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Fed Chair Weighs In Against Faster Credit Card Reform
Federal Reserve Chairman Ben S. Bernanke this week weighed in on the debate about speeding up the effective date for key provisions of the new credit card law to protect consumers from further credit card interest rate increases. In a letter to Congress, Bernanke argued that faster implementation would run the risk of hurting consumers as much as it would help them.
The letter came in reaction to efforts by Rep. Barney Frank, D-Mass. Chairman of the House Financial Services Committee to introduce legislation to move up the enactment of new credit card protections to December 1. House members aim to prevent card issuers from pushing through further interest rate increases ahead of the new law, which curtails their ability to increase interest rates on existing credit card balances.
In his letter, the Fed Chair argued that while a December 1 effective date “could provide benefits for consumers, the Fed continues to believe that, given the breadth of the changes required by the law, card issuers must be afforded sufficient time for implementation to allow for an orderly transition.” He further stated that implementing protections earlier than scheduled would not give the public and the credit card industry time for comment on the new provisions, “which could lead to unintended consequences.” Mr. Bernanke argued that it would be difficult to predict how speeding up the effective date would affect the availability of credit and rates on credit cards, and that an accelerated deadline in particular would have a detrimental impact on smaller credit card issuers.
The letter was addressed to Rep. Spencer Bachus of Alabama, the top-ranking Republican on the House Financial Services Committee, and released to the press on Wednesday. Mr. Bachus argued that Mr. Bernanke’s letter would make it difficult for Democrats to support the legislation in the face of opposition from financial regulators.
Meanwhile, House Democrats went ahead with their efforts to move up the deadline. In a vote on Thursday, the House Financial Services Committee voted to accelerate the enactment of new law to December 1. In response to the Fed Chairman’s concerns, however, the House panel agreed to exempt smaller credit card issuers from the new deadline.