Sen. Chris Dodd wants to freeze interest rates on existing credit cars balances.
Dodd and Sen. Charles E. Schumer Thursday sent a letter for Fed Reserve Chairman Ben Bernanke and other regulators asking the country’s money managers to go ahead and enact now a ban on retroactively raising the interest rates on existing credit-card balances.
The new rule is not scheduled to take effect until July 2010, which Dodd and Schumer argue gives companies more than a year to hike rates on consumers preemptively to get under the deadline.
In a country full of people worried about paying their bills during a recession, it will be of little surprise that both senators have heard complaints from people whose rates doubled or tripled seemingly overnight, and for no apparent reason, they said.
“Over the past year, the Federal Reserve has cited the financial crisis as one of the reasons for acting quickly to implement new lending facilities and programs to protect financial institutions. It is long past time for the regulatory agencies to act with the same sense of urgency to protect consumers from the behavior of those same financial companies,” the senators wrote.
The letter comes the day after the House Financial Services Committee approved legislation to set strict new limits on when card companies can raise interest rates, according to CQ. It would also require broader disclosure of information to consumers.
Here is the letter:
Dear Chairman Bernanke, Director Bowman, and Chairman Fryzel:
We write to you today to urge you to use your emergency authority under the “good cause” exception to the Administrative Procedures Act, to immediately implement the provision in the final rules you have previously issued concerning interest rate increases on existing balances for consumer credit cards. The rules are currently scheduled to become effective in July 2010. As you are also aware, Congress is working on legislation to strengthen these rules and provide additional protections for consumers. As Congress works to pass this legislation, and before your rules become effective, issuers continue to operate using unfair and deceptive acts and practices.
Credit card providers have been aggressively raising rates on consumers now to avoid the ramifications of this rule when it goes into effect next year. Companies have increased interest rates across the board now, to increase interest rates before the new rules go into effect. Consumers describe situations to our offices in which the interest rates on their accounts have doubled or tripled overnight, without any misconduct on their part. This kind of practice clearly violates the spirit and intention of the rules, even if the delayed implementation date has the effect of making such behavior legal.
The OTS, NCUA and Federal Reserve have all used this emergency authority numerous times since 2007 to implement rules without public notice or comment, and to make final rules effective immediately. Over the past year, the Federal Reserve has cited the financial crisis as one of the reasons for acting quickly to implement new lending facilities and programs to protect financial institutions. It is long past time for the regulatory agencies to act with the same sense of urgency to protect consumers from the behavior of those same financial companies. Therefore, we strongly urge you to utilize your emergency powers to put this rule into place immediately and protect consumers from these outrageous rate increases.
Thank you for your consideration of this matter. Please don’t hesitate to contact our staffs any information or questions.