Consumer complaints about credit card companies increasing interest rates and adding steep new fees have spawned an effort in Congress to accelerate the effective date for legislation that governs when and how banks can charge borrowers.
The House voted Wednesday to immediately impose new rules on credit card companies, but the proposal faces resistance in the Senate.
Last spring, Congress passed legislation to protect consumers from sudden changes in rates and fees that have become standard practice in the credit card industry. Some of the law's minor provisions went into force during the summer. But some credit card companies are raising rates and reducing credit limits before the rules take effect on Feb. 22.
Rep. Barney Frank, the Massachusetts Democrat who serves as chairman of the House Financial Services Committee, tells NPR's Michele Norris that the credit card industry's actions have helped build public support for the creation of a consumer financial protection agency.
"People now understand the need for an ongoing supervisory power that's aimed at consumers and not as an afterthought to bank regulation," Frank says.
One of the most controversial things Congress has done this year, he says, was "to take consumer powers away from the Federal Reserve and other bank regulators [and] put them in a separate consumer financial protection agency."
In the future, Congress won't have to pass a bill every time there's an abuse of power, he adds. Instead, this agency will have the power to act "on an ongoing basis," eliminating the lag between the passage of legislation and the date it goes into effect.
Frank says Congress was motivated to act after credit card companies retroactively raised rates on consumers who have paid their bills. This practice was made illegal in August.
Senate Banking Committee Chairman Chris Dodd, a Democrat from Connecticut, has proposed an immediate freeze on credit card rates and fees until February.
Some in Congress disagree that a consumer financial protection agency is needed. Rep. Jeb Hensarling, a Republican from Texas, is among the opponents.
"We are dealing with a brand new huge federal agency that has the power to ban products," Hensarling said in October. "Consumer financial products impact 10 to 15 percent of the economy, cause unemployment, cause credit to be restricted and cause credit to be more expensive."
GOP lawmakers also lobbied hard to make sure the new agency wouldn't step on other financial regulators. But Democrats said the agency must be equal to the other banking watchdogs to make a difference.
"Nothing we did gave [the credit card companies] any power that they didn't already have," Frank says. "So the notion that they only raised these rates because the deadline was coming doesn't hold up. They've been raising rates consistently and could have done this at any time if we hadn't passed the bill or if we passed it."
With the holiday season approaching, Frank says, consumers in the market for a credit card should comparison shop. For those with credit cards, he advises paying the bill before the due date or paying cash and postponing charging things until the new rules take effect.
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