Washington – U.S. Senator Robert Menendez (D-NJ), a member of the Banking Committee and a lead author of the new credit card reform laws that go into effect on Monday, called on the Federal Reserve today to stop credit card companies from circumventing the new rules. In a letter to Fed Chairman Bernanke sent today, Menendez cites a number of examples of new interest rate tricks credit card companies have adopted since the Credit Card Accountability Responsibility and Disclosure Act (Credit CARD Act) was passed last May and warns that this sort of activity will continue to evolve. He urges the Federal Reserve to issue additional rules giving it the flexibility to crack down on these attempts to circumvent the law.
In an effort to get around the effects of the new regulations, some credit card companies have: 1) ballooned interest rates and fees before the law’s enactment or; 2) devised new forms of interest rates and fees, which Menendez details in his letter.
“Faced with a landmark consumer protection law that will prohibit credit card companies from charging consumers in unfair ways, some of these companies have, perhaps predictably, either ballooned interest rates and fees before the law’s enactment or have devised new forms of interest rates and fees in a thinly-veiled attempt to circumvent laws,” wrote Menendez. “We have already begun to see these types of evasive practices, but it is safe to assume that the months and years ahead will see additional attempts to circumvent the law. It is simply not realistic for the Federal Reserve to issue new rulemaking with each new development in the credit card industry that may be meant to exploit the law. I urge you to initiate a new rule that gives the Federal Reserve the ability and flexibility to address these practices as they evolve.”
Among other rules, the new credit card reforms that will be fully implemented on Monday will: 1) prevent credit card companies from raising interest rates for a full year on a new card; 2) prohibit instantaneous and surprise interest rate increases; 3) require consumer consent for exceeding a credit limit and charging the consumer for it; and 4) prevent consumers under the age of 21 from casually obtaining a card with no ability to pay. Nevertheless, Senator Menendez raised alarm over the evasionary practices credit card companies have begun using in light of this new legislation, some of which are not addressed by the Federal Reserve’s final regulation, and joined others in urging Chairman Bernanke to address this matter.