What the 2012 Election Means for Credit Card Regulations

When Ben and his wife went shopping for a better credit card deal, they started feeling stuck. Could they find lower rates elsewhere? With all the dizzying complexity of credit card offers and contracts, they couldn’t figure it out.

“I was talking about our credit card interest rates with my wife recently and wondering if there was a way to figure out how good our rates were, and how they compared to other cards,” a Credit.com reader named Ben wrote in response to a recent story. Because “you have no way of knowing by what the card companies publish as ‘rates’ on their sites when you sign up or shop.”

At first glance, Ben’s confusion might not seem like a major issue in the 2012 Presidential campaign. But given recent credit reform laws pushed through by the Obama administration, and opposed by Mitt Romney, the election could decide whether or not consumers like Ben can figure out the true cost of his credit cards.

One of the most controversial acts of the Obama administration was to advocate for passage of the Dodd-Frank Wall Street reform act, which created the Consumer Financial Protection Bureau. In September, the bureau announced that it will create a simplified agreement that summarizes a credit card’s interest rate, fees, due dates and other important details in two pages. Card issuers would be required to send the agreement to consumers before signing them up for new cards.

But if Romney is elected, the proposed, shortened agreement might not happen. Romney has called for the repeal of Dodd-Frank and lashed out at the bureau, calling it the “most powerful and unaccountable bureaucracy in the history of our nation.”

Then again, Romney might support some form of protection for credit card users. During the first Presidential debate, he said he hopes to “repeal and replace” Dodd-Frank, though he did not specify which parts of the reform law he would keep and which he would repeal.

“We’re not going to get rid of all regulation,” Romney said. “You have to have regulation. And there are some parts of Dodd-Frank that make all the sense in the world.”

Which is to say that comparing the candidates’ policies on credit cards is somewhat akin to reading tea leaves. Neither Romney nor Obama has spelled out specifically what he would like to do to protect consumers from credit card abuses in the next four years, although Obama’s support for already-passed reform laws and Romney’s opposition to them do provide some clues. Here, then, are three ways the Presidential election could alter credit card rules.

Rate Increases

With support from President Obama, Congress passed the Credit Card Accountability Responsibility and Disclosure Act (CARD) Act of 2009. Among its many provisions, the law addresses some consumer concerns over credit card interest rates. It requires issuers to give card holders 45 days’ notice before increasing rates, and gives consumers more power to fight the increases, or close the card before the new rate goes into effect.

Romney believes that these and other aspects of the law are having unintended consequences, however, increasing the cost of borrowing for everyone. If elected, he hopes to repeal the act, which “produced federal restrictions on credit card companies that have already led to higher interest rates, higher annual fees, and lower credit limits, especially for middle-class borrowers,” according to Romney’s economic plan.

Billing Cycles

Prior to the CARD Act, many banks and credit card issuers used allegedly deceptive billing practices to reap millions of dollars in fees. These included monthly changes to an account’s billing date, and reordering transactions to process the largest ones first, both of which increased the likelihood that cardholders would miss their payments and incur fees.

The CARD Act limits such practices. It requires credit card due dates to remain the same every month, and if you make more than the minimum payment on your credit card bill, the credit card company must apply the excess amount to the balance with the highest interest rate.

“As of today, consumers will be protected against unreasonable fees and penalties for late payments, as well as unfair practices involving gift cards,” President Obama said in a statement in August 2010, when the law took effect. “This law will also make the terms of credit cards more understandable and puts a stop to hidden over-the-limit fees and other practices designed to trap consumers.”

Romney has not stated whether these credit card protections would be repealed or replaced under his administration. But some analysts doubt whether the Republican nominee would keep such rules in place.

“It’s fair to say Romney is on the laissez-faire side, and in that world banks should be able to raise interest whenever they want,” says Barry Paperno, a credit scoring expert and Credit.com’s community director.

Marketing Practices

In its first several enforcement actions, the Consumer Financial Protection Bureau has come down hard on issuers for using misleading tactics to sell credit cards. The bureau’s first action, announced in July, charged Capital One with various abusive sales tactics, including untrue promises that a new product would improve their credit score, and selling unemployment protection to people who already were unemployed. The company agreed to pay $140 million to victims. In October the bureau announced a similar settlement with American Express, which agreed to pay $85 million to victims who were deceived on credit card rewards and who were illegally denied products based on age discrimination, among other findings.

The CFPB was created by the Dodd-Frank Wall Street reform act, and in January the new agency received a personal visit from the President, who said he wants “to make sure that the big banks on Wall Street play by the same rules as community banks on Main Street. That’s where you guys come in.”

Republicans in Congress have suggested that the CFPB should be folded into the Federal Reserve, have its budget authorized (and presumably cut) by Congress, or dismantle altogether. While Romney hasn’t said specifically which action he supports, his call to repeal Dodd-Frank would probably involve reining in the bureau’s rulemaking and enforcement powers.

“A Romney administration will act swiftly to tear down the vast edifice of regulations the Obama administration has imposed on the economy,” according to Romney’s campaign website.

Image: “CAVE CANEM”, via Flickr