Credit Cards: It's Not Over

Though credit card reformers mustered widespread support for legislation that will limit the abilities of credit card companies to raise rates and impose over-the-limit fees willy nilly, the battle isn't over; now that the bill has been signed into law, efforts to keep a leash on credit card companies has shifted into the regulatory realm. That's where Sen. Chris Dodd, the Senate's champion of reform, has taken his latest request for more government monitoring of the industry, with a letter to the heads of Fed, FDIC, the Office of Thrift Supervision, the National Credit Union Administration, and to the comptroller of the currency, worried by news that card companies are squeezing customers before the new law takes effect next year, nine months from its signing in May.

"Press reports indicate...that some companies are raising rates now to get around these consumer protection provisions before they take effect and before regulations can be promulgated to enforce them," Dodd writes.

The law will require card companies to review any rate increases after January 1, 2009 every six months, and Dodd is now urging the regulators onto stage two of the credit card company reigning-in process: actually enforcing such requirements.

"[T]he look-back provision will serve as a deterrent only if it will be implemented and enforced effectively.  I therefore expect the Federal Reserve to draft regulations that provide clear, robust requirements for the review of rate increases, and the agencies enforcing the regulations to hold the credit card companies strictly accountable for conducting thorough reviews and decreasing rates where warranted," Dodd writes.

Given that the companies have millions of customers, in some cases are raising rates as a matter of wide-reaching policy, and are charged with conducting those reviews themselves, Dodd's concern over enforcement is well founded.

In fact, Dodd's concern gets to the crux of a scary part of the credit card reform process: in leaving a nine-month window before the enforecement of a law that restricts card companies and defines the terms on which they can squeeze their debtors, Congress has left cardholders vulnerable to the whims of their creditors. The focus of Dodd's letter--the review requirement--is the bill's mechanism to prevent said squeezing.

But none of it matters if no one's watching. It's not worth it to credit card companies to push it too far, because it could result in further crackdown across their money-making apparati, tempting the legislative branch and President Obama to once again take up the cause. But without specific regulations and requirements to guide enforcement--which Dodd is now requesting--who's to stop them?

If anything, we've seen credit card companies get thirstier after the bill's signing. Given the massive size of the industry and its direct monetary incentives to find loopholes in the rules, it's safe to say that regulators and congressional overseers will need to remain vigilant as those new rules take effect.

The political stars are aligned, however, for Dodd's vigilance to continue. With a tough reelection battle forecasted for 2010, Dodd is a bit like a high-profile athlete in a contract year; this is a signature issue for him, one that he will want to show off during the campaign. Though he's been active in other financial and consumer protection issues since the credit card bill's passage, he'll want to continue to shine in the credit card arena between now and 2010, as his bill is put into place.

As chairman of the Banking Committee and the lead backer of the bill, it's likely much of the congressional oversight of credit card companies and reform enforcement will come from his office. Dodd trails former GOP Rep. and prospective Senate challenger Rob Simmons 45 percent to 39 percent, according to a May 27 Quinnipiac poll.

And, reelection concerns aside, this bill is his baby--he naturally will want to see it implemented right.

Somewhere down the line, credit cardholders may thank their lucky stars for the AIG bonuses scandal and the Countrywide loan that threatened Dodd's reelection chances. Or maybe they'll just thank Dodd.