Cardholders' bill of rights a feather in Udall's cap

By Jason Kosena

Sen. Mark Udall proudly chalked up a victory on his legislative slate Friday.

One week after President Barack Obama signed the Credit Cardholders’ Bill of Rights — which Udall first introduced as Colorado’s 2nd Congressional District Congressman four years ago — the first-term Democratic senator from Eldorado Springs was on the Auraria campus in Denver touting the merits of the bill.

Sen. Mark Udall is presented a mock credit card by students on the Auraria campus in Denver in appreciation of his effort to pass the Credit Cardholders’ Bill of Rights.
Photo by Jason Kosena/The Colorado Statesman

The venue had been chosen with care. Udall’s legislation takes direct aim at financial institutions that offer credit cards to college students that are easy to qualify for and have low introductory rates. Then, using “anytime, anywhere” rate policies, the firms ambush cardholders with sudden and unexplained interest rate hikes.

“I have two children in college, and I know how expensive it can be, and how easy it can be to get into debt on campus,” Udall said. “First it’s a dinner, then some clothes, then a spring break trip, and then maybe a semester or two of tuition.”

The sweeping legislation, which passed the Senate on a 90-5 vote, requires 45-day notice prior to any interest rate increases, prohibits interest on charges paid on time (a practice known as double-cycle billing), extends the lag time between the mailing of billing statements and their due dates, requires that customers who close their accounts pay their remaining balances under the terms that existed at the time the account was closed and requires anyone under age 21 to get the signature of a parent or guardian or to prove the ability to pay back a balance in order to qualify for a credit card.

In addition, the legislation requires credit card companies to disclose their on-campus marketing practices to colleges or universities and limits “universal default” — the practice of raising interest rates on a customer in good standing because of defaults on other credit lines.

Udall acknowledged the importance of allowing college students to take personal responsibility in managing their finances, but also said the predatory lending practices of the credit card industry have gone beyond fair and reasonable to become destructive.

“What has made me mad is that credit card companies have made it easier and easier to allow college students to dig themselves into debt,” Udall said. “College students graduate on average with credit card debt of $4,100, and a fifth of all students have a balance of $7,200 after college. That is like another year of school.”

Udall said the legislation — which also will end such common practices to lure students as offering gifts in return for filled-out applications — will put the brakes on the momentum that pulls America’s youth into financial trouble.

“This is good, common sense legislation,” Udall said.

Sen. Udall adjusts the microphone for Denver resident Susan Wones during his credit card event. Wones testified before Congress in favor of Udall's legislation.
Photo by Jason Kosena/The Colorado Statesman

But not everyone agrees. The banking industry has warned that such restrictions will lead to higher interest rates for all cardholders and a tightening of credit access across the board.

Bankers, including Edward Yinglang, president and CEO of the American Bankers Association, defend the current industry practice of setting interest rates and fees at higher levels, justifying the practice by saying that, through credit cards, banks are able to lend to borrowers who can’t guarantee repayment.

“In banking, it’s been a fundamental rule that lending (and interest rates) are based on risk,” Yinglang said, adding the new legislation offers companies the same risk to lend money but fewer avenues allowing compensation for that risk.

“I see fewer cards being issued now, during a time when Americans need credit the most,” he said.

When asked about those concerns, Udall shrugged them off.

“The practices the industry has used for decades are clearly unfair,” Udall said. “Whether or not their interest rates will be adjusted or access to credit will be affected, we need change. We have needed transparent credit contracts and a change to the way business was being done. I believe the credit card industry is in a position to continue to be profitable.... And, in the end, the industry will readjust, and it will be profitable and healthy, and we will still have access to credit cards.”

Denver resident Susan Wones, who has testified on behalf of the legislation, cheers its passage.

Wones, a self-described victim of the predatory practices of the credit card industry, testified before Congress earlier this year in Washington, D.C., describing her experiences with ever-expanding rates and interest fees. Wones said she always made the minimum payment required each month and never exceeded her credit limit.

“But that didn’t stop the credit card company from raising my interest rates,” Wones said. “I called them and closed the account, but that didn’t stop them. They still continued to raise my rates. It’s amazing how many people have been affected by the ‘anytime, anywhere’ pricing.

“I am very happy that even with all of the credit card companies approaching Senator Udall and asking him to stop this, that he stood his ground and kept on working to pass this,” Wones said.