BILL NUMBER: AJR 18 INTRODUCED
BILL TEXT
INTRODUCED BY Assembly Member Lieu
MAY 18, 2009
Relative to credit card reform.
LEGISLATIVE COUNSEL'S DIGEST
AJR 18, as introduced, Lieu. Credit card reform.
This measure would call on Congress and the President of the
United States to work together in enacting credit card reforms to
protect consumers from unfair credit card practices.
Fiscal committee: no.
WHEREAS, Consumers have become reliant on credit cards as a
critical vehicle in facilitating purchases with almost 80 percent of
United States families currently holding a credit card; and
WHEREAS, In the midst of an extraordinarily difficult economic
climate, in which the California unemployment rate reached 11.2
percent in March 2009 and the colossal wave of home foreclosures is
diminishing homeowners' equity, credit card companies should not
implement unfair and deceptive practices that further weaken the
purchasing power of consumers and their ability to survive; and
WHEREAS, Based on a March 31, 2009, study of over 400 credit
cards, Pew Charitable Trusts found that all of those credit cards
included one or more practices that are considered unfair or
deceptive under Federal Reserve guidelines. For example, the terms
and conditions of 93 percent of the cards allowed the card issuer to
increase the interest rate at any time by modifying the account
agreement and 87 percent of cards permitted an automatic penalty
interest rate increase on all balances less than 30 days past due,
with the median allowable penalty interest at a 27.99 percent annual
percentage rate; and
WHEREAS, Universal default permits increases in the interest rate
of a credit card user based on reasons unrelated to the user's
performance on that credit card, such as failure to pay a utility
bill or obtaining new credit on a car or home loan; and
WHEREAS, Under a double-cycling or two-cycling billing method, a
credit card company may calculate the interest payment due on a
credit card balance by averaging the balance over two billing cycles
thereby charging cardholders interest on previously paid balances;
and
WHEREAS, For a credit card account with multiple balances at
different interest rates, credit card companies may automatically
allocate the card user's payment to the balance subject to the lowest
rate and, according to the Center for Responsible Lending, this type
of payment allocation can increase credit card rates by as much as
seven percentage points; and
WHEREAS, According to the United States Government Accountability
Office, 13 percent of active credit accounts were assessed over-limit
fees with most charges ranging from thirty-five dollars ($35) to
thirty-nine dollars ($39) in 2005. These over-limit fees, like other
deceptive practices, have produced an undue financial burden to
consumers; and
WHEREAS, In addition to over-limit fees, credit card companies
participate in late fee traps that punish consumers with weekend and
holiday deadlines. These wrongful practices combined with the current
economic recession warrant that credit card companies provide
sufficient notice, at least 21 days, prior to the due date of a
credit card bill to users; and
WHEREAS, Credit card companies can harm consumers by increasing a
nonpromotional interest rate on existing, outstanding balances, and
the effect of this increase on an existing, outstanding balance can
negatively affect a household's financial stability; and
WHEREAS, The Federal Reserve System, the Department of the
Treasury, and the National Credit Union Administration has
acknowledged some of the unfair practices credit card companies use
in their report "Unfair or Deceptive Acts or Practices" and have
adopted rules to mitigate the negative effects of these practices,
which will become effective July 2010; and
WHEREAS, Although the Legislature acknowledges that federal
agencies have conducted extensive studies and enacted some
appropriate regulations that will protect credit card users from
credit card companies' abusive practices, it is the intent of the
Legislature to support Congressional legislation to eliminate payment
allocation to the lowest rate balance first and interest payment
abuses connected with double-cycling; to provide that payment notices
are sent at least 21 days prior to the due date; and to address the
issue of universal default, over-limit fees, and nonpromotional
interest rate increases on existing, outstanding balances; and
WHEREAS, In the worst economic decline since the Great Depression,
it is even more imperative to ensure that credit card companies with
fair card practices are not at a competitive disadvantage and that
consumers are not adversely affected by the hidden fees that credit
card companies have profited from over the years; now, therefore, be
it
Resolved by the Assembly and the Senate of the State of
California, jointly, That the Legislature of the State of California
respectfully urges the Congress and President of the United States to
work together in enacting credit card reforms to protect consumers
from unfair credit card practices; and be it further
Resolved, That the Chief Clerk of the Assembly transmit copies of
this resolution to the President and Vice President of the United
States, to the Speaker of the House of Representatives, and to each
Senator and Representative from California in the Congress of the
United States.