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Amendments Target Credit Card Industry

By:  Janie Lorber
New York Times Blog

As the Senate powers through dozens of proposed changes to the Democrats' financial regulatory legislation, lawmakers have proposed at least three amendments designed to protect consumers and businesses from high credit card interest rates and fees.

The efforts to restrict credit card companies are coming mostly from liberal Democrats. And while the changes are likely to have popular appeal with consumers, their prospects are uncertain given that Congress approved a bill rewriting the rules of the credit card industry not even a year ago.

The proposal with perhaps the best chances of being included in the financial regulatory bill, would restore states' ability to enforce interest rate caps on out-of-state companies lending to their residents.

The amendment, sponsored by Senator Sheldon Whitehouse, Democrat of Rhode Island, and Senator Thad Cochran, Republican of Mississippi, would close a loophole created in 1978 when the Supreme Court ruled that the laws of a bank's home state govern transactions across state lines, Mr. Whitehouse said.

"Right now, because of this loophole, the big corporations trump state governments," Mr. Whitehouse said at a news conference Wednesday morning.

Since the court ruling, credit card divisions of major banks have set up shop in states with comparatively weaker consumer protection laws and often can charge their customers interest rates as high as 30 percent. South Dakota and Delaware, for example, have no interest rate cap and other states have loosened their consumer protections in order to attract business.

Senator Sherrod Brown, Democrat of Ohio, who is also sponsoring the measure, noted that the Ohio legislature set a maximum interest rate of 8 percent on loans under $100,000, but has no power to enforce that cap on the majority of companies, which are based outside of the state.

"From our nation's founding until about 30 years ago it was the job of the states to protect their citizens from usury," said Mr. Brown, calling ruling "the most harmful Supreme Court decision that most Americans have never heard of."

Senator Bernard Sanders, independent of Vermont, said the issue is one of the most important in the overhaul of the regulatory system and has proposed a second amendment (SA 3740) that would bar credit card companies nationwide from charging an interest rate above 15 percent on unpaid balances.

"It is immoral to say to somebody in desperate financial need, ‘we're going to squeeze you, we're going to take the money you don't have through high interest rates'," Senator Sanders said. "They are paying these interest rates when they go to the grocery store to buy food they need or fill up their gas tanks in order to get to work. These are not luxury purchases."

This second amendment, proposed by the Senate's only self-described socialist, was already defeated once during debate on the credit card legislation last spring and is unlikely to win much additional support this time.

Finally, Senator Richard J. Durbin, Democrat of Illinois, introduced an amendment Monday designed to protect merchants from fees associated with credit and debit card transactions. Mr. Durbin's amendment (SA 3932) would restrict how much card insurers like MasterCard and Visa can charge for each debit card transaction. Such fees now range from 1 percent to 3 percent of the purchase.

The bill would direct the Federal Reserve to ensure that debit card fees be "reasonable and proportional" to the costs incurred in processing the transaction. (The bill would exclude small banks and credit unions with assets of less than $1 billion, or 91 percent of U.S. banks.)

The amendment would also let merchants set a minimum or maximum transaction amount for payment by card and allow business to offer discounts to customers who use a particular card and to those who pay with cash or check.