Plan to Curb High Credit Card Interest Is All but Scrapped

It was with great fanfare that a panel of Democrats last February announced legislation to curb high credit card interest rates. It carried an impressive title--the Credit Card Interest Limitation Act of 1986--and backing from such important players as Assembly Speaker Willie Brown.

But on Tuesday, amid strong opposition from the banking industry, the Assembly Finance and Insurance Committee all but dismantled the proposal, leaving intact only one provision requiring banks to tell their customers what they will be charged in interest and fees before they receive a credit card.

Moreover, banking industry representatives signaled their intent to bury even that disclosure requirement, calling it “essentially unnecessary” and claiming that it would lead to consumer information “overload.” The committee plans a final vote on the tattered proposal next week.

Assemblyman Rusty Areias (D-Los Banos), who introduced the bill, expressed disappointment at the outcome but pledged to put together a “a groundswell of support” among consumer groups and try to pass a tougher bill next year.

“I’m not retreating from my measure at all,” Areias said. “Obviously (committee members) are hearing from too many bankers and not enough consumers. Banks and retailers spent an awful lot of money in opposition to this bill and we just have to generate more consumer indignation.”

Areias agreed to move forward with his measure with only the disclosure provision intact when it became clear that there was little support even among Democrats for a tougher version. Brown did not attend the hearing, and Areias said he hopes that next time around the Speaker’s support will be more evident.

At issue in the Areias bill was the fact that interest rates on bank and retail credit cards have remained at about 20% a year even though charges on many other other kinds of loans have dropped to 10% or less.

Bank card interest is largely unregulated by California law. The banking industry maintains that credit cards are more expensive to administer than most loans and that competition between many banks issuing cards ultimately will keep interest rates at a reasonable level.

In its original form, the Areias bill would have tied interest rates on bank and retail credit cards to a new index that would rise and fall with money market rates. In addition to the disclosure requirements, annual fees would have been limited to $18.

Brown and other key Democrats offered up the measure as a showpiece of consumer legislation.

But after a stormy hearing April 9, Areias indicated that he would abandon the limit on interest rates and instead focus on public disclosure of rates and a rebate program that would refund annual membership fees to card users who are charged more than $50 annually in interest. Large department stores that issue their own credit cards also were exempted.

Program Called Too Costly

During Tuesday’s hearing, executives of banks and savings and loans said the changes in the bill did nothing to soften their opposition. Exempting retailers would be unfair, they said, and a program to rebate annual cardholder fees would be too costly to administer.

Areias and consumer-group supporters of the bill, however, said they were surprised most by the financial institutions’ adamant opposition to a state disclosure law.

Federal law requires financial institutions to tell customers about their interest charges and cardholder fees but not before the cards are issued. The Areias bill would require that the information be printed on credit card application forms.

George Cook, a California Bankers Assn. lobbyist, told the committee that a California disclosure law is “essentially unnecessary,” adding that it would “result in information overload to consumers.”

Gail Rubino, a Bank of America vice president, added that it would take up to two pages to explain the terms of its credit card loans and “if we changed terms we’d have to restock all the applications and that amounts to millions and millions of dollars.”