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Dreher Tomkies LLP
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Columbus, Ohio 43215
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CARD RATES HIKES SPUR CALL FOR REGULATORY ACTION

Senate Banking Committee Chairman Christopher Dodd has sent a letter to key federal banking agencies regarding recent press reports about interest rate increases. Dodd suggests that some credit card companies are raising interest rates on customers' existing balances now because the recently enacted Credit Card Accountability Responsibility and Disclosure Act (CARD Act) will prohibit rate increases on existing balances. See Alerts dated May 4, 15 and 20, 2009. The CARD Act will (i) prohibit rate increases on existing balances (with certain enumerated exceptions) effective February 22, 2010 and (ii) impose a new interest rate reduction "look-back" requirement effective August 22, 2010. The Federal Reserve Board (Board) has until February 22, 2010 to issue final rules regarding the "look-back" requirement.

Dodd expressed concern that some creditors might be raising rates now "without justification" solely to take advantage of their soon-to-be eliminated right to increase rates on existing balances without restriction. Dodd urges the agencies to protect cardholders from abusive rate increases. In particular, Dodd (i) cites Section 101(c) of the CARD Act, which will require periodic review of accounts where the interest rate has been increased since January 1, 2009 and reduce the rate if appropriate, and (ii) asks the agencies to notify entities under their jurisdiction that "they will be held accountable for all interest rate increases during this time period and will be subject to the review requirement once it takes effect."

According to Dodd, this "January look-back" was designed to address reports of credit card companies arbitrarily raising rates after the December 2008 promulgation of the new credit card rules that would have taken effect in July 2010 and to deter companies from doing the same before the CARD Act takes effect.

Dodd said that he expects that (i) the Board will draft regulations that provide clear, robust requirements for the review of rate increases and (ii) the agencies will hold creditors strictly accountable for conducting thorough reviews and decreasing rates where warranted. He warned that Congress will monitor closely the development and enforcement of the implementing regulations.

Senator Charles Schumer also recently wrote to the Board in response to press reports about credit card companies "preemptively" raising their rates and fees. Calling such increases "against the spirit of the law" and "just plain wrong," Schumer invited the Board to invoke its emergency powers immediately to place limits on interest rates increases on existing balances.

  • Judy Scheiderer