAO-06-929, at 5.
---------------------------------------------------------------------------
    These penalties are contributing to the significant credit 
card debt under which American consumers increasingly find 
themselves buried. Evidence shows that consumers are struggling 
under the large amounts of credit card debt they have amassed. 
The average household that carries a credit card balance owes 
close to $10,000 in revolving debt on their credit cards.\7\ 
The amount of credit card debt paid off by Americans monthly, 
is now at one of the lowest levels ever recorded.\8\ Thirty-day 
credit card delinquencies are now at their highest point in six 
years, since the last economic recession ended.\9\ Personal 
bankruptcies have increased while the average savings rate is 
going down.
---------------------------------------------------------------------------
    \7\http://www.cardtrak.com/questions/Average_Family_Debt, visited 
April 29, 2009.
    \8\Chu, Kathy, ``November Credit-Card Payoff Rate Fell Sharply,'' 
USA Today, February 8, 2009. The monthly payment rate fell by 2.5 
percentage points to 16.1 percent in November 2008, according to 
CardTrak.com.
    \9\30-day credit card delinquencies during first three quarters of 
2008 were between 4.79 and 4.88 percent, the highest levels since 2002. 
Federal Reserve Board, ``Charge-Off and Delinquency Rates on Loans and 
Leases at 100 Largest Commercial Banks'' ``U.S. Credit Card 
Delinquencies at Record Highs--Fitch,'' Reuters, February 4, 2009.
---------------------------------------------------------------------------
    The increase in fees and rates and increase in consumer 
debt load have come at a time when credit card issuers are 
increasingly engaging in ``risk-based'' pricing, where issuers 
charge certain consumers more to cover potential losses, 
usually in the form of higher interest rates. Issuers have 
argued that risk-based pricing is beneficial to consumers by 
allowing issuers to provide greater access to credit as the 
decision to grant credit has expanded significantly beyond a 
simple ``yes or no'' decision for lenders. Card issuers contend 
that the new pricing models enable them to offer cards to more 
individuals and charge lower interest rates to those with 
better credit scores. In response, consumer advocates have 
questioned whether pricing is truly based on the risk posed by 
the consumer. They have argued that the fees and penalty 
pricing that have evolved from the risk-based pricing 
environment are intended primarily to increase fee income, and 
contend that risk-based pricing generally works to consumers' 
detriment. As issuers' usage of fees and penalty pricing has 
increased, they have come under more scrutiny for engaging in 
the following practices:

Universal default

    One of the most common consumer credit card complaints 
involves the practice by which card issuers increase the rate 
on a credit card account not because of the cardholder's 
payment history with the card, but because of unrelated 
information, a practice known as universal default. Under 
universal default, consumers can make their credit card payment 
on time every month, but see their interest rate increase 
because the issuer has determined that their risk profile has 
increased. Issuers may apply universal default rate increases 
as a result of a consumer's late payment on another account, 
such as a different credit card, a mortgage or car payment, or 
a utility bill.\10\ Further, under current law issuers may 
apply universal default rate increases when a consumer doesn't 
pay late at all, but rather when the issuer has determined that 
there has been a change in the consumer's risk profile because 
he or she has taken out a new loan or utilized more of his or 
her available credit.
---------------------------------------------------------------------------
    \10\Bennish, Steve, ``Credit Reporting Policy Helps Most Customers, 
DP&L Says,'' Dayton Daily News, February 26, 2009.
---------------------------------------------------------------------------
    Issuers argue that this practice is necessary to allow 
issuers to price consumers' accounts according to the 
consumer's overall risk profile. Consumer advocates contend 
that this practice is unfair because it allows issuers to raise 
rates even on cardholders who have always paid on time and have 
consistently met the terms of their contract, for reasons 
unrelated to the consumer's behavior, such as changes in market 
conditions. They further note that when a penalty rate is 
triggered by the cardholder's behavior, there is no limit on 
how long the increased rate will last.
    The Credit CARD Act prohibits this practice by permitting 
issuers to raise interest rates on cardholders only in response 
to a specific, material violation of the card agreement by the 
issuer. In addition, the bill would require issuers to lower 
penalty rates that have been imposed on a cardholder after 6 
months if the cardholder meets the obligations of the credit 
card terms.

Unilateral change in terms/``Any Time, Any Reason'' Provisions

    In addition to the rate increases based on universal 
default, many credit card issuers include clauses in their 
contracts allowing credit card issuers to raise rates and 
change terms on their credit card customers at any time for any 
reason. According to a 2008 survey by Consumer Action, 77 
percent of credit card issuers reserve the right to increase a 
consumer's interest rate on both prospective balances and on 
consumers' pre-existing balances under ``any time, any reason'' 
clauses. This practice is prohibited by the Credit CARD Act, 
which prevents issuers from changing the terms of a credit card 
contract for the length of the card agreement, with limited 
exceptions.

Retroactive interest rate increases

    Currently, when a credit card issuer raises a cardholder's 
interest rate, this increased rate is applied not only to the 
purchases that the consumer will make in the future, but also 
to the balances that the consumer has already incurred at a 
lower rate, with the effect that an existing credit card debt 
which the consumer may have been paying on time costs 
significantly more to repay. Issuers contend that the ability 
to raise interest rates on cardholders is necessary to ensure 
that they are able to price for increased risk by the 
cardholder. Consumer advocates argue that this retroactive 
application of rate increase is unfair, and is not justified by 
the risk to the issuer since cardholders' rates can be raised 
even when they have consistently met their obligations under 
the card contract. The CARD Act will prohibit retroactive 
interest rate increases, and require that interest rate 
increases apply only to future debt.

Allocation of payments

    Card companies impose multiple interest rates for various 
types of transactions (e.g., balance transfers, ordinary 
purchases, and cash advances). When the cardholder makes a 
payment, industry practice is to apply the monthly payment 
first to the balance with the lowest APR, while letting the 
higher interest balance collect more interest and more debt. 
Under this method of payment allocation, the cardholder is 
prevented from paying off his or her higher rate balance until 
the balance with the least expensive rate is paid off, 
maximizing the amount of interest that the consumer pays. One 
result of this method of allocation is that consumers do not 
receive the full benefit of lower promotional interest rates 
because a consumer can never take full advantage of lower 
promotional rates while still using the card.\11\ The CARD Act 
requires payments to be credited to the highest balance first, 
and to be applied in a way that minimizes finance charges.
---------------------------------------------------------------------------
    \11\For example: A consumer uses a convenience check sent in the 
mail, promising 0% for 12 months, to purchase a $9000 car. She also 
makes $300 in purchases, which carry a 12% APR. There is no way for the 
consumer to make payment on the $300 since any payment would first be 
applied to the $9000 carrying a 0% rate.
---------------------------------------------------------------------------

Misleading prescreened offers of credit

    Prescreened credit card solicitations often target people 
with blemished or no credit card histories with offers for 
credit cards that have low interest rates and high ``up to'' 
credit limits that exceed what the consumer is likely to 
qualify for and receive. Consumers who receive these 
solicitations that prominently advertise very low interest 
rates and high credit limits believe that when they apply, they 
will receive a credit card reflecting these advertised rates 
and limits. Ultimately, however, these consumers receive cards 
that have less attractive terms and features than the card for 
which they applied, including higher interest rates and lower 
credit limits. A consumer who is offered one rate or a range of 
rates, and receives a card at the high end of that range 
effectively cannot decline the card and start the process over 
with another card company without penalty, because multiple 
credit requests can depress the consumer's credit score, 
thereby affecting the consumer's ability to obtain another card 
at a competitive rate. The CARD Act would allow cardholders to 
reject a card until they activate it without having their 
credit adversely affected.

Unreasonable and excessive fees

    An analysis by the United States Government Accountability 
Office (GAO) found that ``typical cards today now include 
higher and more complex fees than they did in the past for 
making late payments, exceeding credit limits, and processing 
returned payments.''\12\ For example, credit card issuers in 
the past rejected transactions that exceeded a cardholder's 
credit limit, but it has now become common practice for issuers 
to accept the transaction and then apply an overlimit fee on 
cardholders who exceed their credit limits. In addition, the 
GAO found that late fees have been steadily rising over the 
past decade, averaging $34 per incident in 2005.
---------------------------------------------------------------------------
    \12\``Credit Cards: Increased Complexity in Rates and Fees 
Heightens Need for More Effective Disclosures to Consumers,'' U.S. 
Government Accountability Office, September 2006, p. 18.
---------------------------------------------------------------------------
    The Credit Card Act will help put an end to unreasonable 
penalty fees. For example, the Act prohibits issuers from 
charging a fee to allow a consumer to pay a credit card debt, 
whether payment is by mail, telephone, electronic transfer, or 
otherwise. With respect to overlimit fees, the Act prevents 
issuers from charging multiple overlimit fees for exceeding a 
card limit, and allows such fees only when a cardholder's 
action, rather than a fee or finance charge, causes the limit 
to be exceeded. The Act also permits overlimit charges to be 
applied only once during a billing cycle. The CARD Act further 
addresses fees by requiring that the penalty fees charged to 
cardholders be reasonably related to the issuers' costs, and by 
requiring that currency exchange fees be reasonable. The 
Committee understands that the Federal Reserve Board, in 
determining reasonable relation to cost, will take into account 
a number of factors, including; costs associated with 
individual transactions; costs of managing the portfolio; 
credit risk associated with both the portfolio and the 
individual; the conduct of the cardholder; and circumstances 
leading to such omission or violation; and such other factors 
as the Board may deem appropriate.

Unfair methods of computing finance charges

    Issuers use different methods for computing finance charges 
on balances that have already been paid on time. These methods 
are difficult for consumers to understand and can result in 
substantial additional finance charges on a cardholder over the 
course of a year. Under the double cycle billing method of 
computing finance charges, an issuer considers not only the 
current balance on the credit card, but also the balance from 
previous billing periods in assessing interest on a consumer's 
balance. This method results in a consumer paying more interest 
on the current outstanding balance on the card. In addition to 
double cycle billing, issuers use interest computation 
practices to charge consumers interest on the portion of 
balances repaid during a grace period, when the consumer pays 
some but not all of the outstanding balances. Using this 
method, a consumer who begins with no balance from the previous 
billing cycle (month 1) and then pays off a portion of the 
current balance (month 2), would be charged interest (in month 
3) for the entire amount of the balance, even the portion that 
was paid (in month 2) .
    The Card Act would address these practices by preventing 
issuers from requiring consumers to pay interest on portions of 
debt already repaid, helping to ensure a fair billing process 
that only results in an interest charge on the amount of the 
unpaid balance. The Act would require finance charges on 
outstanding credit card balances to be computed based on 
purchases made in the current cycle rather than going back to 
the previous billing cycle to calculate interest charges.

Minimal notice and lack of disclosure

    The large volume of the card industry's solicitations is 
exacerbated by the confusing complexity of those solicitations. 
It is common industry practice to use promotional interest 
rates to attract customers and to induce new and existing 
customers to transfer balances from other credit cards. Direct 
mail solicitations prominently display low interest rates to 
lure consumers but often fail to fully or prominently disclose 
the fact that the low rate is for a limited period of time, 
that circumstances exist that could shorten the promotional 
period or cause the promotional interest rate to increase, or 
that there may be fees associated with transferring balances to 
lower interest rate cards. In addition, credit card issuers are 
currently required to mail notices only 15 days in advance of a 
proposed increase in interest rate, with the result that 
consumers have very little opportunity to avoid the increased 
interest rate and thus face significant additional interest 
payments without advance notice.
    The Act makes a number of changes to enhance consumer 
disclosures. It requires issuers to provide 45 days advance 
notice of interest rate increases, and grants cardholders the 
right to cancel the card and pay it off under the old terms.

Aggressive marketing to students

    Credit card issuers engage in extensive marketing on 
college campuses with offers of easy credit to students and 
encourage them to obtain and use credit cards without verifying 
the student's ability to repay the resultant debt. In contrast, 
if any other adult applies for a credit card, an issuer 
generally verifies the consumer's ability to pay by checking 
their credit history and obtaining information about the 
applicant's income. A consumer with a less positive credit 
history or lack of income either gets a lower limit, higher 
interest rate card or is required to have a co-signer. An even 
less creditworthy consumer would be denied, or required to 
obtain a secured credit card.
    The CARD Act requires credit card issuers to consider 
ability to repay when issuing credit cards to students and 
other young consumers. The Act requires that credit card 
issuers, when extending credit to persons under the age of 21, 
obtain an application that contains: (1) the signature of a 
parent, guardian, or other qualified individual willing to take 
financial responsibility for the debt; (2) information 
indicating an independent means of repaying any credit 
extended; or (3) proof that the applicant has completed a 
certified financial literacy or financial education course.

                        CREDIT CARD FINAL RULES

    In the face of evidence that disclosure was insufficient to 
protect consumers from many abusive practices,\13\ the Federal 
Reserve Board, Office of Thrift Supervision and the National 
Credit Union Administration finalized rules to prohibit unfair 
or deceptive practices regarding credit cards and overdraft 
services in December of 2008. The Agencies exercised their 
authority under the Federal Trade Commission Act to prescribe 
regulations to end certain unfair or deceptive credit card 
practices under Regulation AA (Unfair Acts and Practices). 
During the comment period, the public responded to the proposed 
rules with an unprecedented number of comments--over 66,000--
submitted to the agencies.
---------------------------------------------------------------------------
    \13\In 2006, the Government Accountability Office (GAO) found that 
current ``disclosures have serious weaknesses that likely reduced 
consumers' ability to understand the costs of using credit cards'' 
because they were too complicated for many consumers to understand. 
Government Accountability Office, Credit Cards; Increased Complexity in 
Rates and Fees Heightens Need for More Effective Disclosures to 
Consumers 6 (2006).
---------------------------------------------------------------------------
    Among other provisions, the rules include the following 
credit card protections for consumers:
    (1) Credit card issuers will be prohibited from increasing 
the rate on a preexisting credit card balance. Exceptions to 
this provision are provided for: rate increases linked to an 
increase in an underlying index on a variable-rate card; the 
expiration of a specified promotional period provided that the 
higher rate was disclosed at account opening; the cardholder's 
failure to comply with the terms of a workout or temporary 
hardship arrangement; and 30-day delinquency by the cardholder.
    (2) Issuers will be prohibited from allocating payments in 
excess of the minimum in a manner that maximizes interest 
charges.
    (3) Issuers will be prohibited from imposing interest 
charges using the ''double-cycle'' method, which computes 
interest on balances on days in billing cycles preceding the 
most recent billing cycle.
    (4) Issuers will be required to provide consumers a 
reasonable amount of time to make payments, with statement 
mailing or delivery 21 days prior to the due date considered a 
``safe harbor.''
    (5) Issuers would be prohibited from financing security 
deposits and fees for credit availability (such as account-
opening fees or membership fees) if charges assessed during the 
first 12 months would exceed 50 percent of the initial credit 
limit.
    The Agencies also exercised their authority under the Truth 
in Lending Act to prescribe regulations on consumer disclosures 
in credit card solicitations, applications, and statements 
under Regulation Z. These regulations were proposed after 
consumer testing which included a series of focus groups as 
well as interviews with 1,022 participants in seven cities. 
Final rules under Regulation Z include the following 
requirements:
    (1) Application and solicitation disclosures will be 
required to include the actions that would trigger a ``penalty 
APR'' along with the resulting penalty rate and the possibility 
of that rate to expire. The potentially confusing terms 
``default rate'' and ``grace period'' will not be permitted.
    (2) Account opening disclosures will be required to include 
interest fees, minimum charges, transaction fees, annual fees, 
and penalty fees.
    (3) Periodic statement disclosures will be required to 
group together interest charges and fees, itemized by 
transaction type, with year-to-date totals. Payment due dates 
and the consequences of a late payment would be required on the 
front of each statement.
    (4) Advance notice for interest rate increases or other 
changes in terms will increase to a minimum of 45 days. 
Currently, the rules permit either immediate increases, or a 
minimum of 15 days advance notice, depending on actions 
triggering the change.
    (5) Cut-offs for accepting payments will be established at 
a ``reasonable time,'' no earlier than 5 p.m., with Sunday/
holiday due dates postponed to the next business day for 
payments made by mail.
    It is the view of the Committee that these rules are an 
important first step in curbing some of the most abusive 
practices engaged in by credit card issuers. But there are a 
number of additional areas described in this report where 
Congress needs to act to ensure that consumers are adequately 
protected in the credit card marketplace. In addition, the 
rules do not take effect and thus leave consumers unprotected 
until July 1, 2010.

                      SECTION-BY-SECTION ANALYSIS

Section 1. Short title

    This section establishes the short title of the bill, the 
``Credit Card Accountability Responsibility and Disclosure 
Act,'' and provides a table of contents.

Section 2. Regulatory authority

    This section authorizes the Board of Governors of the 
Federal Reserve System (the Board) to issue rules and publish 
model forms as it considers necessary to carry out the Act and 
the amendments made by the Act.

Section 3. Effective date

    This section provides an effective date of 9 months after 
passage of the Act.

                      TITLE I--CONSUMER PROTECTION

Section 101. Prior notice of rate increases required

    This section prevents issuers from increasing interest 
rates on cardholders without 45 days' notice, and prohibits 
issuers from applying rate increases retroactively to existing 
balances. This section also requires issuers to provide 
cardholders with a clear notice of the cardholders' right to 
cancel the credit card when the interest rate is raised.

Section 102. Freeze on interest rate terms and fees on canceled cards

    This section prevents issuers from increasing the interest 
rate on a cardholder, or changing the terms of a credit card, 
if a cardholder cancels a card.

Section 103. Limits on fees and interest charges

    This section prohibits credit card issuers from imposing 
interest charges on any portion of a balance that is paid by 
the due date.
    Under this section, cardholders must be given the option of 
having a fixed credit limit that cannot be exceeded, and card 
companies are prohibited from charging overlimit fees on 
cardholders with fixed limits. Cardholders may elect to 
prohibit their issuers from completing overlimit transactions 
that will result in a fee or constitute a default under the 
credit agreement. Overlimit charges can only be charged when an 
extension of credit, rather than a fee or interest charge, 
causes the credit limit to be exceeded, and can only be applied 
once during a billing cycle.
    This section prohibits issuers from charging interest on 
credit card transaction fees, such as late fees and overlimit 
fees.
    This section prohibits credit card issuers from charging a 
fee to allow a credit card holder to pay a credit card debt, 
whether payment is by mail, telephone, electronic transfer, or 
otherwise. This section requires that penalty fees assessed to 
cardholders be reasonably related to the cost incurred by the 
issuer. Under this section, foreign currency exchange fees may 
only be imposed in an account transaction if the fee reasonably 
reflects costs incurred by the creditor and the creditor 
publicly discloses its method for calculating the fee.

Section 104. Consumer right to reject card before notice is provided of 
        open account

    This section prohibits creditors from reporting the 
issuance of any credit card to a credit reporting agency until 
the cardholder uses or activates the card.

Section 105. Use of terms clarified

    This section prevents card companies from using the terms 
``fixed rate'' and ``prime rate'' in a misleading way by 
establishing a single definition.

Section 106. Application of card payments

    This section prohibits credit card companies from setting 
early deadlines for credit card payments. The section requires 
payments to be applied first to the credit card balance with 
the highest rate of interest, and to minimize finance charges. 
The section prohibits late fees if the card issuer delayed 
crediting the payment. In addition, this section prohibits card 
companies from charging late fees when a cardholder presents 
proof of mailing payment within 7 days of the due date.

Section 107. Length of billing period

    This section requires credit card statements to be mailed 
21 days before the bill is due.

Section 108. Prohibition on universal default and unilateral changes to 
        cardholder agreements

    This section prevents credit card issuers from increasing 
interest rates on cardholders for reasons unrelated to the 
cardholder's behavior with respect to that card. In addition, 
it prevents credit card issuers from changing the terms of a 
credit card contract for the length of the card agreement. The 
section allows penalty rate increases only for specific, 
material actions or omissions of the consumer specified in the 
card agreement. Lastly, this section requires issuers to lower 
penalty rates that have been imposed on a cardholder after 6 
months if the cardholder commits no further violations.

Section 109. Enhanced penalties

    This section increases existing penalties for companies 
that violate the Truth in Lending Act with respect to credit 
card customers.

Section 110. Enhanced oversight

    This section requires a credit card issuer's primary 
regulator to evaluate the credit card policies and procedures 
of card issuers to ensure compliance with credit card 
requirements and prohibitions. Improves existing data 
collection efforts related to credit card interest rates, fees, 
and profits.

Section 111. Clerical amendments

    This section makes clerical corrections to the Truth in 
Lending Act.

                TITLE II--ENHANCED CONSUMER DISCLOSURES

Section 201. Payoff timing disclosures

    This section requires credit card issuers to provide 
individual consumer account information and to disclose the 
period of time it will take the cardholder to pay off the card 
balance if only minimum monthly payments are made. Under this 
section, issuers are required to disclose the total amount of 
interest the cardholder will pay in order to pay off the card 
balance if only minimum monthly payments are made. This section 
also requires issuers to provide a toll-free number for use by 
the consumer to receive information about accessing credit 
counseling and debt management services.

Section 202. Requirements relating to late payment deadlines and 
        penalties

    This section requires full disclosure in billing statements 
of required payment due dates and applicable late payment 
penalties. It further requires that cardholders be given a 
reasonable period to make payment, and that payment at local 
branches be credited same-day.

Section 203. Renewal disclosures

    This section requires card issuers to provide a full set of 
account disclosures to cardholders upon card renewal when the 
terms of the card have changed.

                TITLE III--PROTECTION OF YOUNG CONSUMERS

Section 301. Extensions of credit to underage consumers

    This section requires that credit card issuers, when 
extending credit to persons under the age of 21, obtain an 
application that contains either: (1) the signature of a 
parent, guardian, other qualified individual willing to take 
financial responsibility for the debt; (2) information 
indicating an independent means of repaying any credit 
extended; or (3) proof that the applicant has completed a 
certified financial literacy or financial education course.

Section 302. Restrictions on certain affinity cards

    This section mandates that credit card issuers, as a 
condition for entering into commission-based affinity cards 
with higher education institutions, require that all affinity 
card customers under the age of 21, comply with the 
requirements listed above.

Section 303. Protection of young consumers from prescreened offers of 
        credit

    This section prohibits consumer reporting agencies from 
furnishing reports in connection with firm offers of credit or 
insurance that are not initiated by consumers under age 21. 
This section also allows consumers who are at least 18, but not 
yet 21, to elect, in writing, to have their names and addresses 
included in any list of names provided by such agencies in 
connection with such transactions.

Section 304. Issuance of credit cards to certain college students

    This section requires parental approval to increase credit 
lines on accounts where the parent is jointly liable.

                 TITLE IV--FEDERAL AGENCY COORDINATION

Section 401. Inclusion of all Federal banking agencies

    This section amends the Federal Trade Commission Act to 
authorize each federal banking agency to prescribe regulations 
governing unfair or deceptive practices with respect to the 
institutions they supervise. Existing authority is limited to 
the Federal Reserve Board, the Office of Thrift Supervision, 
and the National Credit Union Administration. This section 
would extend this authority to the Office of the Comptroller of 
the Currency and the Federal Deposit Insurance Corporation.
    The section requires the federal banking agencies to 
prescribe such regulations: (1) jointly to the extent 
practicable; and (2) in consultation with the Federal Trade 
Commission (FTC). Under this section, the Comptroller General 
is instructed to report to Congress on the status of 
regulations by the federal banking agencies and the NCUA 
regarding unfair and deceptive acts or practices by depository 
institutions.
    Nothing in this section is intended to affect the scope of 
the authority granted to the financial regulators under the FTC 
Act, nor is the section intended to affect in any way the 
authority of the FTC. Nothing in this section is intended to 
affect the applicability of state unfair and deceptive 
practices laws to federally chartered institutions.

                          TITLE V--GIFT CARDS

Section 501. Definitions

    This section defines terms including ``gift card,'' ``gift 
certificate'' and ``general-use prepaid card.''

Section 502. Unfair or deceptive acts or practices regarding gift cards

    This section makes it unlawful for any person to impose a 
dormancy fee, inactivity charge or fee, or a service fee with 
respect to a gift certificate, store gift card, or general-use 
prepaid card. This section further provides that it is unlawful 
to sell or issue a gift certificate, gift card or general-use 
prepaid card that is subject to an expiration date of less than 
5 years. An exception is provided allowing fees of not more 
than $1 for reloadable cards or certificates with less than $5 
in value that have been inactive for over 24 months.

Section 503. Relation to state laws

    This section states that this title shall not supersede any 
provisions of State law with respect to dormancy fees, 
inactivity charges or fees, service fees, or expiration dates 
of gift certificates, store gift cards, or general-use prepaid 
cards.

Section 504. Enforcement

    This section makes this title enforceable under section 
18(a)(1)(B) of the Federal Trade Commission Act.

                   TITLE VI--MISCELLANEOUS PROVISIONS

Section 601. Study and report on interchange fees

    This section requires the Comptroller General of the GAO to 
conduct a study on interchange fees and their effects on 
merchants and consumers, and to report the findings to Congress 
in 180 days.

Section 602. Study and report on credit card rating system

    This section requires the Comptroller General of the GAO to 
establish a Credit Card Safety Rating Commission that will 
determine whether a rating system to allow cardholders to 
quickly assess the level of safety of credit card agreements 
would be beneficial to consumers, and to make recommendations 
to Congress concerning how such a system should be devised.

Section 603. Increased borrowing authority of the FDIC and the NCUA

    This section increases the maximum borrowing authority of 
the Federal Deposit Insurance Corporation from $30 billion to 
$100 billion and of the National Credit Union Administration 
from $100,000,000 to $6 billion.
    This section further authorizes a temporary increase in 
borrowing authority through calendar year 2010 up to a maximum 
of $500 billion for the FDIC and $18 billion for the NCUA, if 
the Secretary of the Treasury, in consultation with the 
President, determines that additional amounts are necessary, 
pursuant to the written recommendation of the Federal Reserve 
Board and either the FDIC Board or the NCUA Board, 
respectively.
    Additionally, this section requires that the NCUA Board 
establish a restoration plan for the Share Insurance Fund when 
the Board determines that the equity ratio of the Fund will 
fall below 1.2%, the minimum equity level required by statute.

                      REGULATORY IMPACT STATEMENT

    In accordance with paragraph 11(b), rule XXVI, of the 
Standing Rules of the Senate, the Committee makes the following 
statement concerning the regulatory impact of the bill.
    The ``Credit Card Accountability Responsibility and 
Disclosure Act of 2009'' modifies the Truth in Lending Act to 
prohibit certain practices by credit card issuers, and to 
require that they provide additional disclosures to borrowers. 
The bill requires the Federal Reserve Board to issue 
regulations to implement the Act.
    The bill modifies the Federal Trade Commission Act to give 
each federal banking agency, with respect to the depository 
institutions it supervises, the authority to prescribe 
regulations governing unfair or deceptive practices.
    The bill also modifies the Federal Deposit Insurance Act 
and the Federal Credit Union Act.
    The bill has no discernible impact on personal privacy. The 
bill is not expected to result in substantial additional 
paperwork.

                        COST OF THE LEGISLATION

                                                    April 24, 2009.
Hon. Christopher J. Dodd,
Chairman, Committee on Banking, Housing, and Urban Affairs,
U.S. Senate, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for S. 414, the Credit Card 
Accountability Responsibility and Disclosure Act of 2009.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contacts are Kathleen 
Gramp and Leigh Angres (federal deposit insurance), Barbara 
Edwards (revenues), and Jacob Kuipers (private-sector 
mandates).
            Sincerely,
                                              Douglas W. Elmendorf.
    Enclosure.

S. 414--Credit Card Accountability Responsibility and Disclosure Act of 
        2009

    Summary: S. 414 would amend the Truth in Lending Act to 
restrict the use of a number of billing practices applied to 
consumer credit cards. S. 414 would direct the Board of 
Governors of the Federal Reserve System (Federal Reserve), in 
consultation with other financial regulatory agencies, to issue 
regulations implementing the new standards. The Federal Reserve 
also would be required to annually report to the Congress about 
certain profitability measures on the credit card operations of 
depository institutions. Finally, the bill would establish a 
commission to study the feasibility of instituting a rating 
system to reflect the riskiness of credit card agreements.
    S. 414 also would make changes to the insurance funds 
administered by the Federal Deposit Insurance Corporation 
(FDIC) and the National Credit Union Administration (NCUA). The 
bill would increase the amounts that the FDIC and NCUA can 
borrow from the Treasury for their deposit insurance funds. S. 
414 also would allow NCUA to lengthen the amount of time 
available to impose industry assessments for the purpose of 
replenishing its insurance fund.
    CBO estimates that enacting S. 414 would increase direct 
spending by $1.4 billion over the 2010-2014 period and reduce 
direct spending by $500 million over the 2010-2019 period. We 
estimate that implementing S. 414 would increase discretionary 
spending by $9 million over the 2010-2014 period, assuming 
appropriation of the estimated amounts. CBO estimates that 
enacting the bill would not have a significant effect on 
revenues.
    The effects on direct spending over the 2009-2013 and 2009-
2018 periods are relevant for enforcing the Senate's pay-as-
you-go rule under the current budget resolution. CBO estimates 
that enacting S. 414 would increase direct spending by $2.5 
billion over the 2009-2013 period and reduce direct spending by 
$500 million over the 2009-2018 period. Enacting S. 414 would 
not have a significant effect on revenues over those time 
periods. Pursuant to Section 311 of S. Con. Res. 70, CBO 
estimates that S. 414 would not cause a net increase in 
deficits in excess of $5 billion in any of the four 10-year 
periods beginning after fiscal year 2018.
    S. 414 contains no intergovernmental mandates as defined in 
the Unfunded Mandates Reform Act (UMRA) and would impose no 
costs on state, local, or tribal governments.
    S. 414 contains several private-sector mandates, as defined 
in UMRA. The bill would require creditors to submit detailed 
information on a semiannual basis to the Federal Reserve and 
prohibit them from engaging in certain credit card billing and 
issuing practices. The bill also would prohibit issuers of gift 
cards from collecting certain fees or establishing expiration 
dates. Based on information from the Federal Reserve and 
industry sources, CBO estimates that the aggregate cost of 
those requirements would likely exceed the annual threshold 
established in UMRA for private-sector mandates ($139 million 
in 2009, adjusted annually for inflation) in at least one of 
the first five years the mandates are in effect.
    Estimated cost to the Federal Government: The estimated 
impact of enacting S. 414 is shown in the following table. The 
costs of this legislation fall within budget functions 370 
(commerce and housing credit) and 800 (general government).
    Basis of estimate: For this estimate, CBO assumes that S. 
414 will be enacted near the end of fiscal year 2009.

Direct spending

    CBO estimates that enacting S. 414 would increase direct 
spending by $1.4 billion over the 2010-2014 period, but would 
reduce direct spending by $500 million over the 2010-2019 
period as a result of changes related to federal deposit 
insurance programs.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                        By fiscal year, in millions of dollars--
                               -------------------------------------------------------------------------------------------------------------------------
                                  2010      2011      2012      2013      2014      2015      2016      2017      2018      2019    2010-2014  2010-2019
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                              CHANGES IN DIRECT SPENDING\1\

Increase FDIC Borrowing
 Authority:
    Estimated Budget Authority         0         0         0         0         0         0         0         0         0         0          0          0
    Estimated Outlays.........     7,700    -2,160    -2,310    -1,330      -860      -820      -630       -30         0         0      1,040       -440
Lengthening Time to Restore
 the SIF:
    Estimated Budget Authority         0         0         0         0         0         0         0         0         0         0          0          0
    Estimated Outlays.........     1,460      -260      -280      -290      -310      -290       -90         0         0         0        320        -60
    Total Changes:
        Estimated Budget               0         0         0         0         0         0         0         0         0         0          0          0
         Authority............
        Estimated Outlays.....     9,160    -2,420    -2,590    -1,620    -1,170    -1,110      -720       -30         0         0      1,360       -500

                                                      CHANGES IN SPENDING SUBJECT TO APPROPRIATION

Estimated Authorization Level.         2         2         2         2         2         2         2         2         2         2         10         20
Estimated Outlays.............         1         2         2         2         2         2         2         2         2         2          9        19
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\CBO estimates that enacting S. 414 would have an insignificant effect on revenues over the 2010-2019 period.
Note: FDIC = Federal Deposit Insurance Corporation; SIF = Share Insurance Fund.

    Higher Borrowing Limit for FDIC. The bill would provide a 
permanent increase in the FDIC's authority to borrow from $30 
billion to $100 billion and would provide a temporary increase 
of up to $500 billion under certain conditions. Raising the 
FDIC's borrowing authority would give the agency more 
flexibility in setting the insurance premiums it charges 
depository institutions, managing the resolution of failed 
institutions, and providing alternative forms of assistance to 
financial institutions (for example, guaranteeing debt issued 
by banks). CBO estimates that such changes would increase net 
outlays by about $1 billion over the next five years, but would 
result in savings of $440 million over the 2010-2019 period. We 
assume that, if this bill is enacted, the FDIC would reduce 
certain special assessments on the financial industry that 
otherwise would take effect within the next 12 months, resolve 
certain cases more quickly, and reduce its reliance on loss-
sharing methods to resolve failed institutions in some 
situations.
    Changes to National Credit Union Share Insurance Fund 
(SIF). The SIF normally provides insurance for deposits of 
$100,000 in individual credit unions. (Under Public Law 110-43, 
the SIF currently provides insurance up to $250,000 through 
December 31, 2009.) SIF is structured to be entirely self-
supporting through the biannual premiums paid by credit unions.
    Current law requires that, over the course of the year, the 
SIF balance total between 1.2 percent and 1.3 percent of 
insured deposits (including amounts credited to the fund from 
interest earned on its unspent balances). If the fund balance 
(including interest) falls below 1.2 percent of insured 
deposits, the NCUA must assess a premium on credit unions. As 
of March 2009, the SIF has about $8 billion in fund balances 
(1.3 percent of insured deposits).
    CBO estimates that the SIF will incur losses totaling about 
$7 billion over the next three years. The majority of those 
losses will stem from an NCUA program created in January 2009 
that provides a temporary guarantee of uninsured deposits at 
most corporate credit unions through December 31, 2010. The 
remaining losses will result from payments to a corporate 
credit union in January 2009 and from other anticipated credit 
union failures.
    Lengthening the Time to Restore the SIF. S. 414 would 
lengthen the amount of time available to restore the fund 
balances of the SIF to at least 1.2 percent of insured 
deposits. Agency regulations state that the SIF balance must be 
restored to at least 1.2 percent of insured deposits within one 
year. Under the bill, the SIF balance would have to be at 1 
percent within a year, but the restoration from 1 percent to at 
least 1.2 percent of insured deposits could be spread out for a 
period of up to five years (or longer under extraordinary 
circumstances as determined by NCUA).
    Under the bill, CBO expects that future SIF premiums would 
be paid over seven years given the extraordinary losses the SIF 
is expected to incur. Accordingly, CBO estimates that the 
agency's net outlays would increase by $320 million over the 
2010-2014 period, as losses would exceed premium collections, 
but would decrease by about $60 million over the 2010-2019 
period, as the remaining premiums would be collected.
    Higher Borrowing Limit for NCUA. The legislation also would 
increase the SIF's borrowing authority from $100 million to $6 
billion and allow for additional borrowing of up to $18 billion 
under certain circumstances. Currently, NCUA is using its 
borrowing authority through the Central Liquidity Facility 
(CLF) to address certain liquidity needs. Based on information 
provided by the NCUA, the agency would likely substitute 
borrowing from the CLF with borrowing under the bill's 
authority. CBO therefore estimates that the increased borrowing 
authority would have no net effect on direct spending.

Revenues

    The bill would provide more consumer protection for credit 
card holders through a number of requirements on credit card 
issuers. For example, the bill would require advance 
notification to consumers of any rate increases, limits on fees 
and interest charges on credit card accounts, longer time 
between the mailing of bills and the payment due dates, and 
enhanced disclosures regarding payoff timings and penalties. 
The bill also would provide more stringent requirements for the 
issuance of credit cards to individuals below age 21. The bill 
would impose some restrictions on fees charged for gift cards. 
The bill would require the Federal Reserve to issue any rules 
and model forms, as needed, to implement the requirements of 
the bill. To ensure the requirements are uniform for all 
financial institutions, the Federal Reserve would need to 
coordinate with other financial regulatory agencies.
    According to the Federal Reserve and other agencies, the 
regulatory activities required by S. 414 would not have a 
significant effect on their workload or budgets. In May 2008, 
the Federal Reserve proposed a number of regulatory changes 
that covered some of the same issues addressed by S. 414 and 
issued those regulations in December 2008. The related changes 
are scheduled to become effective July 2010. CBO does not 
expect the additional data collection and reporting 
requirements of the Federal Reserve to have a significant 
effect on its workload, and we anticipate that existing 
resources would be used to comply with S. 414. The budgetary 
effects on the Federal Reserve are recorded as changes in 
revenues (governmental receipts). Costs incurred by the other 
financial regulatory agencies affect direct spending, but most 
of those expenses are offset by fees or income from insurance 
premiums. Thus, CBO estimates that enacting this bill would not 
significantly affect revenues, and that the regulatory 
requirements would have a negligible net effect on direct 
spending.

Spending subject to appropriation

    S. 414 would establish a commission to determine whether a 
rating system for credit card agreements would benefit 
consumers, and if so, to recommend ways such a rating system 
could be devised. Based on historical spending for similar 
activities, CBO estimates that creating the commission would 
cost about $9 million over the 2010-2014 period and $19 million 
over the 2010-2019 period, assuming appropriation of the 
necessary amounts.
    Other provisions of S. 414 would require the Federal 
Reserve and other financial regulatory agencies to consult with 
the Federal Trade Commission when developing regulations to 
implement the new standards and require the Government 
Accountability Office to undertake two studies and prepare 
reports of its findings. The first study, due six months after 
enactment of S. 414, would review interchange fees and their 
effects on consumers and merchants. The second, due 18 months 
after enactment of the bill, would report on the status of 
regulations adopted by the financial regulatory agencies 
regarding unfair and deceptive acts by depository institutions 
and federal credit unions. Taken together, CBO estimates that 
those consultation and reporting requirements would cost less 
than $1 million per year, assuming the availability of 
appropriated funds.
    Estimated impact on state, local, and tribal governments: 
S. 414 contains no intergovernmental mandates as defined in 
UMRA and would impose no costs on state, local, or tribal 
governments.
    Estimated impact on the private sector: The bill contains 
several private-sector mandates, as defined in UMRA, 
principally affecting creditors and institutions that issue 
gift cards. Mandates on creditors would:
           Impose additional reporting requirements;
           Place limits on fees and interest charges;
           Set standards for issuing credit cards to 
        individuals under the age of 21; and
           Impose requirements on several features of 
        credit accounts.
    The bill also would impose private-sector mandates on 
issuers of gift cards by prohibiting them from collecting 
certain fees or establishing expiration dates, except as 
directed in the bill.
    The aggregate costs to comply with those mandates would 
likely exceed the annual threshold established in UMRA for 
private-sector mandates ($139 million in 2009, adjusted 
annually for inflation) in at least one of the first five years 
the mandates are in effect.
    The bill also would codify several requirements included in 
credit card regulations recently established by the Federal 
Reserve and other financial regulatory agencies. CBO believes 
that action would not constitute a new mandate.

Mandates on creditors

    Reporting Requirements. The bill would require the Federal 
Reserve to collect additional data from creditors on the 
profitability of their credit card operations, the percentages 
of income derived from different sources, fees on cardholders, 
fees on merchants, and any other specified material sources of 
income. Under current law, the Federal Reserve collects 
financial data semiannually from a large sample of creditors. 
Those data are readily compiled by creditors, and the cost of 
submitting the data is minimal. However, according to the 
Federal Reserve and industry sources, in order to comply with 
the new requirement, creditors would need to develop and 
implement new software programs and systems to compile the 
necessary data. Based on information from the Federal Reserve 
and industry sources, CBO estimates that the mandate would 
affect a large number of creditors, and the cost to set up the 
systems could be significant.
    Limits on Credit Card Fees and Interest Charges. The bill 
would place limits on fees and interest charges creditors could 
collect. This includes over-the-limit fees, interest charges, 
and other fees. The industry currently collects billions of 
dollars in such fees and interest charges annually. According 
to the Federal Reserve and industry sources, the limits imposed 
by the bill could significantly affect the amount that 
creditors collect each year.
    Over-the-Limit Fees. The bill would require creditors to 
allow cardholders to establish a credit limit that cannot be 
exceeded, which is known as a hard credit limit. As such, 
creditors would be prevented from completing any transaction 
that would put the cardholder in excess of their credit limit. 
Under current practice, most cardholders are allowed to exceed 
their credit limit and are charged a fee for doing so. Under 
the bill, creditors would be prohibited from charging over-the-
limit fees on accounts for which the cardholder has requested a 
hard credit limit. In addition, the bill would limit the 
situations when creditors could charge over-the-limit fees. 
Because the bill also would require creditors to notify their 
cardholders of the option to establish a credit limit and 
provide the necessary tools for cardholders to do so, the 
Federal Reserve and industry representatives believe that many 
cardholders would elect to use the option.
    Credit Card Interest Charges. The bill would impose several 
new requirements regarding a creditor's ability to collect 
interest charges from credit cards that have been cancelled and 
from certain credit card transaction fees. The bill also would 
require creditors to apply a cardholder's payment to the 
balance with the highest rate of interest to minimize finance 
charges.
    Credit Card Fees. The bill also would impose limits on the 
fees charged to cardholders and when creditors could charge 
certain fees.
    Standards for Issuing Credit Cards to Individuals Under the 
Age of 21. The bill also would require creditors, when 
soliciting to persons under the age of 21, to obtain a credit 
card application that contains either a guardian's signature, 
information indicating an independent income, or proof that the 
applicant has completed a certified financial education course. 
In addition, a creditor would be prohibited from increasing 
such a cardholder's line of credit unless a guardian approves 
in writing and assumes joint liability of such increase. A 
creditor also would be prohibited from soliciting prescreened 
credit offers to individuals under the age of 21. Similarly, 
credit-reporting agencies would be prohibited from furnishing 
credit-related information to creditors unless explicitly 
authorized by the individual. Even though only a small 
percentage of cardholders are under the age of 21, creditors 
collect hundreds of millions of dollars each year from 
cardholders between the ages of 18 and 21. CBO is uncertain 
whether the mandates would affect the number of persons under 
21 who would acquire credit cards. Therefore, we cannot 
determine if the cost of complying with this mandate would be 
significant to creditors.
    Requirements on Credit Account Features. S. 414 would 
impose several new requirements on creditors related to 
providing account disclosures, using certain terms, and 
activating credit cards. The bill would require creditors to 
disclose payment and interest information as well as 
termination procedures prominently as described in the bill. In 
addition, the bill would prohibit creditors from using the term 
``prime rate'' unless its use is based on the definition 
provided in the bill and would prohibit creditors from 
informing credit bureaus of a cardholder's line of credit until 
the cardholder has activated his or her card. The cost for 
creditors to comply with those mandates would likely be minimal 
because compliance would involve only a small adjustment in 
current procedures.

Mandates on issuers of gift cards

    S. 414 would prohibit issuers of gift cards from collecting 
certain fees and establishing expiration dates for gift 
certificates, store gift cards, or general-use prepaid cards 
except as allowed by the bill. According to industry sources, 
those requirements could significantly affect the amount that 
issuers of gift cards collect in fees each year. Currently, 
those issuers collect more than $6 billion each year from fees 
and expired cards. Even if this provision affected only a small 
portion of those fees, the amount of forgone collections by 
card issuers could be substantial.
    Estimate prepared by: Federal costs: Federal Banking--
Kathleen Gramp and Leigh Angres; Revenues--Barbara Edwards; 
Impact on state, local, and tribal governments: Leo Lex; Impact 
on the private sector: Jacob Kuipers.
    Estimate approved by: Theresa Gullo, Deputy Assistant 
Director for Budget Analysis; Frank J. Sammartino, Acting 
Assistant Director for Tax Analysis.

                 CHANGES IN EXISTING LAW (CORDON RULE)

    On March 31, 2009 the Committee unanimously approved a 
motion by Senator Dodd to waive the Cordon rule. Thus, in the 
opinion of the Committee, it is necessary to dispense with the 
requirement of section 12 of rule XXVI of the Standing Rules of 
the Senate in order to expedite the business of the Senate.

                                  
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