US Credit Card Cos Oppose House Consumer Bill

By John Poirier

WASHINGTON (Reuters) - Credit card companies warned U.S. lawmakers on Thursday that proposed legislation could raise fees and shrink credit available to consumers, saying they preferred a Federal Reserve plan to require the industry to spell out terms more clearly to cardholders.

Democrats on the House Financial Services Committee last month introduced a bill aimed at stopping arbitrary interest rate increases, penalties for consumers who pay on time, and excessive fees charged by credit cards.

Consumer groups say some credit card users are falling behind in their payments and getting buried under a mountain of debt because of unfair credit card industry practices.

But banks that offer credit cards, such as Bank of America Corp (BAC.N), JPMorgan Chase & Co (JPM.N) and Capital One Financial Corp (COF.N), oppose the bill.

"It is unwise -- especially at this time -- to enact broad legislation that sets payment formulas in statute, redefines critical product features and limits the tools of risk management for consumer credit," Capitol One General Counsel John Finneran told a House Financial Services subcommittee hearing.

Gregory Baer, deputy general counsel at Bank of America, said consumers could see higher costs under the legislation if card issuers are unable to reprice the risk of borrowers. That could dampen demand by investors for receivables funded through asset-backed securities, Baer said.

The banks told lawmakers they prefer a proposal being considered by the Fed that would require credit card issuers to more fully disclose terms and to give consumers more time to consider changes in card terms.

The Fed in May proposed a new disclosure system in an effort to help consumers better understand fees and rates. Chairman Ben Bernanke said more consumer protection rules might also be needed.

Both sets of changes could be final by the end of the year.

Rep. Carolyn Maloney, a New York Democrat and chairwoman of the subcommittee, said the House bill would not set price controls, rate caps or limit the size of card fees.

"I believe that it is a much needed correction to a market that has gotten wildly out of balance," Maloney said.

Maloney's bill is not the only one that has been proposed to rein in credit card practices.

On Wednesday, Sen. Robert Menendez, a New Jersey Democrat, offered legislation that would ban retroactive rate increases and limit penalty rate increases and late payment fees.

His bill seeks to stop the practice of increasing a cardholder's interest rate if the borrower is late paying an unrelated loan or the borrower's credit score changes. It would also prohibit raising credit limits unless a consumer was able to pay, based on current income, obligations, and employment.

The credit card industry also faces legislation introduced by members of the House Judiciary Committee earlier this month that would give merchants the ability to negotiate transaction fees charged to them for credit card purchases. That bill seeks to address a long-running battle over so-called interchange fees set by Visa Inc and MasterCard Inc (MA.N), which are associations comprised of banks.

(Reporting by John Poirier; editing by Jeffrey Benkoe)