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[House Report 111-314]
[From the U.S. Government Publishing Office]

111th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 1st Session                                                    111-314

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

 
            EXPEDITED CARD REFORM FOR CONSUMERS ACT OF 2009

                                _______
                                

October 26, 2009.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

 Mr. Frank of Massachusetts, from the Committee on Financial Services, 
                        submitted the following

                              R E P O R T

                             together with

                            DISSENTING VIEWS

                        [To accompany H.R. 3639]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Financial Services, to whom was referred the 
bill (H.R. 3639) to amend the Credit Card Accountability 
Responsibility and Disclosure Act of 2009 to establish an 
earlier effective date for various consumer protections, and 
for other purposes, having considered the same, report 
favorably thereon with an amendment and recommend that the bill 
as amended do pass.

                                CONTENTS

                                                                   Page
     Amendment........................................................2
     Purpose and Summary..............................................2
     Background and Need for Legislation..............................3
     Hearings.........................................................4
     Committee Consideration..........................................4
     Committee Votes..................................................4
     Committee Oversight Findings.....................................5
     Performance Goals and Objectives.................................5
     New Budget Authority, Entitlement Authority, and Tax Expenditures5
     Committee Cost Estimate..........................................5
     Congressional Budget Office Estimate.............................5
     Federal Mandates Statement.......................................6
     Advisory Committee Statement.....................................6
     Constitutional Authority Statement...............................6
     Applicability to Legislative Branch..............................7
     Earmark Identification...........................................7
     Section-by-Section Analysis of the Legislation...................7
     Changes in Existing Law Made by the Bill, as Reported............7
     Dissenting Views................................................10

                               Amendment

  The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Expedited CARD Reform for Consumers 
Act of 2009''.

SEC. 2. EARLIER EFFECTIVE DATE FOR THE CREDIT CARD ACT OF 2009, 
                    GENERALLY.

  Section 3 of the Credit Card Accountability Responsibility and 
Disclosure Act of 2009 is amended by striking ``become effective 9 
months after the date of enactment of this Act,'' and inserting ``take 
effect on December 1, 2009, except that for a depository institution, 
as defined in section 19(b)(1)(A) of the Federal Reserve Act (12 U.S.C. 
461(b)(1)(A)), with fewer than 2 million credit cards in circulation on 
the date of the enactment of the Expedited CARD Reform for Consumers 
Act of 2009, the effective date shall be February 22, 2010,''.

SEC. 3. EARLIER EFFECTIVE DATES FOR SPECIFIC PROVISIONS TO PREVENT 
                    FURTHER ABUSES.

  (a) Review of Past Consumer Interest Rate Increases.--Section 148(d) 
of the Truth in Lending Act (15 U.S.C. 1665c(d)) (as added by section 
101(c) of the Credit Card Accountability Responsibility and Disclosure 
Act of 2009) is amended--
          (1) by striking ``9 months after the date of enactment of 
        this section'' and inserting ``December 1, 2009, except that 
        for a depository institution, as defined in section 19(b)(1)(A) 
        of the Federal Reserve Act (12 U.S.C. 461(b)(1)(A)), with fewer 
        than 2 million credit cards in circulation on the date of the 
        enactment of the Expedited CARD Reform for Consumers Act of 
        2009, the effective date shall be February 22, 2010,''; and
          (2) by striking ``become effective 15 months after that date 
        of enactment'' and inserting ``take effect on December 1, 2009, 
        except that for a depository institution, as defined in section 
        19(b)(1)(A) of the Federal Reserve Act (12 U.S.C. 
        461(b)(1)(A)), with fewer than 2 million credit cards in 
        circulation on the date of the enactment of the Expedited CARD 
        Reform for Consumers Act of 2009, the effective date shall be 
        August 22, 2010''.
  (b) Requirement That Penalty Fees Be Reasonable and Proportional to 
the Violation.--Section 149(b) of the Truth in Lending Act (15 U.S.C. 
1665d(b)) (as added by section 102(b) of the Credit Card Accountability 
Responsibility and Disclosure Act of 2009) is amended--
          (1) by striking ``9 months after the date of enactment of 
        this section,'' and inserting ``December 1, 2009, except that 
        for a depository institution, as defined in section 19(b)(1)(A) 
        of the Federal Reserve Act (12 U.S.C. 461(b)(1)(A)), with fewer 
        than 2 million credit cards in circulation on the date of the 
        enactment of the Expedited CARD Reform for Consumers Act of 
        2009, the effective date shall be February 22, 2010,''; and
          (2) by striking ``become effective 15 months after the date 
        of enactment of the section'' and inserting ``take effect on 
        December 1, 2009, except that for a depository institution, as 
        defined in section 19(b)(1)(A) of the Federal Reserve Act (12 
        U.S.C. 461(b)(1)(A)), with fewer than 2 million credit cards in 
        circulation on the date of the enactment of the Expedited CARD 
        Reform for Consumers Act of 2009, the effective date shall be 
        August 22, 2010''.

                          Purpose and Summary

    H.R. 3639 accelerates the implementation dates of the 
Credit Card Accountability Responsibility and Disclosure Act 
(The CARD Act), which was signed into law on May 22, 2009. The 
Expedited CARD Reform for Consumers Act, H.R. 3639, will move 
the nine-month (February 20, 2010) and 15-month (August 22, 
2010) implementation dates up to December 1, 2009.

                  Background and Need for Legislation

    H.R. 3639 was introduced on September 24, 2009, by 
Congresswoman Maloney and Chairman Frank to move up certain 
implementation dates of the Credit Card Accountability 
Responsibility and Disclosure Act (The CARD Act, P.L. 111-24), 
which was signed into law on May 22nd. Since that time, instead 
of preparing to implement these consumer protection provisions, 
many credit card companies have raised interest rates and 
decreased credit limits on their consumers before the effective 
date. The CARD Act contains three separate implementation 
dates, 90 days, 9 months and 15 months after enactment. The 
break-out below lists when provisions become effective.
    The Expedited Card Reform for Consumers Act, H.R. 3639, 
will move the nine-month (February 20, 2010) and 15-month 
(August 22, 2010) implementation dates up to December 1, 2009.
    The following provisions became effective on August 20, 
2009:
           Provide increased written notice to 
        consumers of any increases in the interest rate or 
        otherwise makes a significant change to the terms of a 
        credit card account;
           Inform consumers of their right to cancel 
        the card before the rate hike goes into effect;
           Send statements to consumers 21 days before 
        the due date of any payments.
    The following provisions will become effective on February 
22, 2010:
           Prohibits arbitrary interest rate increases 
        and universal default on existing balances;
           Prohibits issuers from charging over-limit 
        fees unless the cardholder elects to allow the issuer 
        to complete over-limit transactions, and also limits 
        over-limit fees on electing cardholders;
           Requires payments in excess of the minimum 
        to be applied first to the credit card balance with the 
        highest rate of interest;
           Prohibits issuers from setting early morning 
        deadlines for credit card payments;
           Prohibits interest charges on debt paid on 
        time (double-cycle billing ban);
           Requires issuers extending credit to young 
        consumers under the age of 21 to obtain an application 
        that contains: the signature of a parent, guardian, or 
        other individual 21 years or older who will take 
        responsibility for the debt; or proof that the 
        applicant has an independent means of repaying any 
        credit extended;
           Protects recipients of gift cards by 
        requiring all gift cards to have at least a five-year 
        life span, and eliminates the practice of declining 
        values and hidden fees for those cards not used within 
        a reasonable period of time.
    The following provisions will become effective on August 
22, 2010:
           Requires penalty fees to be reasonable and 
        proportional to the omission or violation;
           Requires that creditors periodically review 
        all interest rate increases since January 2009 and 
        reduce rates when a review indicates that a reduction 
        is warranted.
           Amends the Electronic Fund Transfer Act to 
        limit dormancy, inactivity, and service fees associated 
        with gift cards.

                                Hearings

    The Full Committee held a hearing on October 8, 2009 
entitled ``H.R. 2382, the Credit Card Interchange Fees Act of 
2009 and H.R. 3639, the Expedited CARD Reform for Consumers Act 
of 2009.'' The following witnesses testified regarding H.R. 
3639:
    Ms. Ruth Susswein, Deputy Director, National Priorities, 
Consumer Action
    Mr. Kenneth J. Clayton, Senior Vice President and General 
Counsel, ABA Card Policy Council, American Bankers Association
    Mr. Todd McCracken, President, National Small Business 
Association
    Mr. Anthony Demangone, Senior Compliance Counsel, National 
Association of Federal Credit Unions
    Mr. Nick Bourke, Manager, Safe Credit Cards Project, The 
Pew Charitable Trusts

                        Committee Consideration

    The Committee on Financial Services met in open session on 
October 22, 2009, and ordered H.R. 3639, Expedited CARD Reform 
for Consumers Act of 2009, as amended, favorably reported to 
the House by a voice vote.

                            Committee Votes

    Clause 3(b) of rule XIII of the Rules of the House of 
Representatives requires the Committee to list the record votes 
on the motion to report legislation and amendments thereto. No 
record votes were taken in conjunction with the consideration 
of this legislation. A motion by Mr. Frank to report the bill, 
as amended, to the House with a favorable recommendation was 
agreed to by a voice vote.
    During the consideration of the bill, the following 
amendments were considered:
    An amendment by Mr. Sherman (and Mrs. Capito), no. 1, 
exempting small issuers from the expedited dates except for the 
gift card provisions, was agreed to by a voice vote.
    An amendment by Mr. Sherman (and Mr. Scott), no. 2, 
deleting references to the gift card implementation dates, was 
agreed to by a voice vote.
    An amendment by Mr. Lee (and Mr. Castle), no. 3, regarding 
a Federal Reserve certification, was not agreed to by a voice 
vote.
    An amendment by Mrs. McCarthy (NY), no. 4, regarding a 
moratorium on interest rate increases, was offered and 
withdrawn.
    An amendment by Mr. Hensarling, No. 5, regarding a 
clarification that 45-day delay does not apply to reductions in 
interest rates and fees, was ruled out of order as not germane.
    An amendment by Mr. Maffei, No. 6, changing the effective 
date to the date of enactment, was not agreed to by a voice 
vote.

                      Committee Oversight Findings

    Pursuant to clause 3(c)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee held a hearing and made 
findings that are reflected in this report.

                    Performance Goals and Objectives

    Pursuant to clause 3(c)(4) of rule XIII of the Rules of the 
House of Representatives, the Committee establishes the 
following performance related goals and objectives for this 
legislation:
    H.R. 3639 accelerates the implementation dates of the 
Credit Card Accountability Responsibility and Disclosure Act 
(The CARD Act), by moving the nine-month (February 20, 2010) 
and 15 month (August 22, 2010) implementation dates up to 
December 1, 2009.

   New Budget Authority, Entitlement Authority, and Tax Expenditures

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee adopts as its 
own the estimate of new budget authority, entitlement 
authority, or tax expenditures or revenues contained in the 
cost estimate prepared by the Director of the Congressional 
Budget Office pursuant to section 402 of the Congressional 
Budget Act of 1974.

                        Committee Cost Estimate

    The Committee adopts as its own the cost estimate prepared 
by the Director of the Congressional Budget Office pursuant to 
section 402 of the Congressional Budget Act of 1974.

                  Congressional Budget Office Estimate

    Pursuant to clause 3(c)(3) of rule XIII of the Rules of the 
House of Representatives, the following is the cost estimate 
provided by the Congressional Budget Office pursuant to section 
402 of the Congressional Budget Act of 1974:
                                                  October 23, 2009.
Hon. Barney Frank,
Chairman, Committee on Financial Services, House of Representatives, 
        Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 3639, the 
Expedited CARD Reform for Consumers Act of 2009.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Barbara 
Edwards.
            Sincerely,
                                              Douglas W. Elmendorf.
    Enclosure.

H.R. 3639--Expedited CARD Reform for Consumers Act of 2009

    H.R. 3639 would accelerate the implementation of certain 
provisions in existing law related to the regulation and 
operations of the credit card industry. The Credit Card 
Accountability Responsibility and Disclosure Act of 2009 set 
deadlines for implementing various reforms and procedures, with 
most of those measures scheduled to take effect in February and 
August of 2010. This bill would change those effective dates to 
December 1, 2009, subject to exemptions for entities that issue 
prepaid gift cards and depository institutions (such as banks 
and credit unions) with less than 2 million credit cards in 
circulation.
    Based on information from the Board of Governors of the 
Federal Reserve, CBO estimates that implementing this bill 
would have a negligible net effect on the workload of the 
affected regulatory agencies. The budgetary effects on the 
Federal Reserve, which has primary responsibility for 
regulating credit card practices, are recorded as changes in 
revenues (governmental receipts). Costs incurred by other 
financial regulatory agencies would affect direct spending, but 
most of those expenses are offset by fees or income from 
deposit insurance premiums. Thus, CBO estimates that enacting 
this bill would have no significant effect on revenues or net 
direct spending.
    H.R. 3639 contains no intergovernmental mandates as defined 
in the Unfunded Mandates Reform Act (UMRA) and would impose no 
costs on state, local, or tribal governments.
    By accelerating the implementation of several requirements 
on creditors, H.R. 3639 would impose private-sector mandates as 
defined in UMRA. The cost of the mandates would be the cost for 
creditors to comply with the requirements sooner than required 
under current law. Based on information from the Federal 
Reserve and industry sources, CBO estimates that the aggregate 
cost of those mandates would probably exceed the annual 
threshold established in UMRA for private-sector mandates ($139 
million in 2009, adjusted annually for inflation).
    The CBO staff contacts for this estimate are Barbara 
Edwards (for federal costs) and Brian Prest and Paige Piper/
Bach (for the private-sector impact). The estimate was approved 
by Frank Sammartino, Assistant Director for Tax Analysis, and 
Peter H. Fontaine, Assistant Director for Budget Analysis.

                       Federal Mandates Statement

    The Committee adopts as its own the estimate of Federal 
mandates prepared by the Director of the Congressional Budget 
Office pursuant to section 423 of the Unfunded Mandates Reform 
Act.

                      Advisory Committee Statement

    No advisory committees within the meaning of section 5(b) 
of the Federal Advisory Committee Act were created by this 
legislation.

                   Constitutional Authority Statement

    Pursuant to clause 3(d)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee finds that the 
Constitutional Authority of Congress to enact this legislation 
is provided by Article 1, section 8, clause 1 (relating to the 
general welfare of the United States) and clause 3 (relating to 
the power to regulate interstate commerce).

                  Applicability to Legislative Branch

    The Committee finds that the legislation does not relate to 
the terms and conditions of employment or access to public 
services or accommodations within the meaning of section 
102(b)(3) of the Congressional Accountability Act.

                         Earmark Identification

    H.R. 3639 does not contain any congressional earmarks, 
limited tax benefits, or limited tariff benefits as defined in 
clause 9 of rule XXI.

             Section-by-Section Analysis of the Legislation

Section 1. Short Title

    This section establishes the short title of the bill, the 
``Expedited CARD Reform for Consumers Act of 2009.''

Section 2. Earlier Effective Date for the Credit Card Act of 2009, 
        Generally

    This section establishes an effective date of December 1, 
2009 for the Credit Card Accountability Responsibility and 
Disclosure Act of 2009, except for depository institutions as 
defined in the Federal Reserve Act with fewer than 2 million 
credit cards in circulation on the date of enactment of the 
Expedited CARD Reform for Consumers Act of 2009, the effective 
date shall be February 22, 2010.

Section 3. Earlier Effective Dates for Specific Provisions to Prevent 
        Further Abuses

    This section establishes the December 1, 2009 effective 
date for specific provisions that were to take effect 9 months 
after enactment and 15 months after enactment, except for 
depository institutions as defined in the Federal Reserve Act 
with fewer than 2 million credit cards in circulation on the 
date of enactment of the Expedited CARD Reform for Consumers 
Act of 2009, the effective date shall be February 22, 2010 or 
August 22, 2010, as appropriate.

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

CREDIT CARD ACCOUNTABILITY RESPONSIBILITY AND DISCLOSURE ACT OF 2009

           *       *       *       *       *       *       *

SEC. 3. EFFECTIVE DATE.

  This Act and the amendments made by this Act shall [become 
effective 9 months after the date of enactment of this Act,] 
take effect on December 1, 2009, except that for a depository 
institution, as defined in section 19(b)(1)(A) of the Federal 
Reserve Act (12 U.S.C. 461(b)(1)(A)), with fewer than 2 million 
credit cards in circulation on the date of the enactment of the 
Expedited CARD Reform for Consumers Act of 2009, the effective 
date shall be February 22, 2010, except as otherwise 
specifically provided in this Act.

           *       *       *       *       *       *       *

                              ----------                              

TRUTH IN LENDING ACT

           *       *       *       *       *       *       *

CHAPTER 3--CREDIT ADVERTISING

           *       *       *       *       *       *       *

SEC. 148. INTEREST RATE REDUCTION ON OPEN END CONSUMER CREDIT PLANS.

  (a) * * *

           *       *       *       *       *       *       *

  (d) Rulemaking.--The Board shall issue final rules not later 
than [9 months after the date of enactment of this section] 
December 1, 2009, except that for a depository institution, as 
defined in section 19(b)(1)(A) of the Federal Reserve Act (12 
U.S.C. 461(b)(1)(A)), with fewer than 2 million credit cards in 
circulation on the date of the enactment of the Expedited CARD 
Reform for Consumers Act of 2009, the effective date shall be 
February 22, 2010, to implement the requirements of and 
evaluate compliance with this section, and subsections (a), 
(b), and (c) shall [become effective 15 months after that date 
of enactment] take effect on December 1, 2009, except that for 
a depository institution, as defined in section 19(b)(1)(A) of 
the Federal Reserve Act (12 U.S.C. 461(b)(1)(A)), with fewer 
than 2 million credit cards in circulation on the date of the 
enactment of the Expedited CARD Reform for Consumers Act of 
2009, the effective date shall be August 22, 2010.

SEC. 149. REASONABLE PENALTY FEES ON OPEN END CONSUMER CREDIT PLANS.

  (a) * * *

           *       *       *       *       *       *       *

  (b) Rulemaking Required.--The Board, in consultation with the 
Comptroller of the Currency, the Board of Directors of the 
Federal Deposit Insurance Corporation, the Director of the 
Office of Thrift Supervision, and the National Credit Union 
Administration Board, shall issue final rules not later than [9 
months after the date of enactment of this section,] December 
1, 2009, except that for a depository institution, as defined 
in section 19(b)(1)(A) of the Federal Reserve Act (12 U.S.C. 
461(b)(1)(A)), with fewer than 2 million credit cards in 
circulation on the date of the enactment of the Expedited CARD 
Reform for Consumers Act of 2009, the effective date shall be 
February 22, 2010, to establish standards for assessing whether 
the amount of any penalty fee or charge described under 
subsection (a) is reasonable and proportional to the omission 
or violation to which the fee or charge relates. Subsection (a) 
shall [become effective 15 months after the date of enactment 
of this section] take effect on December 1, 2009, except that 
for a depository institution, as defined in section 19(b)(1)(A) 
of the Federal Reserve Act (12 U.S.C. 461(b)(1)(A)), with fewer 
than 2 million credit cards in circulation on the date of the 
enactment of the Expedited CARD Reform for Consumers Act of 
2009, the effective date shall be August 22, 2010.

           *       *       *       *       *       *       *

                            DISSENTING VIEWS

    The way that consumers pay for products and services is 
dramatically changing, with electronic payments (credit and 
debit cards) now accounting for more than half of all 
transactions. Credit cards provide quick, easy and convenient 
ways for consumers to conduct their daily financial 
transactions. And given the crucial role that credit cards have 
come to play for individual consumers and the economy, it may 
be appropriate to consider new ways to protect consumers from 
unfair and deceptive credit card practices, ensuring that they 
receive useful and complete disclosures about the terms and 
conditions governing their cards. But policymakers must realize 
that in endeavoring to protect consumers, they may end up 
imposing considerable costs on the U.S. economy, because even 
the best policy cannot substitute for personal responsibility 
and may end up both raising the price of credit for some and 
unfairly limiting access to credit to others.
    Since President Obama signed the Credit Card Accountability 
Responsibility and Disclosure Act of 2009 (P.L. No. 111-24) 
(CARD Act) into law on May 22 of this year, consumers and small 
businesses alike have witnessed a dramatic constriction of 
credit. Seventy-nine percent of small businesses surveyed by 
the National Small Business Association said that credit card 
lending has tightened since last year. Small business lending 
is down almost $118 billion since the fourth quarter of 2008 
and 10 percent of all credit-card lines have been cancelled 
outright. The proponents of H.R. 3639, the Expedited CARD 
Reform for Consumers Act of 2009, are ignoring these facts, 
insisting on a timetable for implementation of the CARD Act 
that is patently unworkable.
    The CARD Act requires that card issuers rethink their 
entire business models, reprogram their systems, and redesign 
their marketing materials, solicitations, periodic statements 
and contracts. For many, particularly smaller issuers that do 
not enjoy the economies of scale and technological capabilities 
of the largest firms, an earlier implementation date is not 
feasible. Federal Reserve Board officials have testified that 
speeding up implementation could be counter-productive if 
issuers passed higher expenses on to customers or eliminated 
some product offerings that consumers depend on. Fed Chairman 
Ben Bernanke reaffirmed these concerns in an October 20, 2009 
letter to Ranking Member Bachus. He said that expediting the 
rules would cut consumers' voices out of the rule-writing 
process and complicate effective implementation of the rules. 
He also explained that companies need to have sufficient time 
to ``to allow for an orderly transition and to avoid unintended 
consequences, compliance difficulties and potential 
liabilities.''
    During the debate of the CARD Act, Republicans warned that 
its enactment would penalize some of the most responsible 
credit users. Unfortunately, this has already proven true. 
Curtis Arnold, founder of CardRatings.com, says he expected 
credit card issuers to raise annual fees after the legislation 
was enacted. What he did not expect, he says, ``was that good 
customers were going to be hit.'' No longer will even exemplary 
behavior--never carrying a balance, never incurring a late fee, 
for example--shield some consumers from unexpected fees. 
Because of the CARD Act some banks have started charging 
inactivity fees, and some are planning to charge annual usage 
fees--charges that many believed became extinct years ago.
    Economic anxiety is widespread and Americans do not feel 
secure. Yet H.R. 3639, a bill whose proponents claim will 
address one of the sources of that anxiety, may only make 
matters worse, by driving up the costs of credit and 
significantly curtailing its availability. It is the wrong bill 
at the wrong time.

                                   Spencer Bachus.
                                   Scott Garrett.
                                   Michele Bachmann.
                                   Ron Paul.
                                   Lynn Jenkins.
                                   Christopher Lee.
                                   Randy Neugebauer.
                                   Mike Castle.
                                   Jeb Hersarling.

                                  
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