Hillary Clinton Campaign Press Release - Hillary Clinton's Fair Credit For Families Agenda: A Comprehensive Plan To Address Credit Card Abuses, Promote Fair Lending, And Expand Access To Fair Credit

With American families falling further into debt than ever before, Hillary Clinton unveiled a comprehensive plan to ensure fair access to credit on reasonable terms and to help Americans get back on their feet. Today, families across America are struggling to cope with spiraling household debt. Households in poverty face a vicious credit cycle, suffering abusive rates and penalties as they struggle with mounting debt. And middle-class Americans dealing with resetting mortgages and rising health care, college, and energy costs are depending more and more on credit cards just to stay afloat:

• Americans have a record $940 billion in revolving debt, and the average person carries up to nine different credit cards. [Federal Reserve, 2007]
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• The average family carries thousands in credit debt; over 10% of credit card users carry a balance of $10,000 or more. [Fair Isaac, 2007]
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• Credit cardholders in the bottom two income quintiles - already paying on average the highest starting interest rates - are more than twice as likely to pay penalty interest rates as those in the top two income quintiles. Cracking down on predatory credit card companies is an important step in lifting American families out of poverty. [Demos, 2007]
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For three decades now, credit card companies and major banks have been subject to less and less regulation. Most state regulations today do not apply to credit card companies, and federal law sets few restrictions on what they can do. To help reverse these trends and protect American families, Hillary's Fair Credit for Families Agenda will:

• Immediately impose a 30 percent cap on annual interest rates for credit cards and work toward a lower cap.
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• Prevent credit card companies from unfairly increasing interest rates, or charging interest in unfair or unreasonable ways.
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• Require that credit card companies provide clear, easy-to-understand information about credit card terms and fees.
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• Create a new Financial Product Safety Commission to police credit products.
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• Crack down on abusive payday lenders and refund anticipation loan providers.
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  Empower communities to help families control their own financial destiny through improved financial literacy and better borrowing opportunities.
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1. Immediately impose an annual interest rate cap of 30% and work toward a lower cap. According to a Government Accountability Office survey of 28 credit cards issued by the nation's leading banks, up to a quarter of them charged penalty rates over 30%. And African Americans, Hispanics, single women, and low-income families are most likely to be saddled with high interest rates. To rein in already extreme rates - and to ensure that rates climb no higher - Hillary's plan will immediately impose a national annual interest rate cap of 30% on all credit cards. Such a cap would cover not just the stated credit card interest rate, but the effective rate. This rate cap will also apply to abuses in the payday lending and refund anticipation loan arena. She will then direct the Office of the Comptroller of the Currency to make recommendations on a lower interest rate cap linked to a standard benchmark, plus a margin to provide for a reasonable profit. This cap would not preempt lower state law caps.
   
2. Create a Financial Product Safety Commission to crack down on lending abuses and to protect consumers who use credit cards, car loans, home mortgages, and a number of other financial products. Professor Elizabeth Warren notes that credit products are "regulated by a tattered patchwork of federal and state laws that have failed to adapt to changing markets." And there is currently minimal enforcement against abusive practices. In 2004, consumers filed 17,000 complaints about credit cards with the Better Business Bureau. But the OCC, the FDIC, and the Office of Thrift Supervision have undertaken only a handful of enforcement actions relating to unfair or deceptive lending practices. To ensure that the government is fulfilling its responsibility to protect the public from predatory financial products, Hillary will establish a Financial Product Safety Commission as a counterpart to the Consumer Product Safety Commission. The new agency will oversee lending banks and financial institutions, establish a set of fair rules and guidelines for financial products - including disclosure and reporting rules - and develop new protections against predatory and abusive lending practices. It will have a hand in shaping and implementing the rules described in this agenda. Hillary will streamline federal oversight and enforcement beyond the FPSC, and give states concurrent enforcement authority against national banks for violations of federal law.
   
3. Work with the new FPSC to prevent credit card companies from unfairly increasing interest rates, or charging interest in unreasonable ways.
   
   • Credit card companies cannot raise your interest rate because of an unrelated change in your credit score or because of a missed payment to a different creditor. Even when you have always made your credit card payments on time, these so-called "universal default" clauses allow lenders to suddenly raise your rate for unrelated reasons. For example, your credit score could change because you have fallen behind on your home payments - and for that alone, your credit card interest rate could skyrocket overnight.
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   • Credit card companies cannot raise your interest rate without your affirmative written consent. Many credit card deals include clauses that allow lenders to raise rates "at any time for any reason," so long as they give 15 days notice to the consumer. Hillary will require lenders to obtain written consent from a borrower before any rate increases or change in terms become effective.
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   • Credit card companies cannot apply new interest rates to your old transactions. Hillary will stop lenders from raising your interest rate and then applying that higher rate to money you borrowed before at a lower rate.
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   • Credit card companies can only charge interest on the money they loan, not on the fees they impose. Some credit card companies collect interest on late penalties, over-limit fees, and other hidden charges. Hillary's plan will make sure you only pay interest on the money you borrow.
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   • Credit card companies can only collect interest on the unpaid portion of the previous month's bill. Under some credit card practices, you could pay off your $500 balance completely, but still be liable the next month for interest on that $500 balance. Hillary will put an end to this practice of "double-cycle billing."
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   • Credit card companies should automatically apply payments to the portion of the outstanding balance with the highest interest rate. If half of a credit card balance is subject to a 10% rate and the other half is subject to a 25% rate, monthly payments should pay down the half subject to the 25% rate.
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4. Establish fair and uniform rules for when credit card companies can charge late fees. Credit card late charges have nearly tripled since 1994, and the industry's revenues from late fees grew from $1.7 billion in 1996 to $12 billion in 2006. Fair and simple rules are needed so hardworking Americans do not fall victim to heavy penalties just because a deadline wasn't clear. Hillary's plan will develop uniform rules for credit card payment deadlines. For example, customers should not be unfairly penalized if their payments are postmarked by the due date the lender provides. Hillary will also guarantee a grace period before penalty rates apply.
   
5. Require clear disclosure of the terms of the credit card that is actually issued to the consumer, and of the consequences of making only minimum payments. American families received an estimated 8 billion credit card solicitations in 2006, many making false promises of affordable loans. During the same time, the credit card industry reportedly collected $97 billion in interest charges and $18 billion in penalty fees. [CardTrak, 2008]
   
   • Terms. Right now, some companies promise low "fixed rates" in their advertising only to then issue cards that have rates that skyrocket if the borrower makes a payment even a few hours late. Hillary will require an easy-to-read table in the credit card agreement and in early bills to make sure Americans understand the true terms of the card they receive, not the card they were promised in the mail.
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   • Repayment consequences. By some estimates, over 40 percent of Americans with credit card debt are only making the minimum payment or less each month. To ensure that consumers understand the costs and consequences of paying only the minimum - and to encourage them to make larger payments when they can - Hillary's plan will insist that every credit card bill include the same easy-to-read table spelling out exactly how much it will cost and how long it will take to pay off their balance by making minimum payments, compared with larger payments.
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We have seen a rise in exploitative credit products such as payday and refund anticipation loans ("RALs"). A refund anticipation loan gives a taxpayer a short-term cash advance, using the person's anticipated federal tax refund as collateral. In 2005, payday lenders earned $4.2 billion in excessive loan fees, and Americans paid $960 million in finance charges associated with refund anticipation loans. [Center for Responsible Lending, 2006; Consumer Federation, 2005]

Many middle-class and low-income families - especially those without access to basic financial services - have fallen victim to a thriving trade that reaps profits by lending Americans their own money at high interest rates. To address this challenge, Hillary will:

Ensure that payday lenders do not evade more stringent state laws. States have enacted a variety of limits on payday lenders. For example, Florida stops borrowers from taking more than one payday loan at a time, and it enforces this law through a central data reporting system that lenders must use; Illinois insists on a waiting period before additional payday loans may be issued. However, some payday stores argue that federal law allows them to avoid complying with these state rules. Hillary will once and for all stop payday lenders from circumventing state consumer protection laws.

Impose stricter limits on refund anticipation loans. Americans paid an estimated $960 million in fees in 2005 for refund anticipation loans (RALs). These are loans based on your federal tax refund, where the effective interest rate is often in triple-digits, sometimes as high as 700%. Low-income Americans are hardest hit. According to the IRS, in 2005, 83% of RAL users had incomes of less than $35,000. In 2006, over 60% of RAL consumers were recipients of the Earned Income Tax Credit (EITC), even though EITC beneficiaries comprised only 17% of all taxpayers. To curb the proliferation of RAL loans, Hillary will:

• Require clear, common-sense disclosure so consumers understand the true total costs of obtaining a RAL loan, and are not misled by a list of unbundled fees.
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• Prohibit tax preparers from charging RAL application or account initiation fees for EITC recipients.
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Improve financial literacy at all ages. In a 2004 survey on personal financial literacy, high school seniors answered only half the questions correctly; two-thirds of them failed the exam. Nor does financial literacy seem to improve later in life: the average American scored 42% on a personal finance quiz, and less than 10% answered more than three-quarters of the questions correctly.

• Hillary will provide competitive federal grants to encourage states to design model curricula and to develop successful public-private partnerships that incorporate financial literacy courses into the basic curriculum of area high schools. From Buffalo, New York to San Antonio, Texas, pilot schools have already begun to offer these kinds of classes.
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• She will also expand funding to promote adult financial literacy and debt counseling programs for middle-class and low-income families. By 2007, for example, over 800,000 people had participated in financial education classes based on the FDIC's Money Smart curriculum. A majority of those who were surveyed reported an increase in personal savings and a decrease in debt.
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Help "unbanked" Americans access safe affordable banking services. In 2002, 56 million Americans - including, by some estimates, a full quarter of low-income families - did not have either a checking or savings account. Families today spend $8 billion a year obtaining basic financial services that many Americans take for granted. Minorities are especially hard hit by payday lenders and cash-checking operators. In California, for example, a full quarter of Latino and African-American households lack a checking account. To promote greater access to basic financial services and help families trapped in a vicious cycle of credit card debt, Hillary will:

• Commit federal agencies to help guide and coordinate ongoing efforts by city and state governments, which have already begun to form regional alliances and public-private partnerships to assist the unbanked enter the financial mainstream.
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• Provide $50 million in funding to reinvigorate First Accounts pilot programs in all fifty states. Under President Clinton, the Treasury Department launched a pilot initiative to expand access to mainstream financial services. Early results were encouraging, but the Bush administration stopped funding the program in 2002. Hillary will ensure that this promising program is fully funded and implemented in low-income communities across the country.
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• Promote fair, low-interest lending through community banks and support accredited non-profit debt settlement services to help struggling families deal with existing debt.