A turning point in consumer credit

The barrage of bleak economic news barreling down on us these days can be hard to digest. The May unemployment rate surged to 5.5 percent — the biggest one-month jump in 22 years. In many towns across America, people are shelling out $4 for both a gallon of gas and a gallon of milk.

Times are tough, and more and more Americans are turning to their credit cards simply to make ends meet in this troubled economy. The credit card debt held by Americans jumped 6.7 percent in the first quarter of this year to nearly $1 trillion, and credit and debit card delinquencies are now at their highest levels in 18 years. These growing debts and delinquencies are hurting consumer spending and threatening to weaken our already fragile economy.

Most people would probably prefer to avoid racking up credit card debt. Unfortunately, they may not have that option. In years past, people could tap into their home equity through low-interest loans, lines of credit or refinancing, and access extra cash to see them through a difficult time. The collapse of the housing market has all but eliminated this option for most struggling families, and the sky-high prices of basic necessities have sapped many rainy-day funds, leaving people with few options.

The credit card companies like to cast aspersions on those who fall into their debt traps. They claim that credit card debt is simply an issue of personal responsibility. I agree that people need to take responsibility for living within their means. But the record levels of debt and delinquency we are now seeing does not reflect a sudden decline in personal responsibility. Cardholders are falling victim to card industry practices that make it impossible for them to control their own credit and manage their debt.

How can cardholders be expected to responsibly manage their accounts when their card company can raise the interest rate on their existing balance at any time and for any reason? Practices like this only dig consumers deeper into a never-ending cycle of debt.

We are at a tipping point for consumer credit. We can, and should, learn from the subprime mortgage crisis and act now before we have another mess on our hands.  The Democratic leadership has demonstrated its commitment to helping the middle class in these tough economic times by extending vital tax relief to millions of families and passing legislation to address the housing foreclosure crisis and help stabilize the housing market. Now it’s time we turned our attention to passing comprehensive credit card reform legislation to help working families keep more of their hard-earned money and steer clear of the traps of credit card debt.

I applaud the Federal Reserve for recently acknowledging that there are unfair and deceptive practices in the credit card industry, and for proposing strong rules for doing away with many of them. The Fed is the federal agency responsible for steering our economy and ensuring the safety and soundness of our financial institutions, and it has affirmed what many of us in Congress have been saying all along.
Unfortunately, regulation is not enough.  Only a law has the strength to eliminate unfair and deceptive credit card practices once and for all.

I have introduced The Credit Cardholders’ Bill of Rights (H.R. 5244) to help level the playing field between credit card companies and cardholders. My sensible and balanced legislation would put an end to many of the most abusive card industry practices, such as raising interest rates on existing balances — and doing so even to good cardholders who pay on time and never go over their credit limit, and charging interest on balances that have already been paid off.  My bill simply gives cardholders the tools they need to responsibly manage their credit, and puts an end to the tricks and traps that undermine a competitive market.  In fact, many of the practices the Fed deemed unfair or deceptive are the same as those addressed in my bill.

We are on the verge of providing real consumer protection to credit cardholders for the first time in decades. The Fed’s recent action only adds to the incredible momentum for legislative reform that has been building. H.R. 5244 now has the support of nearly 130 co-sponsors, leading consumer advocates, and well-known groups such as the National Small Business Association and Service Employees International Union (SEIU). What’s more, the Oklahoma state Senate recently sent Congress a message from the heartland about the need for credit card reform when it passed a resolution endorsing my bill.

I look forward to moving the Credit Cardholders’ Bill of Rights forward so we can give cardholders the fair deal they deserve and ensure that credit card debt isn’t the next shoe to drop in our current economic downturn.

Maloney is chairwoman of the Subcommittee on Financial Institutions and Consumer Credit and vice chairwoman of the Joint Economic Committee.