WASHINGTON, DC - After federal regulators approved a rule preventing credit card companies from unfairly using deceptive bait and switch lending practices, U.S. Senator Jack Reed (D-RI), a senior member of the Banking Committee, called on the Federal Reserve to monitor credit card interest rates and consider accelerating the enforcement of this rule, which is not scheduled to take effect until July 1, 2010.

"I am pleased that the Federal Reserve is taking steps to end abusive lending practices by credit card companies. These reforms will improve disclosure, rein in unfair interest increases, and help give more consumers time to pay their bills," said Reed. "However, we should make sure the credit card companies do not take advantage of the lengthy implementation phase and increase interest rates on users at an accelerated pace prior to July 2010."

In a letter to Fed Chairman Ben Bernanke, Senator Reed wrote:

The Honorable Ben Bernanke
Chairman
Board of Governors of the
Federal Reserve System
20th Street and Constitution Avenue, NW
Washington, DC 20551

Dear Chairman Bernanke:

I want to commend the Federal Reserve for its final rule regarding unfair and deceptive acts and practices in the credit card market. This rule is an important first step in preserving consumer access to credit while strengthening consumer protections. However, I am disappointed and concerned that these important regulations are not scheduled to take effect until July 1, 2010.

As your own data demonstrate, American households are accruing more debt than they have in the past. This increased reliance on consumer debt is only made worse by current economic conditions. Faced with rising unemployment and limited access to lower-interest options such as home equity lines of credit, more individuals are turning to credit cards to support their small businesses and buy basic necessities. These consumers are particularly vulnerable to sudden interest rate increases. Indeed, a number of Rhode Islanders have contacted me in recent months about arbitrary increases in their credit card rates.

With all that is happening in the economy and the lengthy interval between the announcement and the implementation of the final rule, I would like to know what the Federal Reserve is doing to monitor this issue. Specifically, I have the following questions:

1. During an April hearing of the House of Representatives Financial Services Committee's Subcommittee on Financial Institutions and Consumer Credit, Sandra F. Braunstein, Director, Division of Consumer and Community Affairs, testified that the Federal Reserve conducted extensive consumer interviews prior to issuing a June 2007 proposal on credit card disclosures. Has the Federal Reserve undertaken a similar effort to assess the impact of credit card interest rates on consumers? If so, please explain these assessments and the related findings.

2. What systems have been put in place to rigorously track changes in credit card interest rates? How does the Federal Reserve ensure that these systems provide timely and accurate feedback?

3. What patterns has the Federal Reserve observed nationally regarding increasing credit card rates? For example, are there regional trends or trends based on the unemployment rate in certain states? If the Federal Reserve has documented an increase in credit card interest rates, to what has the Federal Reserve attributed it?

4. If practices have been deemed unfair, why subject credit card accountholders to them for more than 18 additional months? Moreover, as a regulator responsible for consumer protection in this arena, how will the Federal Reserve ensure that credit card companies do not take advantage of the lengthy implementation phase and increase interest rates on users at an accelerated pace prior to July 2010?

It is imperative that the Federal Reserve monitor credit card interest rates as it collects information on other economic indicators. Reliable data will be essential in evaluating and enforcing these new regulations and ensuring that credit card issuers do not exploit credit card users prior to implementation. Additionally, if the economic situation continues to deteriorate, the Federal Reserve should consider accelerating the implementation of the final rule to assist credit card users.

I look forward to a prompt reply to my questions and to your providing any other information that will assist the Congress in ensuring proper oversight of consumer protections in the credit card market.