The credit card reforms enacted by Congress and signed by the president last year are set to take effect on Monday. Unsurprisingly, credit card issuers have already found several ways to get around the reforms.
Harvard professor Elizabeth Warren, chairwoman of the bailout oversight panel, said on Thursday that the shortcomings of the credit card reforms show the need for an independent agency that protects consumers from the financial industry.
"[The Credit Card Accountability, Responsibility, and Disclosure Act] is a good first step but it isn't enough alone," said Warren on a conference call with reporters hosted by the U.S. Public Interest Research Group. "The credit card industry and the entire consumer credit industry is broken. We need an agency, a cop on the beat that is flexible and responsive."
The House of Representatives approved a financial regulatory reform bill that includes a Consumer Financial Protection Agency. It's fate in the Senate is uncertain.
Warren described a new credit card trick to get around new restrictions on arbitrary interest rate increase and "hair trigger" rate increases for barely-late payments.
"Last week, somebody showed me a letter from their bank that raised their interest rate from 9.9 percent to 29.9 percent -- not because the person had done anything wrong or failed to pay, just a rate increase -- but then gave a so-called 'rebate' back to 11.9 percent," Warren said. "So now the company can impose its 29.9 percent rate increase anytime it wants because that is the actual rate on the card. In other words, this issuer has just figured out a way to slide slightly over from the rule of the CARD Act and avoid the intent of the rule in order to go back to the practices that Congress has deemed abusive."
That's a new one. In September, the Center for Responsible Lending issued a report titled "Dodging Reform" identifying eight new tricks credit card issuers had come up with. The Federal Reserve, when it promulgated rules for the industry to follow the reforms, squashed two of the evasions identified by the Center.
U.S. PIRG's Ed Mierzwinski said the Fed should have adopted a broad anti-evasion provision. Without one, the game of legislative whack-a-mole will continue.
"The Fed could have had a broader anti-evasion provisions as well, which we all asked for in our comments and didn't get," said Mierzwinski. "The fed gave us obvious protections against a couple of provisions but they should have given us a big hammer and they didn't."
A reporter asked Warren about a potential backup plan in case the Senate fails to deliver the CFPA.
"Right now there is no Plan B," said Warren. "The CFPA is the only provision designed to protect families directly. I think right now all the chips are on the table."