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48–870 PDF 2009

H.R. 627, THE CREDIT CARDHOLDERS’ 

BILL OF RIGHTS ACT OF 2009; AND 

H.R. 1456, THE CONSUMER OVERDRAFT 

PROTECTION FAIR PRACTICES ACT OF 2009 

HEARING 

BEFORE THE

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS 

AND CONSUMER CREDIT 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

MARCH 19, 2009 

Printed for the use of the Committee on Financial Services 

Serial No. 111–17 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

BARNEY FRANK, Massachusetts, Chairman 

PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

MELISSA L. BEAN, Illinois 

GWEN MOORE, Wisconsin 

PAUL W. HODES, New Hampshire 

KEITH ELLISON, Minnesota 

RON KLEIN, Florida 

CHARLES A. WILSON, Ohio 

ED PERLMUTTER, Colorado 

JOE DONNELLY, Indiana 

BILL FOSTER, Illinois 

ANDRE ́ CARSON, Indiana 

JACKIE SPEIER, California 

TRAVIS CHILDERS, Mississippi 

WALT MINNICK, Idaho 

JOHN ADLER, New Jersey 

MARY JO KILROY, Ohio 

STEVE DRIEHAUS, Ohio 

SUZANNE KOSMAS, Florida 

ALAN GRAYSON, Florida 

JIM HIMES, Connecticut 

GARY PETERS, Michigan 

DAN MAFFEI, New York 

SPENCER BACHUS, Alabama 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

JUDY BIGGERT, Illinois 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

J. GRESHAM BARRETT, South Carolina 

JIM GERLACH, Pennsylvania 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

ADAM PUTNAM, Florida 

MICHELE BACHMANN, Minnesota 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California 

BILL POSEY, Florida 

LYNN JENKINS, Kansas 

JEANNE M. ROSLANOWICK, Staff Director and Chief Counsel 

(III) 

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS AND CONSUMER CREDIT

LUIS V. GUTIERREZ, Illinois, Chairman 

CAROLYN B. MALONEY, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

BRAD SHERMAN, California 

DENNIS MOORE, Kansas 

PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

RUBE ́ N HINOJOSA, Texas 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

AL GREEN, Texas 

WM. LACY CLAY, Missouri 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

EMANUEL CLEAVER, Missouri 

MELISSA L. BEAN, Illinois 

PAUL W. HODES, New Hampshire 

KEITH ELLISON, Minnesota 

RON KLEIN, Florida 

CHARLES A. WILSON, Ohio 

GREGORY W. MEEKS, New York 

BILL FOSTER, Illinois 

ED PERLMUTTER, Colorado 

JACKIE SPEIER, California 

TRAVIS CHILDERS, Mississippi 

WALT MINNICK, Idaho 

JEB HENSARLING, Texas 

J. GRESHAM BARRETT, South Carolina 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

WALTER B. JONES, JR., North Carolina 

SHELLEY MOORE CAPITO, West Virginia 

SCOTT GARRETT, New Jersey 

JIM GERLACH, Pennsylvania 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

KEVIN McCARTHY, California 

KENNY MARCHANT, Texas 

CHRISTOPHER LEE, New York 

ERIK PAULSEN, Minnesota 

LEONARD LANCE, New Jersey 

(V) 

C O N T E N T S 

Page 

Hearing held on: 

March 19, 2009 ................................................................................................. 1 

Appendix: 

March 19, 2009 ................................................................................................. 51 

WITNESSES 

THURSDAY, MARCH 19, 2009 

Albin, Sheila A., Associate General Counsel, Office of General Counsel, National Credit Union Administration (NCUA) ..................................................... 11 

Braunstein, Sandra F., Director, Division of Consumer and Community Affairs, Board of Governors of the Federal Reserve System ................................ 8 

Clayton, Kenneth J., Senior Vice President/General Counsel, American Bankers Association Card Policy Council ................................................................... 28 

Echard, Linda, President and CEO, ICBA Bancard, on behalf of the Independent Community Bankers of America .......................................................... 29 

Fecher, Douglas, President and CEO, Wright-Patt Credit Union, Inc., on 

behalf of the Credit Union National Association (CUNA) ................................ 31 

Ireland, Oliver I., Partner, Morrison & Foerster LLP .......................................... 33 

McCracken, Todd, President, National Small Business Association (NSBA) ..... 34 

Mierzwinski, Edmund, Consumer Program Director, U.S. PIRG ........................ 36 

Plunkett, Travis B., Legislative Director, Consumer Federation of America ..... 38 

Yakimov, Montrice Godard, Managing Director, Compliance and Consumer 

Protection, Office of Thrift Supervision .............................................................. 10 

APPENDIX 

Prepared statements: 

Marchant, Hon. Kenny ..................................................................................... 52 

Albin, Sheila A. ................................................................................................. 53 

Braunstein, Sandra F. ...................................................................................... 70 

Clayton, Kenneth J. ......................................................................................... 84 

Echard, Linda ................................................................................................... 107 

Fecher, Douglas ................................................................................................ 118 

Ireland, Oliver I. ............................................................................................... 127 

McCracken, Todd .............................................................................................. 136 

Mierzwinski, Ed ................................................................................................ 145 

Plunkett, Travis B. ........................................................................................... 145 

Yakimov, Montrice Godard .............................................................................. 201 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Castle, Hon. Michael: 

Letter to Chairman Gutierrez and Ranking Member Hensarling from 

Joe Samuel, Senior Vice President of Public Policy, First Data Corporation, dated March 18, 2009 .......................................................................... 216 

Cleaver, Hon. Emanuel: 

Constituent letter ............................................................................................. 220 

McHenry, Hon. Patrick: 

Responses to questions submitted to Sandra Braunstein ............................. 222 

Meeks, Hon. Gregory: 

Responses to questions submitted to Sandra Braunstein ............................. 224 

Responses to questions submitted to Linda Echard ...................................... 227 

(1) 

H.R. 627, THE CREDIT CARDHOLDERS’ 

BILL OF RIGHTS ACT OF 2009; AND 

H.R. 1456, THE CONSUMER OVERDRAFT 

PROTECTION FAIR PRACTICES ACT OF 2009 

Thursday, March 19, 2009 

U.S. HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS

AND CONSUMER CREDIT, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The subcommittee met, pursuant to notice, at 2:55 p.m., in room 

2128, Rayburn House Office Building, Hon. Luis V. Gutierrez 

[chairman of the subcommittee] presiding. 

Members present: Representatives Gutierrez, Maloney, Watt, 

Moore of Kansas, Waters, Green, Miller of North Carolina, Scott, 

Cleaver, Klein; Hensarling, Castle, Royce, Jones, Neugebauer, 

Price, Campbell, Marchant, Lee, Paulsen, and Lance. 

Ex officio present: Representative Bachus. 

Also present: Representative Maffei. 

Chairman GUTIERREZ. This hearing of the Subcommittee on Financial Institutions and Consumer Credit will come to order. 

Thank you to all of the witnesses for appearing before the subcommittee today. 

Today’s hearing is a legislative hearing that will examine two important consumer protection bills: H.R. 627, the Credit Cardholders’ Bill of Rights Act of 2009; and H.R. 1456, the Consumer 

Overdraft Protection Fair Practices Act of 2009. 

The subcommittee has asked our witnesses to discuss recent regulatory action in the areas of credit card reform and overdraft reform and comment on H.R. 627 and H.R. 1456. We will be limiting 

opening statements to 12 minutes per side, but without objection, 

the record will be open to all members. Opening statements will be 

made a part of the record. 

I yield myself 4 minutes. 

In 2008, this committee led the Congress in adopting tough but 

commonsense consumer protection measures for credit card borrowers. This legislation, appropriately entitled the Credit Cardholders’ Bill of Rights, was approved by the House by a wide majority, but was not taken up by the Senate. The reintroduction of this 

legislation in the form of H.R. 627 in the 111th Congress is a sign 

that this Congress is committed to American consumers who demand commonsense consumer-oriented laws at a time of economic 

recession. 

2 

Credit cards, when used properly, are an important part of the 

American economic system. More than a convenient means of payment, they can be instrumental in starting a small business, helping in building a solid credit history, and are even effective in providing families with capital during times of economic crisis. Far too 

often, consumers come to rely on revolving debt or they are drawn 

to cards that offer low teaser rates and other mechanisms designed 

to create a never-ending cycle of debt. 

Today Americans are suffering from rising unemployment rates, 

dramatically declining family wealth, and declining real wages, all 

of which make it harder for consumers to pay off credit card debt. 

In fact, in 2008, we saw the percentage of accounts 30 days past 

due go to an all-time high of 5.6 percent. On average, American 

families owe 24 percent of their income in credit card debt. These 

are daunting figures in an unstable time, but Congress can and 

must do something about it by making sure that unfair credit card 

practices and fees do not deter consumers from paying down their 

debt. 

Among its many consumer protections, H.R. 627 would prohibit 

unreasonable interest rate increases by preventing credit card companies from arbitrarily increasing interest rates on existing balances. Additionally, it would end double-cycle billing, meaning that 

credit card companies could not charge interest on debt consumers 

have already paid on time. 

The legislation also requires fair allocation of consumer payments, banning the process of crediting a consumer’s payments to 

low-interest debt first, thus ensuring that the highest yielding debt 

for the insurer remains on the books the longest. 

In addition, the Credit Cardholders’ Bill of Rights protects vulnerable consumers from high-fee subprime credit cards by preventing these fees from being charged to the card itself. This is an 

important provision for minority consumers, many of whom are 

twice as likely to have an APR over 20 percent. 

We set to work on this legislation with the knowledge that the 

Federal Reserve Board has mandated new regulations that mirror 

many of the protections included in H.R. 627. I applaud the Board 

for its work on UDAP and Regulation Z changes. 

Today’s hearing will also discuss H.R. 1456, the Consumer Overdraft Fair Protection Act. This bill would provide consumers with 

more notice choice regarding overdraft fees. Among other things, 

H.R. 1456 would require notice to consumers when an ATM transaction is about to trigger an overdraft. Consumers would then have 

a choice to accept or reject the overdraft service and the associated 

fee. 

Of course, the Federal Reserve has also proposed new rules outlining additional consumer protections regarding overdraft fees, but 

similar to the credit card issue, I believe Congress should keep the 

proverbial legislative heat on the industry. 

I am committed to working with the members of the subcommittee and the full committee to advance this practical and 

consumer-friendly legislation. I believe H.R. 627 fits these criteria 

as well, and with some work, so will H.R. 1456 soon. 

I yield 5 minutes to the ranking member, Mr. Hensarling. 

3 

Mr. HENSARLING. Thank you, Mr. Chairman, and thank you for 

calling this hearing. 

Last year, the House Financial Services Committee approved 

what I believe to be a dangerous piece of anti-consumer legislation 

that ultimately would restrict the availability of credit card credit. 

Instead of giving borrowers more tools to determine which card 

best meets their needs, the bill would outlaw certain practices, set 

arbitrary payment deadlines, and create industry mandates that 

will only make it harder for companies to use risk-based pricing 

methods. 

The advent of risk-based pricing since 1990 has been a boon for 

consumers. Since then, interest rates have fallen substantially from 

20 percent to below 15 percent. Consumer-hated annual fees on 

most cards have typically virtually disappeared and fringe benefit 

rewards, offers like frequent flier miles and cash back, have exploded. 

Like a lot of people, I am not a fan of some of the practices and 

confusing legal manifestoes that credit card companies employ. In 

fact, both my wife and I have changed credit cards on several occasions when we have not liked the service or the product. And there 

is one particular credit card company with which we refuse to do 

business. 

But this bill, instead of empowering consumers with enhanced 

competition and effective disclosure, instead represents another assault on personal economic freedom that will only exacerbate the 

credit crunch that already threatens so many of our citizens. 

Let us take a quick look at the facts. According to the Census 

Bureau, over half of families almost always pay their credit card 

balance while only 24 percent hardly ever pay off their balance. 

Furthermore, industry statistics reveal that more than 19 of 20 

credit card borrowers are paying at least their minimum monthly 

payment on time. 

Discarding risk-based pricing for the sake of that small group of 

borrowers who aren’t paying their debts on time would effectively 

turn the clock back to an era where there was little competition 

and a third fewer Americans had access to credit cards. Those who 

did paid the same universal high rate regardless of whether they 

paid their bills on time or regardless of their creditworthiness. 

Make no mistake about it, if this bill passes, it is going to be a 

lot harder for people to access the credit they need to pay their 

bills, cover their medical emergencies, or finance a large purchase. 

I have heard from several of them in the Fifth Congressional District of Texas, which I have the honor of representing in Congress. 

I heard from the Blanks family of Fruitvale who wrote me, ‘‘My 

new business would not be started if not for my credit and credit 

cards. I hate to say it, but with a daughter and wife in college, my 

credit card is all I have.’’ I want to make sure that the Blanks family of Fruitvale, Texas, do not lose their credit card. 

I heard from the Vian family of Rowlett, Texas: ‘‘In the fall of 

2004, my wife and I were laid off from our jobs at the same time. 

We had just moved into our first home together in July of that 

year. Needless to say, the layoff was quite a shock and without access to our credit cards at that time, frankly, I don’t know what 

4 

we would have done.’’ I want to ensure that the Vian family of 

Rowlett keeps their credit cards. 

I heard from the Juarez family of Mesquite: ‘‘I oppose this legislation as I have utilized my credit cards to pay for some costly oral 

surgery. I do not want to get penalized by this legislation for making my payments on time.’’ And the correspondence goes on and on 

and on. 

And don’t take my word for what will happen. Listen to the nonpartisan Congressional Research Service: ‘‘Credit card issuers could 

also respond in a variety of ways. They may increase loan rates 

across-the-board on all borrowers, making it more expensive for 

both good and delinquent borrowers to use revolving credit. Issuers 

may also increase minimum monthly payments, reduce credit limits, or reduce the number of credit cards issued to people with impaired credit. 

Now I believe we already see in the credit crunch, we know what 

will happen if we start to restrict credit. We are already seeing it. 

And as badly as my friends on this side of the aisle want to vilify 

some of those in the credit card company, I think that most of their 

vehemence is directed at those in the payday industry and the 

pawn industry. 

I have an article from the IndyStar, dated February 3rd, entitled, 

‘‘More American Families are Seeking Payday Loans as Financial 

Turmoil Mounts.’’ 

I have another one from the Boston Globe, dated July 9th of last 

year, entitled, ‘‘Cash-Strapped Consumers Desperate for Deals are 

Increasingly Turning to Pawn Shops and Payday Lenders Instead 

of the Local Mall and Neighborhood Bank.’’ 

And last but not least, from the Washington Post, from our 

friends across the pond in Italy, ‘‘As Italy Banks Tighten Lending, 

Desperate Firms Call on the Mafia.’’ 

Those are the choices consumers will be faced with when they 

lose their credit cards. 

Chairman GUTIERREZ. Congresswoman Maloney for 4 minutes. 

Mrs. MALONEY. I would like to thank Chairman Gutierrez and 

the ranking member for holding this hearing on the Credit Cardholders’ Bill of Rights and the Consumer Overdraft Protection 

Practices Act. 

I would say to my good friend on the other side of the aisle that 

I agree with his constituent who wrote that she did not want her 

credit card fees to go up or interests rates to go up for any time, 

any reason. This bill stops some of the most egregious practices. 

It came out of a series of meetings with stakeholders over 2 

years, with issuers, with consumers, with those professionals in financial services. We came up with a set of principles and drafted 

the bill in support of those principles. Some financial institutions 

voluntarily instituted the gold standards, the gold practices, but 

other issuers did not; therefore, they were at a competitive disadvantage. 

This levels the playing field not only for the consumer, but for 

financial institutions themselves, so that businesses that are coming forward with best practices are not penalized economically for 

going forward with them. 

5 

For too long, the playing field has been tilted against the American consumer as they have battled against unfair, deceptive, and 

anti-competitive practices. These are the words of the Federal Reserve. 

Last fall, we took a major step forward in leveling this playing 

field when the House passed the Credit Cardholders’ Bill of Rights 

by an overwhelming bipartisan vote of 312–112. This legislation 

works on the basis that a deal is a deal and would prohibit a penalty increase of an interest rate on an existing balance unless the 

customer is more than 30 days late. It bans double-cycle billing, 

charging interest rates on a balance that has already been paid, 

and requires all payments to be posted to account balances in a fair 

and timely fashion. 

Regrettably, this legislation was not considered in the Senate before the end of this session. 

In December, we saw another important step forward for consumers as the Federal Reserve, the Office of Thrift Supervision, 

and the National Credit Union Administration, after receiving 

more than 66,000 comments from Americans across this country, 

setting a record of support of a rule change, finalized their rule 

that tracks the major provisions of this legislation, labeling these 

practices unfair, deceptive, and anti-competitive. 

While this final rule will provide significant new consumer protections, it does not go into effect until July of 2010. And unless 

it is codified into law, these new protections can be changed at any 

time in the future without the consent of Congress. 

For more than 2 years, I have been working on this legislation, 

and during that time, we have garnered the support of more than 

50 major editorial boards from across this Nation and have earned 

the endorsement of many respected national consumer groups, 

labor unions, and civil rights organizations. Many of these organizations have made passage of this legislation their very top priority. 

Let me be very clear: credit cards remain a vital tool, a vital innovation in our economy, a tool that enables consumers to do everything from paying for an airline ticket or covering an emergency 

expense to paying for schoolbooks. However, with the now-near 

universal use of credit cards, we need to ensure that consumers 

have adequate fair protections. 

The other bill before this subcommittee today is the Consumer 

Overdraft Protection Fair Practices Act. While I recognize the great 

benefits the increase in use in debit cards have provided American 

consumers, overdraft fees are becoming an increasing problem for 

bank customers. 

A November 2008 Federal Deposit Insurance study— 

Chairman GUTIERREZ. The gentlewoman’s time has expired. 

Mrs. MALONEY. Let me just say if I could at the end—both of 

these bills give tools to consumers to better manage their own credit, to allow them to make a choice whether or not they want to opt 

in to an overdraft protection. Some consumers have been charged 

$150 for having bought three cups of coffee. They did not know 

they were going to have an overdraft. 

This allows them to better manage their credit during a time 

when we are in a credit crisis. 

6 

We are helping the financial institutions. We should also help 

the consumers. That is what these two bills do, and I believe it 

helps our economy and the institutions. 

Chairman GUTIERREZ. Mr. Castle. 

Mr. CASTLE. I ask unanimous consent that this letter from First 

Data be submitted. 

Chairman GUTIERREZ. Without objection, it is so ordered. 

Mr. CASTLE. Many of us are aware that in December of 2008, the 

Federal Reserve Board announced final rules to improve consumer 

understanding and eliminate unfair practices related to credit 

cards and other related credit plans. These rules were carefully 

crafted after holding rigorous consumer tests and after taking into 

consideration over 66,000 comments on the proposals during the allotted comment period. 

After receiving these comments and running these tests, the Federal Reserve announced that the final list of comprehensive reforms would be implemented by July 1, 2010. This will allow 18 

months for the industry to overhaul their current business models 

and to work on improving disclosures to comply with the new rules. 

To the 6,000 companies that issue credit cards, this is no easy 

task. It will require planning and assistance in effectively implementing these rules to ultimately help consumers. However, this 

hearing, in part, will address a new bill that will only give the industry 3 months to implement new rules. 

With any change in business models, there will be costs to consider and unexpected effects to prepare for, and 3 months is not 

enough time to do this. 

I believe the new rules take a comprehensive approach to protecting consumers, and I remain convinced that enacting legislation 

that goes well beyond these carefully crafted rules is not wise. 

I yield back the balance of my time, Mr. Chairman. 

Chairman GUTIERREZ. I thank the gentleman. 

Mr. Miller is recognized for 2 minutes. 

Mr. MILLER OF NORTH CAROLINA. For millions of families, abuse 

of overdraft fees for debit and checking accounts has become an unconscionable burden. The problem is not that banks penalize their 

consumers who overdraw their checking accounts. The problem is 

the manner and frequency with which those fees are assessed to 

consumers, and those practices have become predatory. 

In 2007, banks loaned $15.8 billion to cover overdrafts, and U.S. 

consumers paid $17.5 billion in overdraft fees. The typical overdraft 

transaction was a $20 purchase. The typical overdraft fee was $34, 

and about three-quarters of the overdraft fees were from families 

who were barely getting by. 

Overdraft fees now account for 45 percent of the service fee revenue for some banks, and the number is rising. And they game the 

system. They develop fee harvesting software to manipulate the sequence in which checks and other debits are posted to maximize 

the charges for overdrafts. In some cases, they consciously do not 

post the overdrafts so the consumer will not understand, will not 

know that they have gone over their—that they are now overdrafting, so they will rack up more charges and more penalties. 

7 

The result is that consumers are hopelessly in debt and their 

next paycheck is largely going to go to their bank, not to put food 

on their family’s table. 

Mr. Hensarling said that they don’t have overdraft. If we make 

banks reform their practices, they will go to payday lenders. They 

would be far better off with payday lenders. The actual rate of interest for an overdraft fee for a $10—it works out to a 3,500 20 percent interest rate for overdraft fees paid in 2 weeks. 

This has to be reformed. 

Chairman GUTIERREZ. Thank you. Mr. Price for 2 minutes. 

Mr. PRICE. Thank you, Mr. Chairman. 

Mr. Chairman, we are considering this legislation today against 

an economic background in our country that is uniquely challenging. I hear from constituents daily who have been unable to get 

loans or renew their lines of credit. I hear from banks in my district who are suffering under mark-to-market accounting rules, getting mixed messages from their regulators, and still wanting to 

lend to their customers. We ought to be pursuing every available 

avenue to loosen up credit. 

To that end, this legislation is simply the wrong thing at the 

wrong time. As has been mentioned, the Federal Reserve just 

issued a 1,200-page rule—1,200-page rule—in December that completely overhauls the credit cash industry. This bill appears to be 

a poor attempt to ‘‘solve’’ what the Federal Reserve is already accomplishing, and I look forward to the comments of the panelists 

regarding that issue. 

This legislation isn’t focused on giving consumers control over 

their credit. By imposing significant restrictions and price controls 

on creditors, individuals will have fewer options, not more, fewer 

options available to choose from. 

Consumers need access to key information about credit products 

in a concise and a simple manner. Information will empower them 

to make their own choices in determining what type of credit card 

is right for them. The Congress ought not restrict the choices that 

are available, especially in a time of restrained credit markets. 

By statutorily preventing issuers from being able to price for 

risk, dictating how they must treat the payment of multiple balances, and implementing price controls, we will only see restricted 

access to credit for those with less-than-perfect credit histories, and 

an increase in the cost of credit for everyone. This means less credit availability. 

Every Member of Congress wants to ensure that consumers have 

the information they need to make educated decisions about their 

credit. I hope that our commitment to ensuring access to affordable 

credit for all consumers is equally strong, especially in this time of 

strained credit markets. 

Chairman GUTIERREZ. Mr. Paulsen for 1 minute. 

Mr. PAULSEN. Thank you for holding this important hearing 

today. 

I also appreciate the diligent work that has been done at the Fed 

and NCUA on the credit card rules, and I commend the collaborative way in which you have worked together and the way they 

have been devised. I hope the rules that you have issued prove to 

be helpful to the consumer. 

8 

However, I have some strong concerns about the proposed legislation that is going to be before us today, that it may duplicate not 

only efforts that you have done, but ask credit card issuers to implement those changes much, much too quickly. Giving issuers 3 

months to dramatically change the way they do business could 

have very adverse consequences, hurting access to credit, especially 

in small businesses when they are relying on credit cards more 

heavily now than ever before, since many are unable to access 

more traditional lines of credit from banks and other institutions. 

So I look forward to your testimony, and I yield back, Mr. Chairman. 

Chairman GUTIERREZ. Thank you very much. 

Ms. Sandra Braunstein is the Director of the Division of Consumer and Community Affairs for the Board of Governors of the 

Federal Reserve System and has appeared before the subcommittee 

this week. We welcome you back. 

Ms. Yakimov is the Managing Director for Compliance and Consumer Protection at the Office of Thrift Supervision, and this is her 

first time before the subcommittee this year. 

Ms. Sheila Albin is the Associate General Counsel for the National Credit Union Administration, and I would like to welcome 

you here before the subcommittee. 

You may begin your testimony, Ms. Braunstein. 

STATEMENT OF SANDRA F. BRAUNSTEIN, DIRECTOR, DIVISION OF CONSUMER AND COMMUNITY AFFAIRS, BOARD OF 

GOVERNORS OF THE FEDERAL RESERVE SYSTEM 

Ms. BRAUNSTEIN. Thank you, Chairman Gutierrez, Ranking 

Member Hensarling, and members of the subcommittee. I appreciate the opportunity to discuss the Federal Reserve Board’s recent 

regulatory actions to expand protections for consumers who use 

credit cards and overdraft protection plans. 

Credit cards provide important benefits for many consumers, 

both as a source of credit and as a convenient payment mechanism. 

However, in recent years, credit card terms and features have become more complex, which has reduced transparency in credit card 

pricing. 

In December 2008, the Board issued comprehensive, sweeping 

rules to enhance protections for consumer credit card accounts. One 

rule prohibits certain unfair card practices using the Board’s rulemaking authority under the Federal Trade Commission Act, while 

a complementary rule improves disclosures for credit cards under 

the Truth in Lending Act (TILA). 

The two credit card rules were the result of extensive consumer 

testing, data analysis, public comment letters, and outreach to consumer and community groups and industry representatives. 

The final TILA rule includes both content and format changes to 

application and solicitation notices, account opening disclosures, 

and periodic statements. The rule also requires that consumers receive 45 days advance notice of rate increases or changes in other 

key account terms to ensure that consumers will not be surprised 

by unexpected changes and will have time to explore alternatives. 

The data obtained in our consumer testing illustrated the limitations of disclosures for today’s complex financial products. There 

9 

are certain key credit card terms that cannot be explained to consumers in a way that would improve their ability to make meaningful decisions about credit. 

Because improved disclosures alone cannot solve all the problems 

consumers face in managing their credit card accounts, the Board 

issued a rule prohibiting certain unfair practices. 

The Board’s final rule includes several key protections for consumers. First, it ensures that the consumers have an adequate 

amount of time to make payments once they receive their billing 

statements. Second, the rule requires banks to allocate payments 

in a manner that does not maximize interest charges. Third, the 

final rule contains several provisions that restrict the circumstances in which a bank may increase the interest rate applicable to the consumer’s accounts. Fourth, the final rule prohibits twocycle billings. And finally, the rule includes several provisions to 

protect vulnerable subprime consumers from products that charge 

high fees and provide little available credit. 

The combined rules will impact nearly every aspect of credit card 

lending. To comply, card issuers must adopt new business models, 

pricing strategies, and credit products. Issuers must revise their 

marketing materials, application and solicitation disclosures, credit 

agreements, and periodic statements. 

These changes will include extensive reprogramming of automated systems and staff training. Although the Board has encouraged card issuers to make the necessary changes as soon as practicable, the 18-month compliance period is consistent with the nature and scope of the required changes. 

In addition to the final credit card rules, the Board also issued 

proposed rules for overdraft protection programs. In the past, overdraft services were provided only for check transactions. Institutions now have extended that service to other transaction types, including ATM withdrawals and point-of-sale debit card purchases. 

Most institutions have automated the process for determining 

whether and to what extent to pay overdrafts. The Board’s proposal 

contains two alternative approaches for giving consumers a choice 

about the use of overdraft services. 

The first approach would prohibit institutions from assessing any 

fees on a consumer’s account after an institution authorizes an 

overdraft unless the consumer is given notice and a reasonable opportunity to opt out of the institution’s overdraft service. 

The second approach would require an institution to obtain the 

consumer’s affirmative consent or opt in before fees may be assessed to the consumer account for overdrafts. The proposed rules 

would apply to overdrafts for ATM withdrawals and one-time debit 

card purchases. 

In closing, let me emphasize that the Federal Reserve’s commitment to enhancing the ability of consumers to use credit cards to 

their benefit. The Federal Reserve is also committed to helping consumers better understand the cost of overdraft services and providing a means to exercise choice regarding the use of these services. 

I am happy to answer questions from the committee. 

[The prepared statement of Ms. Braunstein can be found on page 

70 of the appendix.] 

10 

Chairman GUTIERREZ. Thank you. 

Ms. Yakimov. 

STATEMENT OF MONTRICE GODARD YAKIMOV, MANAGING DIRECTOR FOR COMPLIANCE AND CONSUMER PROTECTION, 

OFFICE OF THRIFT SUPERVISION 

Ms. YAKIMOV. Good afternoon, Chairman Gutierrez, Ranking 

Member Hensarling, and members of the subcommittee. I thank 

you for the opportunity to present the views of the Office of Thrift 

Supervision on the Credit Cardholders’ Bill of Rights Act of 2009, 

the Consumer Overdraft Protection Fair Practices Act of 2009, and 

issues related to credit card lending and overdraft protection. 

We appreciate your leadership on these important elements of 

the financial services market, and we share your commitment to 

protecting consumers from abusive practices. 

My written comments go into detail on the provisions of the proposed legislation. 

In my opening statement, I would like to focus on what the OTS 

and other Federal banking regulators have recently achieved in 

protecting consumers from unfair credit card practices. I would also 

like to emphasize the OTS’s position on how best to approach consumer protection in this area and what recommendations we can 

offer for making continued progress. 

As you know, the Office of Thrift Supervision, the Federal Reserve Board, and the National Credit Union Administration issued 

the final rule in January 2009 to protect consumers from unfair 

credit card practices. The rule was a result of the process that the 

OTS initiated in August of 2007 by issuing an advance notice of 

proposed rulemaking seeking comments and suggestions on what 

credit card practices and overdraft protection practices should be 

banned. 

Comments in response to that advanced notice urged a uniform 

set of rules across the credit card industry, across the practices we 

might cover. So the OTS worked with the Federal Reserve and 

NCUA to provide consumers with uniform protections regardless of 

which financial institutions issued their product and the industry 

with a level playing field. 

The rule prohibits raising interest rates on existing credit card 

balances when consumers are paying their card bills on time, and 

generally also prohibits increasing rates on new balances during 

the first year of the account. 

It requires that consumers receive a reasonable amount of time 

to make their credit card payment. It bans double-cycle billing, prohibits payment allocation methods that unfairly maximize interest 

charges, and in the subprime credit card market, it limits fees that 

had been significantly reducing the available credit to the consumer. 

As I explain in my written testimony, this will accomplish the 

primary goals of H.R. 627, the Credit Cardholders’ Bill of Rights 

Act. 

In general, the OTS believes that using the Agency’s collective 

rulemaking authorities over these practices provides greater ability 

to address unfair practices as they emerge. The industry has shown 

11 

remarkable ability to adapt and alter practices, including unveiling 

new products. 

Consumers have generally benefited from the expansion of products and certain practices. By exercising their rulemaking authority, the Agencies can keep pace with these innovations while ensuring that they do not disadvantage the consumers. 

Regarding the overdraft legislation, the OTS shares the concern 

that prompted the bill and we see the benefit of many of its provisions. However, we believe the regulatory initiatives enacted and 

in process address several key issues there. If Congress decides to 

proceed with legislation and moves forward with both of these bills, 

the OTS respectively requests that they be amended to provide implementing authority jointly to the Fed, the NCUA, and the OTS. 

The history of the rule on unfair credit card practices demonstrates OTS’s leadership in initiating the process to use the FTC 

Act rulemaking power to address abusive practices. The absence of 

such rulemaking authority would preclude OTS from providing the 

kind of policy perspectives that began and significantly shaped the 

credit card role and the important consumer protections it contains. 

Additionally, there are other observations in my written testimony that we would recommend if the Congress should move forward with this legislation. 

Thank you again, Mr. Chairman, for inviting me here today. I 

look forward to responding to your questions. 

[The prepared statement of Ms. Yakimov can be found on page 

201 of the appendix.] 

Mr. GUTIERREZ. Thank you. 

Ms. Albin, please, for 5 minutes. 

STATEMENT OF SHEILA A. ALBIN, ASSOCIATE GENERAL COUNSEL, OFFICE OF GENERAL COUNSEL, NATIONAL CREDIT 

UNION ADMINISTRATION (NCUA) 

Ms. ALBIN. Good afternoon, Chairman Gutierrez, and Ranking 

Member Hensarling. Thank you for the opportunity to testify on 

behalf of NCUA regarding credit cardholder and consumer overdraft protection legislation. 

NCUA’s primary mission is to ensure the safety and soundness 

of federally insured credit unions as well as their compliance with 

applicable Federal regulations. It examines all Federal credit 

unions and participates in the supervision of federally insured 

State-chartered credit unions. 

As the administrator for the Share Insurance Fund, NCUA provides oversight and supervision to over 7,800 credit unions, representing approximately 88 million members. NCUA is responsible 

for monitoring and ensuring compliance with most Federal consumer protection laws and regulations in Federal credit unions. In 

State-chartered credit unions, the appropriate State supervisory 

authority has regulatory oversight and enforces State consumer 

laws and regulations. 

In December 2008, NCUA, OTS, and the Federal Reserve Board 

jointly issued the UDAP rule, amending each Agency’s credit practices rule to prohibit several questionable credit card practices. 

Based on comments received, the Agencies determined a more comprehensive approach addressing more than just Truth in Lending 

12 

Act disclosures was appropriate. Each of the Agencies oversees financial institutions that engage in the same type of business. And 

although practices addressed in the UDAP rule are not prevalent 

in the credit union industry, the NCUA Board recognizes the uniform approach to the topic is best. 

Both total outstanding credit card debt and total loans in credit 

unions grew in 2008, albeit at slower rates than at previous years. 

This growth at a time when consumers are finding it difficult to obtain credit demonstrates that credit unions continue to strive to 

meet their members’ credit needs. 

In 2005, NCUA participated with member agencies of the FFIEC 

Act in issuing guidance for guarding overdraft protection programs 

focusing on automated systems. This guidance included a discussion of best practices and recommended that institutions provide 

consumers with an opt-out notice. 

NCUA and the Federal Reserve Board has regulated the disclosures for overdraft programs using our authority under the Truth 

in Savings Act (TISA). NCUA amended its TISA rule in 2006 to address concerns relating to the uniformity and adequacy of fee disclosures in connection with overdraft programs. The amendment 

created a new requirement for credit unions that promote overdraft 

payment programs to disclose their fees and other information to 

address continued concerns about overdraft fees. Regulation DD recently extended the disclosures requirements for overdraft fees to 

all banks and now requires disclosure of the periodic and year-todate totals for overdraft fees. Today, the NCUA board is proposing 

a substantially similar amendment to NCUA’s TISA regulations. 

The Federal Reserve Board has recently proposed additional requirements for overdraft protection programs under Regulation E 

that will also apply to credit unions. The proposed rule will limit 

a financial institution’s ability to assess overdraft fees for ATM 

withdrawals and one-time debit card transactions. The proposed 

rule also offers a right of opt-out or opt-in as alternative regulatory 

approaches. Additionally, the proposed rule would prohibit assessing a fee if an overdraft is caused solely by a debit hold or funds 

in a consumer account. 

In addition, NCUA’s general lending regulation for many years 

has required credit unions to establish a written policy for fees for 

overdraft protection programs. 

In summary, credit cards and overdraft protection programs are 

useful member services. Currently, approximately half of all federally assured credit unions issue credit cards to their members. Approximately 2,800 federally insured credit unions offer overdraft 

protection services. 

Overdraft protection programs can benefit both credit unions and 

their members if members access the program infrequently because 

credit unions receive another source of fee revenue and members 

avoid the inconvenience and subsequent fees associated with returned checks. 

NCUA is concerned with regulating overdraft programs under 

the Truth in Lending Act because treating overdraft fees as a finance charge will adversely affect Federal credit unions’ ability to 

offer overdraft services to their members. This is because of the 

13 

statutory limit on interest on lending which is currently set at 18 

percent for Federal credit unions. 

Thank you again for the opportunity to appear, and I would be 

glad to answer any of your questions. 

[The prepared statement of Ms. Albin can be found on page 53 

of the appendix.] 

Chairman GUTIERREZ. Thank you very much. 

Ms. Braunstein, I don’t know if you got this letter when you were 

doing your reviews, but there were these great parents who had 

this wonderful daughter that they loved very much. When they 

sent her to college, they wanted to make sure that she had access 

to money, and so they went to the bank and got her a debit card 

that she could take to college with her. She would go to the bank 

frequently, and when she needed money, if there were insufficient 

funds, no problem. The ATM simply would not give her the money, 

and she would call these wonderful parents of hers, who would 

automatically go online and transfer more funds to the wonderful 

daughter. 

Except on one occasion, she decided she was a little thirsty, and 

she used the ATM card issued by the bank as a credit card at a 

coffee shop, and the $1.89 overdraft cost these wonderful parents, 

who love their daughter very much, $185 because there was an initial $35 for the $1.89 overdraft and then the wonderful bank 

charged $10 a day for every day there were insufficient funds in 

this account, for a total of $185. 

I don’t know what the relationship is between $1.89 and $185, 

but it makes the payday lenders look really, really good in this 

case. 

And there was a total of 20 days because, you see, the bank 

doesn’t just call up and say, ‘‘Hey, you have insufficient funds.’’ 

They wait until you receive your bank statement at the end of the 

month and you see these wonderful charges of $35, etc., and then 

you put the money in. 

So did anybody ever in your public commentary send a letter like 

these two wonderful parents who sent their daughter to college? 

Ms. BRAUNSTEIN. Congressman, I think we got a number of letters like that out of the 60,000 letters. We have gotten lots of letters. 

Chairman GUTIERREZ. I am so happy to know my wife and I are 

not alone in this situation. 

So let me ask you, in your regulations, did you address it at all? 

Ms. BRAUNSTEIN. In the proposal that we have out now on Regulation E, that is one of the reasons why we want to offer alternatives of either opt-out or opt-in to overdraft programs. And basically what this would do was, if somebody chose not to take overdraft, it gives consumers a choice, it means that if they go to use 

their debit cards to buy something in a coffee shop or McDonald’s 

or wherever and there is not sufficient money in their account, 

then the purchase should be denied. 

And if for some reason the bank pays it anyway, if it goes 

through or the merchant authorizes it anyway, what it would do 

is prohibit the financial institution from charging a fee. 

Chairman GUTIERREZ. It seems to be different. I remember when 

a debit card was a debit card; that is, it was to be used at ATM 

14 

machines. And then all of a sudden, one day they became a debit/ 

credit card; that is to say, now you can use it and merchants ask 

you, do you want a debit or do you want this used as a credit card? 

I really think that we should—and hopefully in the legislation— 

look at making sure that when a consumer comes in, and he just 

wants a debit card, he gets one. If there is not money in the card, 

there is not money in the card, and it is just not used. If you want 

a credit card, you should get a credit card because when I use my 

credit card, they simply—the Visa is so much lower than on a 

bank-issued debit card, it is astronomical almost. 

Ms. BRAUNSTEIN. Just to clarify. It is not that the debit card 

turns into a credit card. I understand what you are saying. Because 

of the fact that an overdraft is extended, it has the impact of being 

a credit card. But it still is a debit card. 

Chairman GUTIERREZ. But when you go to the ATM machine and 

you ask for $20 and there isn’t $20 in it, you don’t get $20 in cash. 

Yet, you can walk over to an establishment, ask for $1.89 for a cup 

of coffee, and it turns into a financial bonanza for the issuer of the 

card. 

And so I want to ask you one other question. 

When Congresswoman Maloney introduced the Credit Card Protection Act Bill of Rights, I was very supportive of it, and continue 

to be very supportive of it. That is why we are having a hearing 

this early in the process so that we can get the work done and 

hopefully to the Senate. So I want to commend the gentlelady from 

New York on her work and share with her that I am not an unbiased spectator here. 

Now, I noticed as I look, that there was a change, the one 

change, and I would like you to comment on it because I think it 

is important. In the original, it was 1 year of enactment for the 

credit card industry to institute the new practices under the legislation. And under the new legislation, it says 3 months. You guys 

came up with about 18 months from the time you put your regulations out. Did the industry want it to be 18 months? Did you at 

the Board think it was 18 months? How did you get to the 18 

months? And what do you think about the changes in the legislation? 

I am going to ask unanimous consent that she be allowed to answer the question. 

Ms. BRAUNSTEIN. Actually, the industry wanted longer than 18 

months. It was the Federal Reserve and the other Agencies (the 

OTS and the NCUA) that decided on the 18 months. And this was 

based on a number of things. 

One of the things is that this was a package. There are the 

UDAP rules you are talking about that are contained in your legislation to a large extent. But there is also all the truth in lending 

changes which involves all new forms and also new processes that 

are involved with that. 

So this is one very large, sweeping, comprehensive package that 

is going to fundamentally change the way the industry does its 

business. And when we looked at, in terms of talking to the industry, but also looking ourselves at everything that would be required 

in order to put everything in place to make this work well, we felt 

that 18 months was a reasonable time. 

15 

The danger is if you don’t give sufficient time to the industry to 

get everything in place in a way that has been tested, that staff 

is trained, that it is running smoothly, if there is not sufficient confidence in the new risk models—which they are going to have to 

design all new risk models because of the pricing changes—it could 

severely hamper the markets in terms of credit availability. 

So we wanted to provide sufficient time so that when this is implemented, it is implemented correctly, and credit will flow to consumers and that the market should still work well. 

Chairman GUTIERREZ. I don’t want to abuse the chairmanship. 

So your basic answer is the industry wanted more but the Fed 

thought in order for credit risk and other areas that the implementation, okay. Thank you very much. 

Mr. Hensarling, please, for 5 minutes. 

Mr. HENSARLING. Thank you, Mr. Chairman. Ms. Braunstein, 

does Federal Reserve data indicate that credit card credit for consumers is contracting within our economy? 

Ms. BRAUNSTEIN. I think that is right, but frankly all credit is 

contracted right now. It is very difficult to differentiate what might 

be the result of the pending rules versus what is happening just 

because of the economic situation. We are not in normal economic 

times. 

Mr. HENSARLING. I believe we all understand that. 

And coming up with your rules, and I know they have been, I 

believe, 3 years in the making, and I understand you have done extensive consumer testing, have you also examined other international models and studied case history? 

Ms. BRAUNSTEIN. I would have to check on that. I am not sure. 

Mr. HENSARLING. In 2006, the U.K. decided that credit card default fees were too high and ordered that credit card issuers cut 

them or face legal action. And independent studies have shown 

that led to a retrenchment of roughly $2 billion cost to the credit 

card industry, which caused them, 2 of the 3 biggest issuers, to impose annual fees on their cardholders, 19 major card issuers raised 

interest rates, and one independent study showed that credit 

standards became tighter, and 60 percent of new applicants were 

being rejected. 

If the Federal Reserve has not had an opportunity to study the 

U.K. model—and it is very late in the game—I would respectfully 

recommend that you study the U.K. model. 

Ms. Braunstein, does the Federal Reserve feel that we have an 

uncompetitive marketplace with credit cards? Do you feel that consumers have inadequate choices or is it more that there are simply 

what you would describe as unfair and deceptive practices? 

Ms. BRAUNSTEIN. I think the market has been very competitive, 

but I don’t think that there has been the transparency for consumers that is needed. I think that these are very complex products and that it is very difficult for consumers to understand what 

the terms are, and oftentimes it is difficult for them to shop and 

compare because there is such a wide array of products. And without the increased transparency, it is hard to compare one against 

the other. 

Mr. HENSARLING. Since there is such a wide array of products, 

do you observe that there are at least products in the marketplace 

16 

that are widely available to most consumers that do not contain 

what you would consider to be the unfair practices which your 

rules attempt to address? 

Ms. BRAUNSTEIN. I don’t know. I can’t say that there are not 

products already out there. 

Mr. HENSARLING. In page 2 of your testimony, you talk about 

limitations-of-disclosure-based approach, and I believe, if I am understanding you right, it is the position of the Federal Reserve that 

some terms are simply too complex, that consumers just cannot understand them, cannot fathom them. 

I think you have said that double-cycle billing is too complicated 

for the average consumer to understand, but if I read your final 

rule summary document from December 2008, it explains both it 

and its repeal in just 63 words. 

Did the Federal Reserve consider using that summary or, again, 

are consumers just too dumb to understand? 

Ms. BRAUNSTEIN. Congressman, we did extensive consumer testing on these new credit card disclosures, and we tested a wide variety of terms, of which double-cycle billing is one, but we also tested 

the explanation of payment allocation and other terms. And I will 

tell you, our experience has shown us that it is not necessarily the 

number of words, but it is the explanation of the process. It just— 

some of these things just could not—and we tried many different 

ways. And it wasn’t us, the Fed, you know. We hired experts on 

this who were trying many different ways. Some of these terms 

were not— 

Mr. HENSARLING. Notwithstanding a competitive marketplace, 

notwithstanding a general credit contraction, you still advocate 

that consumers need to be protected against themselves even 

though potentially that could lead to a loss of their own credit 

cards? 

Ms. BRAUNSTEIN. I think that when we decide to write rules on 

unfair and deceptive practices, we have to look at the risks and we 

have to look at the benefits and the harm. And we weighed all of 

that, and we felt these rules are needed in order to protect the consumer. 

Mr. HENSARLING. What would happen, Ms. Braunstein—with the 

chairman’s indulgence, one last question—if your rules, instead of 

having to be implemented in 18 months, had to be implemented 

within 90 days, what is your impression of the impact on the consumer credit marketplace? 

Ms. BRAUNSTEIN. Very honestly, I am not sure how that could 

even be done. I mean, if legislation came out, we would have to 

write rules. The legislation does not quite mirror our rules, we 

would have to make adjustments. It also puts it all in TILA. We 

are using the FTC Act. We would have to make a lot of changes. 

We would have to put that out for public comment. We would have 

to get comments back. We would have to put out a final rule. And 

then you would have to leave some time for the industry to comply. 

I see no way that process could be done in 90 days. 

Chairman GUTIERREZ. The gentlelady from New York, Mrs. 

Maloney, is recognized for 5 minutes. 

Mrs. MALONEY. I want to thank all of my colleagues who have 

worked hard on this bill and have supported it, some on both sides 

17 

of the aisle, and I want to thank all of the panelists, not only for 

your testimony today, but for your extraordinary work during what 

has been called the worst economic crisis in our lifetime. 

I wanted to clarify one of the statements by one of my good 

friends on the other side of the aisle and place in the record two 

reports. This is about the risk-based pricing, and their claim that 

this bill would have a negative effect on risk-based pricing. And I 

would like to place in the record a GAO study and a report by the 

Federal Reserve. Both found that there is no evidence that riskbased pricing has decreased overall interest rates. Rather, the decrease in the Federal funds rate is more likely responsible for the 

decline in the interest rates consumers have seen. 

I also would like to place in the record testimony before this committee, before the former head of Freddie Mac. He was testifying 

on housing, but then he started talking about credit cards. And he 

talked about how he and his wife had sat down at dinner and tried 

to figure out their credit card disclosure and could not figure it out. 

This is the former head of a very important financial institution. 

And I think that says volumes. 

Also, the Federal Reserve, in some of the reports, testified that 

Reg Z, or transparency, was not enough, that you needed changes, 

fundamental changes for unfair, deceptive, and anti-competitive 

practices, and I feel strongly that we should move forward and pass 

the Credit Card Bill of Rights. 

I would like to ask Ms. Braunstein, now that the Federal Reserve 

has labeled a number of practices as unfair, deceptive, and anticompetitive, how in the world can it be justified to the American 

people that they should have to wait until July 2010 until they get 

relief of these practices? 

And secondly, you testified that you need roughly 18 months. Are 

there some aspects of the rule or the legislation that could be implemented quicker? Possibly there are some that have form 

changes which are more difficult, but are there others that we 

could implement in a more, I would say, reasonable timeframe? 

Ms. BRAUNSTEIN. We did look at that. And what we found was 

that pretty much everything in there, it is part of a whole package 

and there is a lot of overlap between what is going to be on the 

new disclosures versus what would be changed in the pricing models. Everything kind of ties together and is interconnected, and it 

made more sense to have one effective date for everything. 

So that is why we did that. We feel that it really is—there is a 

lot of interconnection between the different moving pieces. 

Mrs. MALONEY. What was your personal recommendation for a 

timeframe? 

Ms. BRAUNSTEIN. Eighteen months. The staff’s recommendation 

was 18 months. 

Mrs. MALONEY. I have spent so many hours and asked so many 

questions on this bill, I am going to give back my time so my colleagues can have more time to ask their questions. 

I just want to conclude that of all of the issues that I have 

worked on, this one has generated the most comments. Like the 

Fed, it is hard for me to go to the Floor of Congress without getting 

a credit card story or to walk into a supermarket without getting 

a credit card story or get into the subway or the bus without 

18 

strangers coming up and telling me a story that they feel was unfair and deceptive to them. 

And I truly believe that our commerce works better, our democracy works better when people understand the rules and make a 

decision that that is the rule they want to follow. 

I am very proud of having authored, along with many of my colleagues, the ATM disclosure. When you go to get your ATM money, 

many people wanted to ban institutions, financial institutions from 

getting any type of fee, but if they are providing a type of service, 

they are entitled to a fee. It allows the consumer to say ‘‘yes’’ for 

the convenience to access my bank account from Washington, I am 

willing to pay that fee. But it gives the consumer the power to control their own financial decisions, and I feel that is what is important. And I think that is what we tried to accomplish in the bill, 

to give consumers more choice and more control in making decisions about managing their own finances. 

I yield back my time. 

Ms. BRAUNSTEIN. Congresswoman? 

Mrs. MALONEY. Yes. 

Ms. BRAUNSTEIN. Can I just make one really quick comment? I 

do want the say in terms of the effective date that we have as an 

agency, and including Chairman Bernanke, has made public comments that we would expect and hope that the industry would implement pieces as soon as was practicable for them—and I say that 

in my testimony—so we could be—we are hopeful that we will see 

some implementation before the 18-month deadline. 

Mrs. MALONEY. I thank you for that, and I would like to applaud 

the industries that have voluntarily gone forward and implemented 

these improvements. 

Chairman GUTIERREZ. The time of the gentlelady has expired. 

Mr. Bachus, you are recognized for 5 minutes. 

Mr. BACHUS. Ms. Braunstein, back on December 18th, Chairman 

Bernanke asked you how long it would take to implement the Federal rules for credit cards and if it could be implemented before 

July 1, 2010, and your response was that card issuers are going to 

need to rethink their entire business models. They are going to 

have to redesign their marketing materials, their solicitations, 

their periodic statements, all of the pieces of paper that they use, 

their contracts, all of that is going to have to be redesigned. And 

you mentioned several other things they would have to do. And in 

fact, I would like to introduce into the record—these are the Fed 

rules and regulations that the credit cards companies have to comply with. 

Chairman GUTIERREZ. Without objection, it is so ordered. 

[The documents referred to can be accessed at the following link: 

http://www.federalreserve.gov/boarddocs/meetings/2008/20081218/ 

openmaterials.htm] 

Ms. BRAUNSTEIN. I am glad I didn’t have to carry those up here 

today. 

Chairman GUTIERREZ. The cost might be prohibitive, but we are 

going to introduce it. 

Mr. BACHUS. Yes, I am not even sure I could read these in the 

time allotted. But all that is going to take a lot of time, so my quesVerDate Nov 24 2008 15:00 Aug 18, 2009 Jkt 048870 PO 00000 Frm 00024 Fmt 6633 Sfmt 6633 K:\DOCS\48870.TXT TERRIE
19 

tion to you—and this may be kind of a set-up question. I mean, you 

could drive this a long way. 

Is it still your belief that the credit card companies will literally 

be unable to meet the 90-day deadline in the Maloney bill? 

Ms. BRAUNSTEIN. Yes. As I have said already, yes, I do think 

that would be an almost impossible task for all of us, not just for 

the industry but also for the regulators, to have to conform the 

rules and do what we need to do. 

Mr. BACHUS. And with two alternatives the credit card companies would have if they couldn’t comply, they could cut people loose 

from their credit. That would be one alternative. I mean, they 

would have to just stop— 

Ms. BRAUNSTEIN. I don’t know. I can’t answer for the industry 

as to what they would do. But I know that we, as I said, we would 

be concerned that if it was rushed and they didn’t do it correctly, 

there would not be confidence in the risk models. And that certainly could have impacts on the flow of credit in the marketplace. 

Mr. BACHUS. Right. And if they didn’t comply, they could all be 

sued, is that correct, for violating the rules? If they weren’t able to 

comply and they did one little thing wrong that violated this— 

Ms. BRAUNSTEIN. Well, yes, if the rule—depending on how you 

write the legislation, but right now, I think it is under TILA so 

there would be private rights of actions. 

Mr. BACHUS. Okay. That would be something. 

I yield the balance of my time to the gentleman from Delaware, 

Governor Castle. 

Mr. CASTLE. Thank you for yielding. 

Let me ask this question first, Ms. Braunstein. You have indicated that the Fed has said that the credit card issuers, 6,000 of 

them, should make their changes as soon as practicable; they 

shouldn’t wait for the 18 months. 

Do you have any evidence of that actually happening? It may be 

more anecdotal than will be actual data-wise, but can you fill us 

in on that? 

Ms. BRAUNSTEIN. Well, anecdotally, I mean, we are constantly 

doing outreach both to the industry and also to consumer and community groups, and, in some of our conversations with industry, 

they have certainly started. I don’t know—I don’t have any anecdotal evidence as to what their timeframe is earlier than the 18- 

month compliance date, but we have had conversations where they 

have developed flowcharts and that they are trying to put the 

pieces in place. So it is underway. It is definitely underway. 

Mr. CASTLE. I am really asking you to do my work when I ask 

this next question, I think, and perhaps it is a question for all of 

you. But can you explain if there are differences in the two bills 

that we are considering today and the regulations which you have 

drafted at the Fed, and, if there are, what they might be? 

Ms. BRAUNSTEIN. There are differences. And one of the recommendations I would make is, if Congress does move forward 

with this bill, if your committee moves forward, is you may want 

to take a look at that on both sides. I know that, in pricing, we 

changed some things. 

I think when the bill was drafted, it was done on the basis of the 

proposed rules we had issued in May of 2008. We made some 

20 

changes in our final rules, and that was due to the public comments we received and our analysis of the issues. We actually went 

further than the bill does on pricing restrictions and repricing of 

existing balances and also making sure that you cannot change the 

price for any reason during the first year of the cards. We went a 

little further on that. 

There are some differences in payment allocation. There are a 

few other things. And we would encourage you to, you know, take 

a look at those. 

Mr. CASTLE. My time is up, but I may be next anyhow. 

Mr. WATT. I don’t think so. 

Mrs. MALONEY. [presiding] Mr. Watt? 

Mr. CASTLE. I mean, not next. After the other side. Excuse me. 

Mrs. MALONEY. Mr. Watt, and then we will come back to Mr. 

Castle. 

Mr. WATT. Am I recognized yet? 

Mrs. MALONEY. Yes, you are recognized. 

Mr. WATT. Thank you. 

Actually, I want to follow the same question, but I want to get 

more specific. I actually would—I think the committee, the full 

committee, would benefit from side-by-side analysis of the differences from the regulators who drafted the regulations that are 

to go into effect. 

Ms. BRAUNSTEIN. We would be happy to have staff come up— 

Mr. WATT. Let me be clear on what I am asking for: a side-byside analysis and an explanation of why any changes—any differences, why you chose to go either higher or lower, because I 

think that would be very helpful to the committee in assessing. 

I know there are other differences in what you proposed and 

what the bill proposes other than just the July 1, I guess, 2010, implementation date is your drop-dead date at this point. And you 

have done an outstanding job of explaining why there are some implementation delays, but I think the committee would benefit from 

an explanation of all of the differences and why you opted for what 

you did, either greater or lesser than what the bill does. 

And if I could request that in writing, then I would be happy to 

yield back all of my time. 

Ms. BRAUNSTEIN. We have that information in-house. 

Mr. WATT. Because I think that is the kind of thing that, really, 

even if we got it verbally, would probably not be all that helpful 

to us. 

So I hope I have helped Mr. Castle. Even though he wasn’t next, 

I kind of picked up on where he was going, and that was the question that I was planning to ask anyway. 

I have an important assignment on a plane, so I am going to 

yield back. 

Ms. BRAUNSTEIN. Congressman, can I just say that we have that 

information, we have done those kinds of analyses, and we will be 

happy to share those with you in writing. 

Mrs. MALONEY. And share it with the committee. 

Ms. BRAUNSTEIN. Yes. 

Mrs. MALONEY. Thank you. 

21 

Mr. WATT. I know the committee will get one, but, you know, it 

takes a while, so I am asking this question for myself. So at least 

give the committee, Mr. Castle, and me one— 

Ms. BRAUNSTEIN. Not a problem. 

Mr. WATT. —since we are tag-teaming this question. Thank you. 

Mrs. MALONEY. Thank you, Congressman. 

Congressman Castle? 

Mr. CASTLE. Thank you, Madam Chairwoman. 

And I thank Mr. Watt for asking my questions better than I did, 

but I also would very much like to see that copy of whatever these 

differences are. 

And, to me, it is going to come down, to a degree, not completely, 

but to a degree, to this time differential and the ability to be able 

to put this into effect or not. And I realize that you are speaking 

as a regulator, and maybe others should speak to it, as well. But 

we have all the issuers, too, and you spoke for them, to a degree, 

also. 

But, you have the whole problem of passing legislation, which is 

going to get even closer to the 18 months left in yours, and then 

you are going to have the problem of dealing with the issuers, as 

well as whatever dealings you are going to have to do with the legislation. And, to me, it gets complicated. 

When we first passed the chairwoman’s legislation, I forget 

whether it was 18 months or not, but I guess it was, but that was 

6 months or so ago or more at this point. And, as that time narrows, I think it is going to get even more complicated to complete 

this task. I think we need to be careful about this. 

One thing we need to remember is we do have 6,000 credit card 

issuers. They are carrying out a business. They are, in many instances, in most instances, related to financial institutions which 

have had some strains, and I am a little concerned about how far 

we can push them at this point. 

And I don’t know if that is in the form of a question, but if you 

want to respond to it, you may, Ms. Yakimov. 

Ms. YAKIMOV. Well, thank you, Congressman Castle. 

I think the point about the implementation date, the effective 

date, is an important one to try to get right. And what we tried 

to balance was our interest in providing significant new consumer 

protections while, at the same time, giving the industry the time 

that they needed to get it right. And we certainly didn’t want to 

cause major disruption. 

One example to point to is the provisions that deal with the 

subprime issuers, where we have said that they cannot charge a 

fee in connection with getting the card that takes the majority of 

the credit line. And, taking it one step further, they can’t charge 

more than 25 percent. So they can’t charge more than 50 percent, 

and they can’t charge more than 25 percent during the first month. 

Issuers that have built a niche in this space will really have to 

think through what is their new business model so that they can 

continue to offer credit. 

That is just one example of some major changes. The changes on 

the limitations to retroactive rate increases will have a significant 

impact. These protections are really important, but we wanted to 

give the industry time to, as Sandy points out quite well, comply 

22 

with TILA changes, do the training, do testing, do they need new 

product lines, and all the rest. 

Mr. CASTLE. Well, I appreciate that. I mean, I hate to make this 

comparison, but I watched what we did on the Floor today and how 

we have been handling some of the TARP money and the AIG 

issues or whatever. And sometimes when we rush legislation, like 

in the stimulus package, we end up with problems, such as the 

bonus situation with AIG. 

It just seems to me that the Fed has gotten all these different 

56,000, I guess, inquiries as a result of the preliminary rules which 

you have issued. You have now gone back, and all your Agencies 

have been involved, and you have looked at what that should be, 

and you have come up with a plan, and it takes a long time to implement it. We are talking about a lot of credit card issuers. 

And I don’t in any way discredit the legislation. I happen to believe that the chairwoman is right in terms of what she is trying 

to do. But I am mightily concerned about the ability to do this. I 

mean, the credit card companies don’t like what you have done 

much more than they like the legislation. But they may be put in 

a situation where you can’t carry out your responsibilities and they 

can’t carry out their responsibilities. And that concerns me a great 

deal. 

So my hope is that we could, at some point, agree to just move 

forward as rapidly as we can with the regulatory practices which 

the Fed has drawn up as just a better way of proceeding for everybody who is involved with this in getting to the same end, on which 

there is general agreement, I think, in this committee and probably 

in the Congress, if I had to guess. 

And with that, I yield back, Madam Chairwoman. 

Mrs. MALONEY. I thank the gentleman for his concern, but we 

have had well over 4 hearings on this legislation over a 2-year period and numerous smaller roundtable discussions and meetings 

with stakeholders and industry and regulators on it. So it has been 

very deliberative. 

I now recognize Congressman Moore. 

Mr. MOORE OF KANSAS. Thank you, Madam Chairwoman. And I 

appreciate your efforts to strengthen consumer protections on the 

use of overdraft services. In this time of financial crisis, we need 

to do what we can to protect our consumers. 

Ms. Braunstein, in your testimony, you note that the Fed has offered a proposal to, ‘‘give consumers greater control over the payment of overdrafts.’’ 

I understand the Fed has already issued rules to address depository institutions’ disclosure practices related to overdraft services 

that take effect January 1, 2010, and the public comment period 

of the Fed’s overdraft protection proposal ends on March 30, 2009. 

You also note that, ‘‘After evaluating the comments and conducting additional consumer testing, we expect to issue a final rule 

later this year.’’ 

Ms. Braunstein, when would you expect the Fed to issue that 

rule? And do you have any comments on H.R. 1456, the Overdraft 

Protection Act, as it relates to the Fed’s efforts? 

Ms. BRAUNSTEIN. As you say, our comment period on the Reg. E 

proposal we put out ends the end of this month, and we will look 

23 

at the comment letters. We are hoping to have final rules out during the summer. And so, you know, we are moving forward on that. 

So we are hoping to have the final rules in the summer. 

Mr. MOORE OF KANSAS. Final rules, that will be? 

Ms. BRAUNSTEIN. For overdraft protection. I am talking about on 

the proposal we just issued on giving consumers a choice. 

Mr. MOORE OF KANSAS. Any better estimate as to when, besides 

this summer? Is that the best estimate you can give me right now? 

Ms. BRAUNSTEIN. Yes, I think so, at this point, because we need 

to see what comments come in, how long it takes to do the analysis, and get the final rules completed. 

Mr. MOORE OF KANSAS. Thank you. 

I yield back, Mr. Chairman. 

Chairman GUTIERREZ. The gentleman yields back. Mr. Lee is recognized for 5 minutes. 

Mr. LEE. Thank you. 

I think I am going to try to take this in a slightly different direction. I actually may be an advocate of what you are going through 

because my background was running manufacturing businesses, 

and I lived through, firsthand, doing major implementations of our 

enterprise system of our business. And I can attest on some of the 

difficulties. 

But starting off with—I agree with Chairwoman Maloney’s bill in 

terms of the content of we ultimately want to protect consumers 

and that this is an issue that we definitely want to move forward 

on. At the same time, I see what the Federal Reserve has done over 

the past few years and is painstakingly taking the time to make 

sure we get this right, and I do applaud that. 

But my concern is, when we have ever, from a business perspective, done an implementation on major changes, which you, Ms. 

Braunstein, have alluded to, the best case is you can do that in a 

year. And, like you, I am concerned about the risk of trying to push 

through legislation that, within 90 days, could have a very detrimental effect. 

In one of the implementations we did for our company, when we 

ultimately went live, after testing for almost a year, our go-live scenario almost put our company under, based on the fact that the 

system did not work the way we thought it would. We had thousands of lost records and lost many customers along the way. So 

my concern is making sure we do this in a way that not only protects the consumer but also makes sure that we have a system put 

in place that adequately functions. 

My question to you is—because, like everyone, we want to get 

this implemented as fast as possible—is there any time we could 

shave off this, at this point, 18 months if we were focused? 

Ms. BRAUNSTEIN. I don’t know. I really think—I know that we 

looked at it very thoroughly when we came up with the 18 months. 

We knew, frankly, that that was going to be something that we 

would get a lot of criticism on from consumer community groups, 

from certain Members of Congress. We didn’t go into that blindly. 

So we did spend a lot of time looking at that and talking about 

that issue and searching it out, and that is where we came out on 

this. I think that is a discussion you need to have, in terms of— 

24 

or have with the industry and see if you think it could be done 

sooner. 

Ms. YAKIMOV. May I add something? 

One of the things that we are doing, as we look at the institutions that offer credit cards within OTS, is checking on the 

progress they are making in terms of preparing. In December, we 

issued a CEO letter from our principal, saying, ‘‘Look, we are looking for you to implement as soon as you possibly can.’’ Through the 

exam process in there, we can continue to monitor that. 

The other thing I point to is we just recently, last month, had 

a conference call collectively with the Federal Reserve and NCUA. 

We had more than 700 institutions participate, 700 lines. We are 

hearing from the industry that they are working hard, they are 

getting after this. So we will continue to monitor. 

Mr. LEE. Would anybody be able to offer up any—if we flipped 

the switch in 90 days, which I am dramatically opposed to, just 

based on what my historical reference has been on doing 3 implementations from a software standpoint, could you name any specific risk that you would see that would come out of this? 

Ms. BRAUNSTEIN. Well, as I have mentioned a couple of times 

today, I think the risk—I am not sure that it is even doable, but 

the risk of rushing this would be that the models would not be fully 

developed. New funding mechanisms would not be in place because 

the risk models would be in doubt, and that could put some severe 

constraints on the availability of credit. I think that is a very real 

concern. 

Mr. LEE. Thank you. 

I yield back. 

Chairman GUTIERREZ. Thank you. 

Mr. Green, you are recognized for 5 minutes, sir. 

Mr. GREEN. Thank you, Mr. Chairman. 

And I thank the witnesses for their testimony. 

I, too, am going to pursue this line of questioning with reference 

to the timeline. Do you have any empirical evidence to support the 

notion that one time is more beneficial than another, that having 

18 months is more beneficial? I understand that you have beliefs, 

but what empirical evidence did you acquire? 

Ms. BRAUNSTEIN. We spent a lot of time talking to industry. We 

also have a lot of years’ experience with implementation of other 

regulations, and we looked at those and how long it took to put systems in place to get those regulations up and running. 

Mr. GREEN. Give me an example, if you would, please. I am looking for the actual empirical evidence, as to opposed to a commentary about how you approached it. 

Ms. BRAUNSTEIN. Can we get back to you with that information? 

Mr. GREEN. Well, could you just give me one example of another 

industry or some other time that you actually had to do this and 

the actual amount of time that it took? 

The obvious answer is, yes, you are going to get back to me, but 

if you have something today, I would be more than anxious to hear 

it. 

Ms. BRAUNSTEIN. Well, I know when we put major TILA 

changes, truth-in-lending changes, in place in the past, we have always had to go out at least 12 months in advance to get those in 

25 

place. And this is even more comprehensive than that, because this 

is involving several regulations. 

Mr. GREEN. Did you exercise this 12-month rule based on other 

empirical evidence, or has this just become custom and tradition? 

Ms. BRAUNSTEIN. No, as I say, we have talked extensively about 

the kinds of systems changes that are needed, you know, the forms 

that need to be developed, the time it takes to do that. I think you 

could probably get even better data from the industry, in terms of 

their workflows. 

Mr. GREEN. Well, my suspicion is that the industry will give me 

enough information to help me with my 18-month conclusion, if 

that is my end. But what I am trying to do is actually fairly understand what went into the computations. And so far I am hearing 

you say, we have talked and, after talking, we sort of came to a 

conclusion. 

And I am interested in knowing, for example, it takes ‘‘X’’ 

amount of time to develop the computer program, it takes ‘‘X’’ 

amount of time to run the model. Have you done that kind of analysis? 

Ms. BRAUNSTEIN. We could get back to you with that information. I am not prepared to go into that level of detail today, but we 

could certainly get back to you. 

Mr. GREEN. Yes, ma’am. 

Ms. YAKIMOV. I would just add, some of the comments that we 

got from industry and from some of the vendors that the industry 

worked with to process changes, such as 21 days to make sure that 

people have a reasonable period of time to make their payment, 

those types of systems-based changes that we have made in the 

rule. We did get a fair amount of fairly specific comments from industry and from vendors that are part of the record. I can’t give 

you rule-specific— 

Mr. GREEN. Would you do this for me? Define ‘‘industry’’ for me. 

When you say ‘‘from industry,’’ I think I know what you are referencing, but why don’t you tell us so that we will have it for the 

record? 

Ms. YAKIMOV. From some of the major credit card issuers that 

commented about the implementation period. They commented 

about what, from their experience, they felt they would need to do 

in order to comply with the rule as it was proposed. We got comments from them and from, as I said, vendors that provide backroom support. 

Mr. GREEN. Is it possible that there may be a hint of—may be 

a scintilla of bias associated with that sort of intelligence coming 

from what you have defined as the ‘‘industry?’’ 

Ms. BRAUNSTEIN. Absolutely. That is why, like I said in the beginning, this was a conclusion we came to. I think the industry actually requested longer. From what I remember in my conversations—this was months ago now—but, you know, most of the industry was telling us they would need a minimum of 2 years or 

even longer. So, yes, we did put that factor into our calculations. 

Ms. YAKIMOV. Right. 

Mr. GREEN. Well, just as a parting comment, and I am really 

doing some soul searching, but the anecdotal comments that I get 

from consumers would connote it can be done right away and I 

26 

want it done right now. So consumers have an immediate need, as 

they see it, when they talk to me. I understand that industry has 

a need, as well, which is why I conclude that empirical evidence is 

the best way to arrive at a reasonable decision. Thank you. 

I yield back. Thank you, Mr. Chairman. 

Chairman GUTIERREZ. Congressman Neugebauer, please. 

Mr. NEUGEBAUER. Thank you, Mr. Chairman. 

One of the problems with getting to the dance late is the dance 

card gets filled up. And so, a lot of the questions that I have were 

already asked, but I want to go back on a couple of things. 

Ms. Braunstein, one of the things you said was—and I think Ms. 

Yakimov—I think you both said that some of these things the industry is already starting to incorporate into their business model. 

And one of the things—I am obviously not in that credit card business, but this is going to require a lot of software modifications, a 

lot of internal operational procedures, and somebody is not just 

going to flip a switch in 2010 and say, okay, we are on the new 

system. 

So I have to believe that the industry—and we will have some 

of those folks here—but I have to believe that, as I understand it, 

they will have to be in compliance by that date, if I am not mistaken. And so it would appear to me that process is going to be an 

evolving process. Am I misreading that? 

Ms. BRAUNSTEIN. No, that is correct. 

Ms. YAKIMOV. That is right. 

Mr. NEUGEBAUER. You believe that is true? And, as you said, in 

some of the banks that you all have been in, you have begun to see 

some of that implementation already taking place? 

Ms. YAKIMOV. We have a group at OTS that specializes in following credit card issues. We have seen, for example, we track, are 

there noncurrent and charge-off—the amount of noncurrent loans 

and charge-offs, how is that changing over time. 

This is the group that specializes in collecting a whole host of 

data from the institutions through our supervisory process. And 

that is the group that we are using to give us periodic reports on 

how the industry is preparing, and we will continue to do that. 

Mr. NEUGEBAUER. Because I have some credit cards, and I am 

already getting changes in the contract and changes in the terms 

that are very consistent with the new regulations. And so I think 

some of the credit card companies are already moving in that direction. 

And, of course, I guess I want to continue to be ‘‘Mr. Disclosure’’ 

to all of you, as Ms. Braunstein knows—she has appeared before 

us before. We have to get to a universal consumer disclosure that 

is simple and easy to read, because I think a lot of the issues that 

are driving a lot of our consumer complaints and people who are 

getting into trouble with their credit, some of that is poor choices 

that they are making. And we can’t legislate nor can we correct 

poor choices. We can fix poor information and poor disclosure. 

And I know there are some reforms in this, but I think one of 

the things that we almost need to get our consumers used to is, 

whenever they are looking at any kind of credit, they are looking 

at that same disclosure statement, no matter what type of credit 

is, so they get accustomed to seeing that and so they know what 

27 

to look for on that, so that we don’t have people who say, ‘‘Oh, I 

didn’t know.’’ 

So I thank these witnesses. 

And, with that, I will yield back, Mr. Chairman. 

Ms. BRAUNSTEIN. Congressman, could I just say a word about 

disclosures? 

Mr. NEUGEBAUER. Yes, please. 

Ms. BRAUNSTEIN. This package includes a complete redesign of 

credit card disclosures under the Truth in Lending Act, and those 

are all consumer-tested. And we did indeed find, one of the interesting pieces of that, as you know, years ago Congress legislated 

something that is referred to as the ‘‘Schumer Box’’ for credit cards 

that has all kinds of information in the solicitations in a box. People did recognize that and found that very useful. 

So, in fact, when we redesigned disclosures, we made the account 

opening statements consistent with the solicitations, utilizing a box 

tabular format, because we found—so what you are saying is absolutely right. Consumers look for certain information. And we try to, 

you know, do that in the redesigned disclosures. And hopefully we 

have been— 

Mr. NEUGEBAUER. So over at HUD and all of the other places— 

Ms. BRAUNSTEIN. Well, that was last week’s panel. 

Mr. NEUGEBAUER. I know, but I find if you say it over and over 

and over and over again, eventually maybe it gets done. So, thank 

you. 

Chairman GUTIERREZ. Thank you. 

Mr. Cleaver, you are recognized for 5 minutes. 

Mr. CLEAVER. Mr. Chairman, I will forego any questions in an 

attempt to bring the next panel up. 

Chairman GUTIERREZ. Thank you so much. With unanimous consent, we will accept that. Thank you so much, Mr. Cleaver. 

I want to thank all of the panelists for their testimony here this 

afternoon. 

And, Ms. Braunstein, since last week, you know, we are kind of 

a little critical about how long it took between the time the legislation—we really would like to compliment everybody at the Fed for 

working so quickly on the new regulations, the UDAP and the Z 

regulations, and working on them quickly. You know, we have to 

balance ourselves out. 

Ms. BRAUNSTEIN. Thank you so much. 

Chairman GUTIERREZ. Thank you so much to all of the panelists 

for being here. 

Let me introduce the second panel. 

Mr. Kenneth J. Clayton is senior vice president/general counsel 

for the American Bankers Association Card Policy Council. 

Ms. Linda Echard is president and CEO of ICBA Bancard and 

is testifying on behalf of the Independent Community Bankers of 

America. 

Mr. Douglas Fecher is the president and CEO of Wright-Patt 

Credit Union, Inc., and is testifying on behalf of the Credit Union 

National Association. 

Mr. Oliver I. Ireland is a partner at Morrison & Foerster, LLP, 

here in Washington, D.C., and is testifying on his own behalf. 

28 

Mr. Todd McCracken is the president of the National Small Business Association. 

Mr. Ed Mierzwinski is a senior fellow at the Consumer Program 

at U.S. PIRG. 

And last, but not least, Mr. Travis Plunkett is the legislative director of the Consumer Federation of America, who is appearing 

before the Financial Services Committee for the second time this 

week. 

Thank you all for appearing this afternoon. 

Mr. Clayton, you may begin your testimony. 

STATEMENT OF KENNETH J. CLAYTON, SENIOR VICE PRESIDENT/GENERAL COUNSEL, AMERICAN BANKERS ASSOCIATION CARD POLICY COUNCIL 

Mr. CLAYTON. Thank you, Mr. Chairman, Mr. Castle, and Mr. 

Lee. My name is Kenneth J. Clayton, and I am here on behalf of 

the American Bankers Association. I appreciate the opportunity to 

testify today on both credit card and overdraft protection issues. Credit cards are responsible for more than $2.5 trillion in transactions a year, and they are accepted at more than 24 million locations worldwide. It is mind-boggling to consider the systems needed 

to handle 10,000 card transactions every second around the world. 

It is an enormous, complicated, and expensive structure, all dedicated to delivering the efficient, safe, and easy payment vehicle 

that we have all come to enjoy. They are an integral part of today’s 

economy. 

As you have heard today, regulators have taken unprecedented 

action in response to consumer concerns over credit cards. These 

changes have forced a complete reworking of the credit card industry’s internal operations, pricing models, and funding mechanisms. 

The rule essentially eliminates many controversial card practices. For example, it eliminates the repricing of the existing balances, including the use of universal default and so-called ‘‘any 

time, any reason’’ repricing. It eliminates changes to interest rates 

for new balances for the first year that card is in existence. It 

eliminates double-cycle billing, and it eliminates payment allocation methods perceived to disadvantage consumers. 

The rule likewise ensures that consumers will have adequate 

time to pay their bills; adequate notice of any interest rate increases on future balances so they can act appropriately; and clear 

information in all card materials that they will notice, understand, 

and use to take informed actions in their best interests. 

In sum, the final regulation already covers the core issues sought 

to be addressed by H.R. 627. 

Card companies are committed to implementing these vast 

changes as soon as possible. But policymakers need to understand 

that this is an enormous undertaking, requiring companies to redesign entire risk and operating models that support hundreds of millions of accounts. And we need to do this during a time of unprecedented economic turmoil, with rising delinquencies and locked 

funding markets that reduce our ability to make loans, further 

complicating our task. 

Some things to think about: Lenders must rework every piece of 

paper, from solicitations to applications to periodic statements to 

29 

advertisements; create entirely new business models that adequately manage investor willingness to fund lending and regulatory 

concerns over safety and soundness; rework, integrate, and test 

multiple internal systems and retrain hundreds of thousands of 

employees so that everything seamlessly operates together; and 

subject every step of this process to detailed legal and regulatory 

reviews that ensure we get it right. 

Under H.R. 627, we are asked to do all of this in 90 days. This 

is extremely difficult. And if such a proposal were enacted, we 

would envision three likely outcomes: operational problems that 

create billing mistakes and significant confusion for millions of consumers, while opening ourselves up to significant legal liability; a 

significant pullback in available credit to protect against underwriting risk that we have not yet had the time to adequately assess; and a potential for increases in the cost of credit for the very 

same reason. 

Such outcomes will harm consumers, small businesses, and the 

broader economy at a time when it can least afford it. We would 

urge members to refrain from taking such action. 

Let me quickly comment on legislative efforts on overdraft protection. Overdraft protection provides significant benefits to millions of consumers every day. It keeps checks from bouncing and 

transactions from being denied and avoids the cost and embarrassment associated with such occurrences. With such value comes 

some cost; yet the cost for such protection is completely manageable. Consumers can take numerous steps to keep track of their 

balances and manage the risk associated with overdrafts in their 

accounts. 

H.R. 1456 would impose operational challenges that are nearly 

impossible to implement and that may have the effect of reducing 

the availability of this service to consumers, thus denying them a 

product in which they find great value. And we note that legislating in this area may be premature. 

The Federal Reserve has a current rulemaking intending to go 

at the very issues that are the subject of this legislation. The comment period for that proposal closes on March 30th; that is 11 days 

from now. And the Fed will be poised to act based on significant 

input from all interested parties. We urge Congress to refrain from 

acting and let the regulatory process be completed. 

Thank you, Chairwoman Maloney. Thank you for the opportunity 

to comment on these two legislative proposals. I will be happy to 

answer any questions you may have. 

[The prepared statement of Mr. Clayton can be found on page 84 

of the appendix.] 

Mrs. MALONEY. [presiding] Thank you very much for your testimony. 

Ms. Linda Echard? 

STATEMENT OF LINDA ECHARD, PRESIDENT AND CEO, ICBA 

BANCARD, ON BEHALF OF THE INDEPENDENT COMMUNITY 

BANKERS OF AMERICA 

Ms. ECHARD. Thank you, Madam Chairwoman, Ranking Member 

Hensarling, and members of the subcommittee. My name is Linda 

Echard, and I am president and CEO of ICBA Bancard. 

30 

Twenty-five years ago, the Independent Community Bankers of 

America hired me to help them leverage the negotiating power of 

their members in order to put together a program so they could afford to be in the credit card business. Today, I work to help keep 

their playing field level so the community-bank credit and debit 

card issuers can afford to participate and meet the demands of 

competing. 

I would first like to discuss H.R. 627, the Credit Cardholders’ Bill 

of Rights Act. While we agree that a small number of issuers have 

engaged in practices that are harmful to consumers, any legislative 

remedy should focus on transparency, disclosure, and encouraging 

consumer choice. The most powerful force for a change in a market 

as competitive as credit cards is the ability of an educated consumer to shop with his or her feet. 

Instead, this measure attempts to prohibit specific practices, imposing additional costs and burdens on community bankers who did 

not contribute to the problems in the industry. The consequences 

will cause small lenders to struggle to meet the credit needs of 

their consumer and small-business customers and possibly exit the 

business entirely. No one benefits if community banks exit the 

marketplace. 

Throughout my career, I have seen firsthand the implications of 

burdensome regulations and mandates, such as these, on small 

issuers. At a time when the government is encouraging efforts by 

community banks to assist in the recovery of our economy, passing 

this bill sends the wrong message to those who are actually in a 

position to help. 

I would also note that the 25-day statement mailing requirement 

and deadline set forth in this legislation for full compliance are 

simply not feasible for community banks or their third-party processors. The mailing requirement does not take into account statement cycles that fall on or near weekends and holidays. 

Today, community banks can offer credit cards that are tailored 

to the needs of their individual consumers, allowing them to differentiate themselves from the competition. But the limitation on 

an issuer’s ability to adjust for risks in the cost of funds in this legislation will fundamentally change the credit card features that 

consumers have come to rely on. 

I can also see community banks shifting away from fixed-rate 

credit card models to variable-rate cards. More broadly, these restrictions will begin to shift credit cards from an open-ended, unsecured loan where the consumer largely decides his or her own repayment schedule to something like the old-fashioned finance company installment loan. 

Shifting to H.R. 1456, the Consumer Overdraft Protection Fair 

Practices Act, many community banks offer overdraft protection 

programs that are valued by their customers. Overdraft programs 

are not all created equal, a fact that gives community banks the 

ability to leverage the unique and close relationship they have with 

their customers to offer them competitively priced programs to best 

meet their needs. This competitive advantage is an important part 

of what allows community banks to serve their communities. 

ICBA supports ensuring consumers are fully informed about the 

terms and conditions of an overdraft program and are made fully 

31 

aware of the choices available to them. However, the burdens imposed in H.R. 1456 would reduce community banks’ ability to competitively offer these services. This legislation presents technical 

and practical difficulties that will serve to reduce the availability 

of overdraft coverage to community bank customers. 

Subjecting these programs to regulation under TILA will likely 

cause many community banks to do away with discretionary overdraft programs, leaving consumers only the choices of linking with 

another account or qualifying for a line of credit in order to cover 

overdrafts. For community bank customers at the margin, those 

may not be viable options. 

In conclusion, our concerns with these two pieces of legislation 

are straightforward: Overly restrictive approaches, such as H.R. 

627 and H.R. 1456, while serving well-intentioned purposes of addressing questionable practices, will create more difficulties than 

they cure. 

Community banks want to be able to offer competitive credit card 

products and also want to help their customers with reasonable 

overdraft programs. Setting rigid parameters under which a bank 

may operate a card business or overdraft protection program will 

discourage already overly burdened community banks, pushing 

them to reduce the number of products and services they can currently offer. 

Thank you for the opportunity to be here today. 

[The prepared statement of Ms. Echard can be found on page 107 

of the appendix.] 

Mrs. MALONEY. Thank you. 

Mr. Fecher? 

STATEMENT OF DOUGLAS FECHER, PRESIDENT AND CEO, 

WRIGHT-PATT CREDIT UNION, INC., ON BEHALF OF THE 

CREDIT UNION NATIONAL ASSOCIATION (CUNA) 

Mr. FECHER. Good afternoon. Thank you for giving me the opportunity to testify today regarding H.R. 627 and H.R. 1456 on behalf 

of the Credit Union National Association. My name is Doug Fecher, 

and I am president and CEO of Wright-Patt Credit Union in 

Fairborn, Ohio. 

Wright-Patt Credit Union serves 170,000 everyday Americans in 

the Miami Valley, just outside of Dayton, Ohio, including the airmen and airwomen of Wright-Patterson Air Force Base. Our philosophy is to help everyday people save more, smartly use credit, and 

improve their family’s financial wellbeing. 

My written testimony goes into greater detail regarding CUNA’s 

concerns with the two bills under consideration today. In general, 

we support what the legislation is trying to do; however, we do 

have serious concerns with the approach being taken by H.R. 1456. 

I am a practical thinker and come from the perspective of the 

people I serve: Americans who are faced with making daily, routine 

financial decisions that are best for their family, often with limited 

resources. What matters to them is making their paycheck last 

from one payday to the next, how they are going to pay for the 

things they need, not to mention the emergencies that they sometimes face. 

32 

The bounce protection legislation being considered is well-intentioned but, as a practical matter, will limit consumer’s access to legitimate financial services and may be technically impossible to implement. 

I want to be clear: Credit unions support reasonable changes to 

laws governing overdraft programs. While we oppose this legislation in its current form, we would like to work with supporters to 

eliminate predatory activity without making it impossible for responsibly offering these services to consumers. 

We have three suggestions aimed at improving this bill: 

First, instead of amending the Truth in Lending Act, we recommend that the bill be redrafted to amend the Truth in Savings 

Act. This gives Congress the opportunity to require meaningful disclosures to users of these programs, such as the true dollar cost 

and the available alternatives. 

It would also avoid the problem that the bill in its current form 

creates with respect to the Federal credit union usury ceiling. If 

this bill were law, it would cause credit unions offering these programs to exceed the usury ceiling prescribed by the Federal Credit 

Union Act, presently 18 percent. Since even a modest fee would exceed this threshold, as a result, credit unions would no longer be 

able to offer these services, driving their members to higher-cost 

service providers. 

Second, H.R. 1456 has the potential to present significant operational issues by requiring a written agreement with the member 

prior to the extension of any overdraft coverage. CUNA suggests 

that the bill provide a change-in-terms disclosure when overdraft 

protection is offered and specifically require that a consumer can 

fully opt out if he or she so desires. 

Finally, the requirement that consumers be notified at an ATM 

or point of sale that the transaction will cause an overdraft represents a compliance burden that we do not believe can be met, 

given credit union current technology. There may be other ways to 

notify consumers that they are about to trigger an overdraft event. 

A sticker or a first-screen general notice alerting the consumer that 

a withdrawal from the ATM may trigger an overdraft may be appropriate. 

To the extent that the subcommittee feels that real-time disclosure is important, we suggest limiting that type of requirement to 

disclosure on ATM networks that are controlled by the financial institution to which the consumer is affiliated. 

To summarize our overdraft concerns, we should not make legislation that removes choice from the market. Credit unions offer 

these services in a way that solves a sometimes serious problem for 

consumers. While we should disallow having the manipulation of 

accounts done for the sole purpose of extracting more and higher 

fee revenue from unaware consumers, we should not eliminate responsible providers from the market. 

We look forward to working with the subcommittee to address 

these concerns. 

I would like to make a brief comment with respect to H.R. 627, 

the Credit Cardholders’ Bill of Rights Act. We agree with most provisions of this legislation. However, we do have two concerns we 

would like the subcommittee to address and one suggestion. 

33 

Our primary concern is the bill’s effective date. Were this bill to 

become law, credit unions would have only 90 days to comply with 

the same requirements with which they are already currently adjusting their systems to comply with about 15 months from now. 

We believe such a requirement would be overly burdensome and 

expensive for America’s credit unions and ultimately unnecessary, 

as the credit unions will be in compliance in due time. 

Our second concern involves the provision prohibiting the 

issuance of a credit card to a consumer under the age of 18 unless 

the consumer has been legally emancipated under State law. While 

we agree with this provision, we believe there should be an exception for cards that are co-signed by a parent or guardian. 

Finally, we ask that the subcommittee include in this legislation 

a provision that directs the Government Accountability Office to 

study the impact of merchant data breaches on consumers and financial institutions. When merchants lose consumers’ personal 

data, including credit card information, the cost of the breach is 

borne almost entirely by the financial institution and the consumer. We believe this imbalance deserves additional scrutiny and 

study. 

Again, thank you for giving me the opportunity to testify today. 

I will be available to answer questions. Thank you very much. 

[The prepared statement of Mr. Fecher can be found on page 118 

of the appendix.] 

Mrs. MALONEY. Thank you. 

Mr. Ireland? 

STATEMENT OF OLIVER I. IRELAND, PARTNER, MORRISON & 

FOERSTER LLP 

Mr. IRELAND. Good afternoon, Acting Chair Maloney, and Ranking Member Hensarling. I am a partner in the Washington, D.C., 

office of the law firm of Morrison & Foerster. Prior to joining Morrison & Foerster, I was an Associate General Counsel at the Board 

of Governors Federal Reserve System for over 15 years and worked 

at the Federal Reserve Banks of Boston and Chicago before that. 

I have almost 35 years of experience in banking and financial services, and I am pleased to be able to appear here before you today 

to discuss H.R. 627 and H.R. 1456. 

Today, American households are experiencing extreme financial 

pressure. Equity that households have in their homes is at an alltime low, and their net worth has fallen 20 percent since the third 

quarter of 2007. Moreover, unemployment in February of 2009 was 

8.1 percent, the highest since 1983. 

As unemployment grows, affected households must increasingly 

rely on the ability to borrow to meet day-to-day expenses. Any congressional regulatory efforts to modify credit card practices need to 

pay particular attention to the potential to unnecessarily limit the 

availability of this source of credit for these households. 

H.R. 627 would limit credit card practices by credit card issuers, 

and H.R. 1456 would limit overdraft practices at institutions holding consumer deposit accounts. In both cases, recent or pending 

Federal Reserve Board rule-writing efforts would address these policy concerns. 

34 

For example, in December of last year, the Board, working with 

the OTS and the NCUA, adopted the most sweeping regulatory 

changes to credit card practices ever. The Board also is in the process of addressing fees for overdrafts and consumer accounts, including whether there should be an opt-in or opt-out for overdraft fees, 

the form of the notice to be given, the treatment of debit holds, and 

related issues. 

At this point in time, adopting either H.R. 627 or H.R. 1456 runs 

the risk, at best, of creating conflicting statutory and regulatory regimes. At the extreme, new legislation or credit card practices 

could lead to significant limitation on the availability of credit to 

American households. 

For example, H.R. 627 calls for its provisions to become effective 

in 3 months, instead of July 1, 2010, the effective date for the 

UDAP and Regulation Z rules. Similarly, the provisions of H.R. 

1456 differ significantly from the Board’s proposal. Some aspects of 

H.R. 1456, such as the opt-out for point of sale, are simply unworkable, and others, such as the opt-in, are likely to lead to a significant disruption in consumer payments, to the detriment and ire of 

both consumers and merchants. 

A 3-month effective date in H.R. 627, in particular, would 

present serious operational problems and could significantly curtail 

access to credit. Credit card issuers will be faced with enormous 

changes in highly automated systems. Any effort to accelerate 

these automation changes may simply fail or result in significantly 

higher levels of processing errors. 

Perhaps more significantly, the repricing and payment allocation 

provisions would affect as much as $12 billion a year in revenue 

for credit card issuers. In order to recover this lost revenue, as a 

practical matter, credit card issuers only have two possible options: 

raise rates and fees; or reduce the amount of credit risk in their 

portfolios. 

Early implementation of the repricing limitations, however, 

would severely limit the rate option. Credit card issuers would 

have no cushion of profitability to absorb the increased costs and 

would have no choice but to take steps to reduce risks in their portfolios. These steps would reduce the amount of credit available to 

households significantly when they need it most for ready access to 

credit. 

I appreciate the opportunity to appear before you here today and 

would be pleased to answer any questions. 

[The prepared statement of Mr. Ireland can be found on page 127 

of the appendix.] 

Mrs. MALONEY. Thank you very much. 

Mr. McCracken? 

STATEMENT OF TODD McCRACKEN, PRESIDENT, NATIONAL 

SMALL BUSINESS ASSOCIATION (NSBA) 

Mr. MCCRACKEN. Good afternoon, Madam Chairwoman, Ranking 

Member Hensarling, and members of the subcommittee. My name 

is Todd McCracken, and I am the president of the National Small 

Business Association, America’s oldest small-business advocacy organization. 

35 

Historically, small businesses have led America’s resurgence out 

of periods of economic distress and uncertainty. Previous smallbusiness-led economic recoveries were based substantially on the 

creation of millions of new small firms. 

How did these aspiring small-business owners do it? Besides possessing an entrepreneurial streak, they were able to finance their 

dreams through a number of means, most of which are currently 

unavailable or restricted. They borrowed from themselves, often 

through second mortgages and the like; they borrowed from their 

friends and family; or they borrowed from a bank. 

Aspiring business owners would be hard-pressed in the current 

environment to self-finance their entrepreneurial dreams. Home 

prices are down, and so are the stock portfolios. The same is true 

for their friends and families. Banks have tightened their lending 

standards, and there has been a drastic reduction in the number 

of SBA loans being made. Even those banks on the receiving end 

of billions of dollars of taxpayer dollars have not increased their 

small-business lending. 

Where does this leave the aspiring entrepreneurs who will lead 

the Nation out of its recession? Increasingly reliant on their credit 

cards. Credit cards are now the most common source of financing 

for America’s small-business owners. 

Although they are increasingly turning to credit cards to finance 

their business ventures, more than two-thirds of surveyed smallbusiness owners report that the terms of their cards are worsening, 

however. This is not good news for America’s economy, which is 

heavily reliant on a robust and thriving small-business community. 

The billions of dollars generated from outlandish retroactive interest rate hikes, the escalating imposition of undisclosed fees, and 

unilateral and unforeseen interest rate increases is money diverted 

from economic development. 

America’s small-business owners are not in the habit of advocating for the passage of increased Federal regulations, as I am 

sure you know, preferring free enterprise and market solutions. 

But the current practices of the credit card industry defy the principles of a competitive market. While welcoming the enactment of 

the Unfair and Deceptive Acts or Practices, UDAP, rule, NSBA believe that it is necessary to codify these rules and enact them sometime before July 2010. 

While NSBA supports the enactment of H.R. 627, there are two 

major aspects of credit card reform the bill does not address. One 

is interchange fees, and the other is exemption of small-business 

cards, and we urge Congress to address both of these things. 

As much as $2 of every $100 in credit or debit card receipts goes 

to card issuers through interchange fees, which have increased over 

the last decade from being about 13 percent of card issuer revenue 

to being about 20 percent, and inflating the cost of nearly everything consumers buy. In total, Americans paid more than $42 billion in interchange fees in 2007, about twice as much as they paid 

in credit card late fees. NSBA urges Congress to adopt legislation 

similar to the Credit Card Fair Fee Act or the Credit Card Interchange Fees Act of 2008, which were introduced during the 110th 

Congress. 

36 

The largest loophole in H.R. 627 is the absence of explicit protection for small-business owners who use their cards for business 

purposes. Since H.R. 627 amends the Truth in Lending Act, which, 

except for a few provisions, does not apply to business cards, its 

protections are limited to consumer credit cards. Although the credit cards of many, if not most, small-business owners are based on 

the individual owner’s personal credit history, it is conceivable that 

issuers could legally consider them exempt from H.R. 627’s vital 

protections. 

TILA defines a ‘‘consumer’’ as a natural person who seeks or acquires goods, services, or money for personal, family, or household 

use other than for the purchase of real property. While a smallbusiness owner who opens a personal credit account and uses it occasionally for business should be covered, it is far from clear that 

this legislation would protect a small-business owner who used his 

card exclusively or even primarily for business purposes. 

Although in the past issuers appear largely to have kept most of 

their cards in compliance with TILA, there is no guarantee this 

convention will continue, especially when one considers that its 

basis appears to have been practicality and not legal obligation. 

Since issuers were able to subject consumer cards to the most egregious of practices, there was little incentive to distinguish between 

consumer and small-business cards. An unintended consequence of 

H.R. 627, if it remains unamended, is that this legislation could 

provide just such an incentive. 

Accordingly, NSBA urges Congress to correct this oversight and 

extend the protections of TILA, the UDAP rule, and H.R. 627 to 

business cards of small businesses. It is inconceivable that Congress would knowingly allow issuers to perpetuate practices recognized as unfair and deceptive against America’s small businesses, 

especially given their essential role in the Nation’s economic recovery. 

In conclusion, the small-business community is not opposed to 

the credit card industry, nor does it begrudge its profits. In fact, 

as I previously outlined, the small-business community is increasing reliant on credit cards for its very existence. Small business 

simply asks the credit card industry to play by the same rules as 

the rest of us. 

Thank you very much. 

[The prepared statement of Mr. McCracken can be found on page 

136 of the appendix.] 

Mrs. MALONEY. Thank you. 

And this will be followed by two consumer advocates in alphabetical order. 

Mr. Mierzwinski? 

STATEMENT OF EDMUND MIERZWINSKI, CONSUMER 

PROGRAM DIRECTOR, U.S. PIRG 

Mr. MIERZWINSKI. Thank you, Madam Chairwoman, Mr. Hensarling, and members of the committee. 

As you will note from my written testimony, Mr. Plunkett and 

I are submitting a joint written testimony on behalf of a dozen organizations, and we will each talk about one of the bills. I will talk 

37 

first about the overdraft bill. And all of our organizations strongly 

support, Madam Chairwoman, your introduction of these two bills. 

I would say one thing about the consumer credit card bill of 

rights. Until your bill passed last year, in the 20 years I have been 

here in Washington, no bill ever opposed by the credit card industry made it through any congressional committee that I can remember. So that is my point on that. 

In terms of overdraft fees and the overdraft bill, H.R. 1456, the 

invention of so-called bounce protection programs in the 21st Century is not a sign of the advance of civilization; it is more a sign 

of the decline of civilization. I want to make just a couple of quick 

points. 

First, it is essentially banks making payday loans. It used to be 

that banks and credit unions were the good guys. We had the rentto-own industry, the payday loan industry, the auto title pawn industry, and the check cashers who were the bad guys. This is essentially the banks’ entry into predatory lending, and that is too 

bad, and it is something that your bill would stop. 

Second, the problems have been exacerbated by two trends. The 

first thing is that, in 2004, Congress made it easier for banks to 

get access to the checks that were written more quickly when it enacted Check 21, but Congress hasn’t given consumers faster access 

to their deposited funds since the original law was passed in 1987 

and took effect in 1988. So banks hold our checks and deposited 

funds as long as they can, and they manipulate our transactions 

in order to increase fee income from unfair overdraft programs. The 

second trend is that banks have encouraged the use of plastic. Plastic has not just become a substitute for checks; it has become a 

substitute for cash transactions. So both these trends have increased the ability of banks to make money on this program of 

bounce protection, or, as they prefer to call it, courtesy overdraft. 

What is good about a program that you don’t ask for, that you 

don’t sign up for, and that costs you more money than it benefits 

you? In a word, nothing is good about it. Without asking for our 

consent, banks and credit unions unilaterally permit most customers to borrow money from the banks by writing a check, withdrawing funds at an ATM, using a debit card, or preauthorizing 

electronic payments that overdraw our accounts. Instead of rejecting purchases that are electronic, they choose to have the purchases go through so they can make more money. 

One important point is that small debit transactions—and, again, 

these are not checks; these are small debit transactions—are a 

growing source of the income from overdraft protection accounts. 

About half of all overdraft fees are caused by small debit transactions, the $4 latte that costs $35. In fact, the average debit overdraft is $17. The average fee is double that, $34. 

Consumers want choice. These programs don’t give us choice. 

Your bill would require the consumer’s consent before he or she 

participated in this overdraft program. If you have that consent, 

you might think about, instead of this bank-friendly overdraft program, getting a more traditional overdraft program that costs you 

a lot less; apply for an overdraft line of credit; apply for a transfer 

from your savings account or your credit card. Eighty percent of 

38 

consumers would rather have that sort of choice, and an opt-in is 

the way to do it. An opt-out simply won’t work. 

By the way, 80 percent of consumers also want the choice at 

point of sale as to whether or not their transaction would go 

through. I am not going to be embarrassed at the Starbucks or at 

other coffee shop if they say my card did not work, and I have to 

take out a $5 bill. It is absurd for banks to claim that people want 

that kind of choice: 

‘‘Would you rather pay $35 for that $4 coffee or would you rather 

pay for it in cash, Mr. Mierzwinski?’’ I would rather pay for it in 

cash or walk away. 

The fact is that the cost of overdrafts, over $17 billion a year, is 

actually more than the so-called ‘‘benefit.’’ The total number of 

transactions is less than $16 billion a year. The costs are inordinately borne by lower-income people, minorities, younger people, 

and senior citizens on fixed incomes, many of them receiving government benefits. Many people on government benefits are receiving their benefits through prepaid debit cards, and these cards are 

often subject to these fees. 

By the way, the banks claim, using Federal Reserve data—first 

of all, the Federal Reserve says that it is feasible to provide overdraft protection warnings at point of sale. They claim it might cost 

as much as over $1 billion. Well, the most vulnerable senior citizens pay over $1 billion in overdraft protection fees every year. All 

in all, senior citizens pay over $4 billion in overdraft protection 

fees. 

So this is a program that hurts people who cannot afford it. It 

is a program that has nothing to do with choice. Your bill would 

fix all the problems. The Fed’s program would not. The Fed’s program is narrower, and they are asking, ‘‘Do we want to opt out,’’ 

which is not really a choice, or ‘‘Do we want opt in?’’ 

You have already decided on the right choice, opt in. 

Sorry. We cannot see the red light. 

Mrs. MALONEY. Thank you. The gentleman’s time has expired. 

Thank you for your testimony. 

[The joint prepared statement of Mr. Mierzwinski and Mr. 

Plunkett can be found on page 145 of the appendix.] 

Mrs. MALONEY. Mr. Plunkett is recognized for 5 minutes. 

STATEMENT OF TRAVIS B. PLUNKETT, LEGISLATIVE 

DIRECTOR, CONSUMER FEDERATION OF AMERICA 

Mr. PLUNKETT. Congresswoman Maloney, Ranking Member Hensarling, it is good to be here, and thank you for the opportunity to 

testify. 

I am going to focus my remarks on the very serious financial consequences that unfair and deceptive credit card practices are having on many families in this recession and how the Credit Cardholders’ Bill of Rights Act will help stop these traps and tricks. 

The President spoke yesterday afternoon, actually, on the need 

for a credit card bill of rights. He said, ‘‘The truth of the matter 

is that the banking industry has used credit cards and has pushed 

credit cards on consumers in ways that have been very damaging.’’ 

39 

First, let me tell you what is in the bill that is important for consumers, and then I would like to give you three reasons why it is 

important to implement credit card reform on a very timely basis. 

We have heard about the 30-day rule. This proposal says no interest rate increases on existing balances unless you are more than 

30 days in paying your bill. This bill says you can’t allocate payments for debt at different interest rates unfairly anymore; you 

have to allow consumers, at the very least, to write a check and 

pay off payments at both the higher and the lower interest rate 

debt. 

It bans deceptive and unfair double-cycle billing. It takes several 

steps to stop the assessment for late fees for on-time payments, 

and unlike the regulators rule, which is also substantively good, it 

will provide timely protection from these abusive practices to consumers. It takes effect 3 months after enactment instead of in July 

2010, as we have heard. Also, codifying protections in law has the 

advantage of preventing regulators from quietly undoing important 

protections at a later date. 

So why do we need to do this, and why do we need to do it fairly 

quickly? 

First, the number of families in trouble with their credit card 

loans is approaching historic highs. One often-watched measure is 

the monthly credit payoff rate; this is the amount of money people 

are paying on their credit card bills. It has been dropping precipitously for credit cards, and it is now at one of the lowest levels ever 

reported, indicating people are having a harder and harder time affording their bills. 

The amount of charge-offs, the amount of debt written off, is 

uncollectible, and delinquencies are at their highest levels since 

2002. Most experts are saying they could peak at their highest levels ever by the end of this year. 

Personal bankruptcies are up by a third since this time last year. 

Card issuers share a great deal of responsibility for putting so 

many Americans in such a vulnerable financial position. For 15 

years, CFA and many others have been warning that issuers were 

irresponsibly pushing consumers to take on more debt than they 

can afford; and now, in the recession, we are seeing the implications of those actions. 

Let us just talk about exactly what is happening now, about 

some of the practices that credit card issuers are using now in this 

recession: 

They have added new fees. They have increased the amount of 

fees. They have used harmful, rather than responsible, methods to 

lower credit lines, and they are hitting people with a lot of interest 

rate increases. 

Citigroup back-pedaled last fall on promises not to raise rates at 

any time for any reason and promptly raised rates for much of 

their portfolio. Chase has started charging hundreds of thousands 

of cardholders $120 in fees a year while increasing the minimum 

monthly payment for cardholders who were promised a fixed rate 

for the life of the balance. 

Bank of America has used a variety of questionable methods they 

claimed were risk-based to raise rates substantially on many cardholders. Capital One and other issuers are using vague clauses in 

40 

their agreements to raise interest rates, often by 5 percent or more, 

on millions of cardholders with a good credit history because of 

market conditions. 

So we are now hearing that this bill is somehow going to lead 

to a scarcity of credit, lead to interest rate increases on consumers 

who shouldn’t have interest rate increases and harm them; and we 

seem to have missed the major lesson of the current economic crisis, that poor regulation can harm consumers and the economy. 

I mean, look at what started happening in the credit card industry before regulation was implemented. Defaults were at record 

highs, as I have mentioned. Issuer costs to borrow money was increasing. Securitization was grinding to a halt, of credit card loans. 

Credit was being cut back as we have heard, and rates for many 

consumers were increasing. They can’t blame that on regulation; it 

hasn’t taken effect. This was the effect of a market that had not 

been properly regulated for 20 years. 

So, in closing, what I will say is, we have to have a discussion 

that understands what the current situation is and what the hazards of poor regulation have been, and then we can have a reasonable discussion about the pros and cons of various regulatory proposals. Thank you. 

[The joint prepared statement of Mr. Plunkett and Mr. 

Mierzwinski can be found on page 145 of the appendix.] 

Mrs. MALONEY. I want to thank all of the panelists for their very 

thoughtful presentations. 

I just have one question for industry and for consumer groups. 

I am sure you were all here for the debate from the Fed and OTS 

and NUCA. I just want to ask one question: Putting aside the debate about implementation, do you support the regulations that 

have been finalized on credit cards? 

I will start with you, Mr. Clayton. Just a ‘‘yes’’ or a ‘‘no.’’ 

Mr. CLAYTON. I just want to note that the regulations have the 

force of law. We are responsible for complying with them, and we 

will in a very aggressive manner. 

Mrs. MALONEY. Okay. Thank you. 

Ms. ECHARD. We, too, support most of the changes, but we need 

the time to implement them; and we will be ready in July 2010. 

Mrs. MALONEY. Well, I just want to respond to her very important statement, and I just would like to make a statement about 

community banks. 

They have really come to the forefront during this financial crisis 

with loans to individuals and communities, and you have done a 

fantastic job. I hear great reports of credit availability from community banks. 

I would like to say that issuers would have yet another 3 months 

before having to comply. Issuers have already had 3 months since 

the release of the rules, and it will be a few months more before 

this could possibly pass both Houses and be signed by the President. 

These practices that have been labeled by the Federal Reserve— 

not by consumers, but by the Federal Reserve, who are charged 

with safety and soundness of our financial institutions—have called 

them unfair, deceptive and anticompetitive. Arguing for any delay 

simply does not match the needs of consumers. 

41 

You know, I just wanted to put that out there. It has been a long 

time, and it will probably be a long time before it finally passes 

both Houses and is signed. 

Mr. Fecher, do you support the Credit Card Bill of Rights? 

Mr. FECHER. Most credit unions do not engage in those practices. 

So, yes, we do support those. 

Mrs. MALONEY. Mr. Ireland? 

Mr. IRELAND. We certainly support compliance with Federal law. 

Mrs. MALONEY. Mr. McCracken? 

Mr. MCCRACKEN. Yes, we do. 

Mrs. MALONEY. Mr. Mierzwinski? 

Mr. MIERZWINSKI. Yes, of course, Representative Maloney, we 

support the bill; and I concur with your comments about why they 

really have a lot more time. 

Mrs. MALONEY. Mr. Plunkett? 

Mr. PLUNKETT. Yes. 

Mrs. MALONEY. Thank you very much. 

I yield to Mr. Hensarling. 

Mr. HENSARLING. Thank you, Madam Chairwoman. 

Ms. Echard, I think I heard in your testimony some discussion 

of what you thought community bankers might do if this would become law. 

What would happen to their credit card offerings? Can you elaborate on what you would anticipate the consequences of the passage 

of this legislation to be? 

Ms. ECHARD. Thank you. Yes. 

The change-out of the disclosures and of the materials alone, by 

a conservative estimate, for our 700 institutions is probably going 

to cost them in the neighborhood of—somewhere from $6 million to 

$9 million, and that is just covering 200 new applications per 

branch. That is going to be equivalent to 2 years of their credit 

card profitability, to 2 to 3 years of their credit card profitability. 

Mr. HENSARLING. Do you predict that some banks may drop credit card offerings, or will they raise interest rates and fees in other 

areas to compensate for that loss? 

Ms. ECHARD. I believe that some community banks, even though 

they do not engage in any of these practices, will find the burden 

of complying, especially getting the implementation done in 90 

days, to be too much, and they will sell their credit card portfolios. 

Mr. HENSARLING. In your time and in your familiarity with the 

banking industry, if there are consumers who find out that through 

the passage of this legislation that ultimately the credit cards they 

could have accessed in the past are no longer available to them and 

they lose those credit cards, do you have an opinion on where they 

may end up going to access credit? 

Ms. ECHARD. With the concentration, they will have the choice 

of going to a large financial institution and not with their local institution. Thousands of community bank customers may be faced 

with having their banking in one place and their credit card elsewhere. 

Mr. HENSARLING. Again, going back to the timing issue, if this 

became law within 90 days, how many community banks might be 

able to comply within the 90-day time limit? 

42 

Ms. ECHARD. Not a single one. The 6,000 community banks that 

were mentioned, or the 6,000 banks, most of them are small 

issuers. They are credit unions, community banks. Most of them 

rely on processors. 

We have been meeting with our processor and a focus group of 

our community bank every single week since implementation was 

announced. While it is not as huge as the Y2K project, it is somewhat on that scale in that we have the communication bulletins. 

If you think of the July 1st enactment date, that means that all 

of the statement processing systems have to be done in June because all of the statements being mailed out beyond that date have 

to be correct. So that means testing in May and April. We have a 

system freeze so that the cards will operate smoothly for all merchants and for all consumers; there is no processing, no changes, 

nothing. It is a sacred time in the credit card industry from November to January, so that knocks out those 3 months. 

I mean, we are starting on it now. It is going to take a huge effort to get this done, and the last thing we will be doing will be 

the training of client services, the training of customer service, the 

training of bank personnel, and the completion of the applications 

in the agreements and the review of all of that. So it is a tremendous, tremendous undertaking. 

Mr. HENSARLING. Earlier, with the testimony of the representative of the Federal Reserve, she offered her opinion that the credit 

card industry was a competitive industry. Does anybody on the 

panel wish to disagree with that particular assessment? 

Mr. Plunkett hit his button first. 

Mr. PLUNKETT. Well, it is becoming considerably more concentrated. Nobody wants to impose unnecessary costs on any bank, 

especially small banks. But let us just point out that the 6 largest 

issuers control approximately 80 percent of the market; if you look 

at the top 10, it is approximately 90 percent of the market. So the 

costs are going to be borne by the largest companies, which are 

among the largest banks in the world. 

Mr. HENSARLING. Mr. Plunkett, since your organization has ‘‘consumer’’ in its title and you speak about a concentration in the industry, what public policies of your organization furthered or proposed or endorsed that which would increase competition within 

the credit card industry? 

Mr. PLUNKETT. We think this is a competitive proposal. I mean, 

I cannot tell you how many times I have had behind-the-scenes, offthe-record discussions with people in the credit card industry when 

they have said, ‘‘You know, we are trying to do our best, but those 

guys over there, they are using, you know, a tactic that we think 

is reprehensible, but we have no choice. We are leaving money on 

the table if we do not do the same thing.’’ 

This sets a level playing field of fair practices. Everybody has to 

comply, and there is plenty of room for competition and plenty of 

room to price to risk. 

Mr. HENSARLING. So your prediction is, there will be more credit 

card offerings to consumers after this legislation passes? 

Mr. PLUNKETT. Well, my prediction is this will not harm competition. 

Mr. HENSARLING. Thank you. 

43 

My time has expired. 

Mrs. MALONEY. The Chair recognizes Congresswoman Waters 

from California. 

Ms. WATERS. Thank you very much. I am extremely appreciative 

for this hearing that you are holding today and for all of the work 

that you have done in taking on one of the toughest tasks of the 

last Congress and of this Congress, to try and get some justice for 

credit cardholders. I thank you for your work. 

I have been intrigued by the discussion on overdraft abuses and 

on the need for overdraft protection. I would like to ask—Mr. 

Mierzwinski, is it? 

Mr. MIERZWINSKI. That is correct. 

Ms. WATERS. Okay. Would you explain to me how a cup of coffee—was it you who described that? 

Mr. MIERZWINSKI. Sure. Well— 

Ms. WATERS. —could end up costing what—$30 because of overdraft abuses? Would you kind of break that down for me? 

Mr. MIERZWINSKI. Sure. 

Very simply, as consumers have switched from writing checks for 

their bills and using cash for their day-to-day transactions in 

stores, they have switched to debit cards, an ATM card that can 

be used at point of sale. 

Even when the consumer’s debit card shows a negative balance 

or when the bank reorders the transactions at the end of the day 

to increase the number of negative items on that day, in either case 

what happens is, you buy something with your debit card for $4 

or for $2, depending on the kind of coffee you buy, and they accept 

the transaction. At the end of the day, they bounce it and charge 

you $35. 

The statistics from the studies that our colleague organization, 

the Center for Responsible Lending, has done show that the average debit card transaction is only about $17, but the average fee 

is $35. 

Ms. WATERS. Wow. 

Mr. Clayton, is that what happens with the overdraft abuse that 

was just described by Mr. Mierzwinski? 

Oh, let’s see. You are with the American Bankers Association 

Card Policy Council? 

Mr. CLAYTON. That is correct. 

Ms. WATERS. Is that what happens? Is that what you know happens or is this just being made up? 

Mr. CLAYTON. No, that is not our understanding of how things 

operate in the real world. 

Ms. WATERS. How does it operate? Tell me how it operates. 

Mr. CLAYTON. As a practical matter—and the Federal Reserve 

has done some consumer testing on this—consumers really very 

much appreciate the availability of overdraft protection plans to 

help them in a bind. 

Ms. WATERS. No. I just want to know how it works. 

Mr. CLAYTON. Say again? 

Ms. WATERS. I want to know how it works. 

I just had him describe what happens with the overdraft. He described a cup of coffee at $4 or $2 that, at the end of the day, is 

44 

an overdraft because there is no protection for the consumer in 

stopping that purchase at the point of purchase. 

So tell me what is wrong with what he just described? 

Mr. CLAYTON. There is enormous protection for consumers in 

stopping the purchase at purchase time. Consumers have a great 

deal more control in this process than people give them credit for. 

It is exactly the same as when they were working with checking 

accounts for many years. 

Ms. WATERS. Just tell me how it works. 

Mr. CLAYTON. People keep track of their balances. They can go 

online and check out where it is. They can keep cushions— 

Ms. WATERS. No, but what he said was, you buy a cup of coffee 

at Starbucks for $4, I guess, with a debit card or something, and 

the card does not have $4 on it; I guess they only have $2 on the 

card. 

So you use the card. They get the coffee. They drink it. 

At the end of the day, it is an overdraft that you charge $35 for. 

Is that correct or not? 

Mr. CLAYTON. If they overdraft their accounts, they will be subject to fees. 

Ms. WATERS. So what he just described is correct? 

Mr. CLAYTON. If they overdraft their accounts, they will— 

Ms. WATERS. So what he just described is correct? 

Mr. CLAYTON. Yes. 

Ms. WATERS. Okay. So, if it is correct, do you think that that is 

overdraft abuse? Do you think that that is a practice that should 

be discontinued because it is too harsh, because it is costing too 

much money and that, if you wanted to, you could reject the card 

and avoid the abuse? 

Mr. CLAYTON. Well, first of all, the technology does not exist to 

actually do that at the point of sale. 

But notwithstanding that—and there are significant costs that 

have been talked about here—consumers have a responsibility to 

manage what is in their accounts. There are fees for not complying 

with what is in their accounts in overdrafting. So to the extent that 

you think it is inappropriate for consumers to get fees for overdrawing on the amount of money they have, then you can take the 

position that the whole process is inappropriate. 

From our perspective, we are taking a risk. We are putting out 

a convenience and a service to consumers that they seem to value 

and that they have a lot of control over, whether they are going to 

incur costs or not, so we understand where you are coming from. 

Ms. WATERS. Do 18-year-olds and 17-year-olds have access to 

these debit cards? Can they use them at Starbucks in the way that 

was just described? 

Mr. CLAYTON. Well, you have to have an account, and I think you 

have to be an adult to have an account, and you have to be of voting age, so 18 and above. 

Mrs. MALONEY. The gentlelady’s time has expired. 

Ms. WATERS. Thank you very much. 

Mrs. MALONEY. Mr. Lee from New York. 

Mr. LEE. Thank you very much. 

It was nice to hear the general consensus through both the first 

and second panel today. I think everyone is in agreement that we 

45 

do need to do modifications to try to protect consumers and to 

make it easier for them to understand the contracts and to try to 

protect consumers. I do not think I heard from anyone who was not 

in agreement with making strides in that regard. 

The one thing that I did hear overwhelmingly was the fact that 

the timeline is inappropriate and, furthermore, that it would, in my 

opinion and from what I have heard, put consumers at risk. 

I used the earlier example because I am a lowly freshman here, 

but I came from a manufacturing business where I went through 

three occasions, through various businesses that I had an opportunity to run. We went through major software implementations, 

not much different than you would see here when you are modifying your business systems for a credit card. I can assure you, a 

good implementation is doing it in a year. 

My concern is—and I would like to hear from some of the individuals here—what risk we would run if we do rush this; because 

I think, at the end of the day, Chairwoman Maloney and her ideas 

that she has passed are all good ideas. But what I do not want to 

do is jeopardize businesses that are already struggling, credit card 

companies, and put them at further risk, because when you do do 

an implementation, you need a large number of people focused on 

this project. 

Right now, we have companies that are cutting back on staff. I 

just do not want to see this thing fail when, at the end of the day, 

we are trying to do things that are positive for consumers. 

I guess I would start with Mr. Clayton. If you could, define what 

specific risks we would see if in 90 days we were to flip the switch 

and this were to occur. In your mind, what specifics to consumers, 

what negative effects, would they see? 

Mr. CLAYTON. Operationally, we would expect to see mistakes in 

billings for millions of consumers. That is the first step. 

The second thing is, we do see significant problems in our ability 

to manage our risk models in this kind of economically challenging 

time. There is a significant amount of delinquency increase in the 

marketplace today. There are significant pressures on funding as 

witnessed by the TALF program that the Treasury Department 

and the Federal Reserve are trying to bring into place. 

With credit card lending, what people do not always notice is 

that around one-half of credit card lending is actually funded by investors who buy securities backed by credit card receivables, and 

that market is frozen. If those investors believe that we cannot 

adequately gauge risk in this challenging environment, they will 

not buy the paper that supports one-half of the credit card lending 

in this country. 

Mr. LEE. I am sorry. What was the total value of that? 

Mr. CLAYTON. The actual amount currently that the Federal Reserve has talked about is about $450 billion. 

So adequately measuring your risk in this environment and 

doing it operationally and in a consistent manner limits litigation 

risk. In other words, it is a significant challenge that you have to 

not only overcome your internal views on it, but that you have to 

overcome the investor community. 

So we are very worried that, if you do this, you will ultimately 

limit the ability for us to find reasonable cost funding to loan to 

46 

consumers, and you will see a significant contraction of credit in 

the marketplace. 

Mr. LEE. Thank you. 

Ms. Echard, could you chime in on that, please? 

Ms. ECHARD. Yes. Thank you. 

Potentially, the banks being out of compliance is an issue, the 

posting of payments. All of the systems are being examined right 

now, including the consumer facing systems like the actual statement—does that need to be redesigned? 

The system that produces that: the billing cycles, the number of 

billing cycles, the staffing for those billing cycles, the Web site that 

consumers can go on to make their payment should they choose to 

pull down their transactions, every single system—the client services system, the customer service system—needs to be examined to 

do that— 

Mr. LEE. I know that all too well. 

Ms. ECHARD. —in order that everything gets posted properly and 

is handled properly. 

Mr. LEE. We saw today even on the House Floor, when Congress 

rushes to try to push through legislation, you have outcomes that 

are less than desirable. 

So, just in closing, I appreciate all of your comments today. 

Thank you for the education. 

Mrs. MALONEY. Thank you, Congressman. 

Congressman Cleaver is recognized for 5 minutes. 

Mr. CLEAVER. Thank you, Madam Chairwoman. Let me express 

my appreciation for you and for all of the work that you have done 

on this. 

Most of the members who could get an airplane out, did; and I 

could have gotten one out as well. I did not. I stayed. I sat through 

the whole testimony. I only got up once to get some water. 

When I was mayor in Kansas City, I was part of an economic development effort to help bring one of the credit card operations into 

our City. One of the things I have tried to do today is—I wanted 

somebody to say something to convince me that I should go to my 

colleague and ask her to remove my name as a cosponsor for the 

legislation. I wanted desperately to come to the conclusion that 

maybe this legislation was ill-conceived. That has not happened. 

I am, frankly, interested in knowing just a couple of other things. 

Mr. Clayton and, I think, Mr. Fecher, maybe the first four of you 

mentioned—and maybe Mr. McCracken as well—that the 90-day 

timeline was too problematic. So let me ask you—and if you can, 

just answer it quickly—if that were changed, would your organization then submit a letter in support of the legislation? 

Mr. CLAYTON. Mr. Cleaver, I am afraid not. I mean, the bill does 

not match the rules. There are significant differences. 

Mr. CLEAVER. Okay. 

Yes. 

Ms. ECHARD. Normally, I probably would not be agreeing with 

the ABA, but in this case, codifying this does not give the regulators the flexibility to work with the institutions. 

Mr. CLEAVER. Mr. Fecher? 

Mr. FECHER. I think we would strongly consider that, actually. 

47 

As I stated before, most credit unions do not engage in these 

practices in the first place, and our significant objection to the bill 

is the 90 days. So, assuming a close reading of the bill does not 

turn up anything else that is unsuitable, I think we would tend toward supporting it, yes. 

Mr. CLEAVER. Okay. 

Mr. Ireland? 

Mr. IRELAND. I have no problem with the idea of codifying the 

Federal Reserve rules to make that a statutory law. 

I think it is impossible to implement that in 90 days. I think 

there are provisions from the bill that are inconsistent with the 

Fed rules and that won’t work very well. 

Mr. CLEAVER. But back to my question about the 90 days, you 

are saying— 

Mr. IRELAND. You cannot do it. It is much worse, I think, than 

Mr. Clayton suggests. 

Mr. CLEAVER. Okay. 

Mr. McCracken? 

Mr. MCCRACKEN. I was not one of the people who raised the concern. 

Mr. CLEAVER. I am sorry. So let me go back. 

Mr. Clayton, give me the one thing that I can amend the bill 

with that would then generate your organization’s support. 

Mr. CLAYTON. I assume other than the 90-day requirement? 

Mr. CLEAVER. Yes. 

Mr. CLAYTON. There is more than one thing. 

Mr. CLEAVER. How many? 

Mr. CLAYTON. Three or four beyond that. 

Mr. CLEAVER. What are they? 

Mr. CLAYTON. The first one is that you would have to conform 

the bill to the Fed rule, and I do not—first, let me back up. 

I cannot tell you whether our industry would support the bill at 

that point, but raising concerns about the bill, which is what—is 

that what you are asking me to respond to? 

Mr. CLEAVER. No. No. 

What I am trying to find out is if you are just opposed to the 

codification, period, if you just do not want to do it. If that is the 

case, then in the absence of some compelling statement that would 

just cause me or somebody to say, ‘‘Gee, we need to leave this bill 

alone,’’ then there would be no choice for me but to support it. 

Mr. CLAYTON. We are not opposed to the codification of the Federal Reserve rule; although we would note that that takes away important flexibility that, if you got it wrong, you could no longer easily adjust in the marketplace, and that could be a problem for consumers. So we would start with that premise. 

Then there were a number of things within the bill that we think 

need to be changed. 

Mrs. MALONEY. The gentleman’s time has expired. 

Mr. CLEAVER. Thank you, Madam Chairwoman. 

Mrs. MALONEY. Thank you very much. And I congratulate you on 

your important amendment to the bill on students. 

Congressman Maffei. 

Mr. MAFFEI. Yes. Thank you, Madam Chairwoman, and thank 

you for introducing this piece of legislation. 

48 

I have been hearing from my constituents who have had their interest rates raised, even very often when they have not been late 

on their bills. Most upsetting to these individuals—and, I will be 

frank, to myself as well—is that the companies are raising rates on 

the preexisting revolving balances. 

I think we all understand that if you raise rates on future purchases or on future balances, then they have a chance to just say, 

‘‘Well, I will switch to another card,’’ or what have you. But on current existing rates, that gives them only the choice of trying to find 

another credit card that would be able to take their balance over, 

which they do not have that option, particularly in this environment; or to pay it off, which again, given the environment, they do 

not really have that option. 

So there is really a huge challenge for consumers, and this is one 

of the prime reasons I am a sponsor of Mrs. Maloney’s legislation, 

because what I see is unfair. 

I do want to ask everybody on the panel—and maybe I am incorrect here—do you see raising rates on currently existing balances 

as fair or unfair? 

A quick answer from everybody on the panel would be great. I 

will start with Mr. Plunkett and work to the other side. 

Mr. PLUNKETT. Well, as I said previously, it is very damaging financially, and most of the time, it is completely unfair. You are absolutely right. A lot of the rate increases that are occurring now are 

not based on the fault of the borrower at all. 

An additional reason to move fast here is that, as we talked 

about, many of the largest banks are the largest credit card 

issuers, and many of those banks are receiving Federal money. 

There are efforts to restart lending on the credit card front. How 

can we do that and not have fair terms on those loans? 

Mr. MAFFEI. All right. Thank you, sir. 

Mr. MIERZWINSKI. We would agree with Mr. Plunkett. 

I would just add to his last point that in our testimony we went 

into detail, that we believe that all of the recipients of TALF money 

should comply with the Fed rules immediately and with additional 

consumer protections. 

Mr. MAFFEI. All right. Thank you. 

Mr. McCracken? 

Mr. MCCRACKEN. Yes. Well, it is unfair, but more importantly, 

to our small business members, if they are not sure at what interest rate they are borrowing money, often for business purposes it 

is very difficult to make a business decision about where the best 

source of capital is for them. 

Mr. MAFFEI. Okay. 

Mr. Ireland? 

Mr. IRELAND. I am going to be a little bit different, unfortunately. 

I think what is unfair depends on what the parties understand 

they are doing. If you look at the Federal Reserve’s own discount 

windows circular, that it lends to banks, it says they can raise the 

rate at any time, and they do, and it applies to existing balances 

as well as to future balances. That is a common term in open-end, 

revolving credit of this nature; it is not a common term and it is 

virtually never seen in closed-end credit. 

49 

So the question is, what do people understand they were doing 

when they entered into the relationship? 

Now, I think what has happened is that people’s understanding 

and use of credit cards over the last 20 years has changed and that 

what used to be retail installment credit has become revolving 

credit. So I understand the Federal Reserve’s change in the rules 

to say, you cannot change it on existing balances because the credit 

that used to be could not be changed on existing balances. 

Mr. MAFFEI. No. No. That is fine. I think—you are not avoiding 

the question exactly. 

So you see it as fair given the rules that we have been working 

under? 

Mr. IRELAND. Given the rules we have been working under, I 

have no problem with the change going forward. 

Mr. MAFFEI. Okay. Mr. Fecher. 

Mr. FECHER. We generally see that to be unfair with one caution. 

Credit unions tend to be balance sheet lenders. In other words, the 

money that they are using to fund the credit card balances are 

their members’ deposits. If the costs of those deposits were to go 

up because of economic conditions, rising interest rates in the economy, you could face the position where the cost of the funds to fund 

the credit union balances could go above the credit card. 

So, with that one caution, raising the rate through no fault of the 

borrower, we would believe to be unfair with the caution of the 

cost-of-funds issue. 

Mr. MAFFEI. Thank you. 

Ms. Echard? 

Ms. ECHARD. Thank you, Congressman. 

Community banks are honest brokers. They are not going to play 

games with the interest rate. However, they have the same concerns. If their cost of funds rises, they need the ability to make an 

adjustment, or many of them who today offer fixed rates would convert to a variable rate product. 

Mr. MAFFEI. Okay. 

Mr. Clayton? 

Mr. CLAYTON. Let me add to that. 

The cost of funds can clearly move, but so does the risk. I mean, 

delinquencies are at a significantly higher level than they have 

been in a while. There is an unprecedented amount of economic 

turmoil. We do not know which borrowers are not going to pay us 

back, beforehand. 

Mr. MAFFEI. So you want to raise the rates on all of them? 

Mr. CLAYTON. In order for us to continue to make loans, we have 

to get some kind of assurance to manage our risk appropriately. If 

we cannot do that, we cannot make loans to everybody. 

So to put a real face on it—and I will put it in a small business 

environment—if a small business using a personal credit card has 

a small business balance at $25,000 and it defaults, that takes 

$25,000 of loan losses right out of our capital. Because we can lend, 

essentially, 10 to 1 to that capital, we can lend $250,000 with 

just— 

Mr. MAFFEI. Well, I am out of time. 

Mr. CLAYTON. I will be really quick. 

50 

The point is, if we lose $25,000 in that one context, we cannot 

make loans to 10 other businesses of the same amount; and that 

is where the real hurt comes. 

Mr. MAFFEI. I appreciate it, Mr. Clayton. I understand, sir, 

where you are coming from. I actually think that is sort of the fundamental problem here. 

Again, it is very, very difficult to—I think if you try to get outside of yourself, it appears unfair to that borrower, and they do not 

really care too much about the future loan. 

Thank you very much. 

Mrs. MALONEY. I now recognize Congressman Cleaver. 

Mr. CLEAVER. Madam Chairwoman, if there is no objection, I 

would like to submit for the record a letter from one of my constituents where she explains how her interest rates were raised recently, without her knowledge, from American Express, Capital 

One, and Chase. 

Mrs. MALONEY. Without objection, it is so ordered. 

I also would like to ask unanimous consent for a letter from the 

president and CEO of the National Association of Federal Credit 

Unions to Chairman Gutierrez, and Ranking Member Hensarling 

to be entered into the record. 

Without objection, it is so ordered. 

I want to thank the witnesses and members for their participation. 

The Chair notes that some members may have additional questions for the witnesses which they may wish to submit in writing. 

Therefore, without objection, the hearing record will remain open 

for 30 days for members to submit written questions to the witnesses and to place their responses in the record. 

The subcommittee hearing is now adjourned. 

[Whereupon, at 5:32 p.m., the hearing was adjourned.] 

(51) 

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