Jeb Hensarling

Mr. HENSARLING

Mr. HENSARLING. I thank the gentleman for yielding. I listened to the gentlelady from New York, who sponsored the bill, talk about this is a trick that credit card companies use. Well, we don't want credit card companies to use tricks. But, you know what, Mr. Chairman? They can't use tricks if we will strengthen the competitive market and ensure consumer choice. They can't use tricks if we have an elective disclosure and we police it. Again, I congratulate the gentlelady for that title in her bill, which, I believe, roughly parallels the rules that the Federal Reserve has promulgated after their 3-year study. Indeed, we need better disclosure. It's better disclosure we need. We need greater consumer choice. We need strength in markets. Also, tricks can't be used if consumers, who have effective disclosure, will take some, some responsibility to know the terms that they are agreeing to. By definition, if they agreed to accept a credit card, they are opting into terms. Now, that's not effective today because we don't have effective disclosure. But ostensibly we have a title in this legislation, which I assume will soon be passed. If not, we have the regulations of the Federal Reserve that will ensure that we have effective disclosure, that we empower consumers. But let's not take their choices away from them, especially when all the evidence we have seen, anecdotal, statistical, tells us that consumers overwhelmingly want this option. They want it. So if we are already admitting today in some respects that the disclosure isn't there, you know, I don't want to have to tell them that, I am sorry, they wouldn't accept your credit card, but, you know, Congress passed a law that said you had to go read the fine print before you could go get this particular service. Again, I think that we are taking away consumer choice by doing this. As the gentleman from Texas said, we are trying to micromanage the terms that ought to be managed within the framework of a competitive marketplace, with consumer choice, with informed consumers, with effective disclosure. But quit protecting consumers from their choices. Quit protecting them from competition. You are making their lot worse, not better, when you do this. So I would urge rejection of this amendment.

Mr. HENSARLING. Mr. Chairman, I have an amendment at the desk.

Mr. HENSARLING. Mr. Chairman, I yield myself such time as I may consume. Mr. Chairman, this is a fairly simple amendment that is aimed, again, at a form of embedded price controls within this legislation. The underlying legislation would permit interest rates to rise on existing balances under four narrow options. This amendment would say, again, within the framework that we hope to achieve of protecting the competitive marketplace, of assuring that we have effective disclosure, this amendment would say that interest rates can vary as long as, number one, the issuer has specifically reserved the right to raise rates in its contract and has communicated that to the consumer. Number two, the issuer communicates this fact to the consumer at least once a year, and the issuer provides the consumer clear notification 90 days in advance. Again, this is a facet of risk-based pricing. Now, many of us believe that this has been a good thing. It has empowered consumers who previously didn't have access to credit to have access to credit. As their circumstances change, if you do not allow risk-based pricing, you are going to take credit opportunities away from them in the middle of a credit crunch when they need it most. Now, this gives a reasonable time period of 90 days to say, you know what? If you don't want to have this card, you have got 90 days under the old interest rate to pay off this balance and either get rid of the card, find a new card, shop for a new card, do something. But, ultimately, if we don't pass this amendment one of three things is going to happen. Again, we are going to have a bailout, yet another bailout from Congress. And that is the 50 percent of Americans who are paying their bill on time, making at least the minimum payment at the end of each month, they are going to be punished. They are going to have to subsidize the rates for all. Again, it's a facet of eroding risk-based pricing that takes us back to an era where interest rates were 25 percent higher, everybody had to pay the same rate. The good credit risk had to subsidize the bad credit risk and everybody had this dreaded annual fee of 20 to $50. We don't want to go back to that era. Assuming a competitive marketplace, and, unfortunately, this legislation, I believe, in some respects will result in a less competitive marketplace, I fear that some of the smaller issuers will be driven out of the market. But if we can have a competitive marketplace, and if we can assure effective disclosure, then let's have the full benefits of risk-based pricing. I think some people just don't want it. They want to force those who pay their bill on time to somehow subsidize those who don't. I fear, Mr. Chairman, that there is a lot at stake here. I mean, I hear from my constituents about how important the credit cards are to their lives, their small businesses. I hear from a group, the family, Baker family of Rowlett, who said, ``Congressman, credit cards have been my main source of financing for my small businesses for the past 13 years. Without access to this type of instant credit, I would not be able to timely meet payroll.'' I mean, we have to help the small businesses. I heard from the Weldon family of Garland. ``I use my credit card just about everywhere. When I receive my monthly credit card bill, I pay the full balance. I feel this legislation concerning credit cards would be unfair to me and others who prefer to pay off their credit cards each month. Why should we be punished for having good credit?'' Indeed, Mr. Chairman, it is a good question. Allow risk-based pricing. Don't take credit away. I reserve the balance of my time.

Mr. HENSARLING. Mr. Chairman, I yield myself the balance of my time.

Mr. HENSARLING. Mr. Chairman, I tried to listen very closely to the gentlelady from New York, and what I think I heard was she would rather credit card companies cancel credit cards than allow my constituents to voluntarily agree to increases in their interest rate. That is not what the people of the Fifth District want to achieve. When she says, well, the credit card people are changing the deal, if it is in the agreement, that is the deal. That is the deal that allows many people to get credit in the first place and allows other people to have lower- priced credit. Again, I believe this legislation is changing the deal on the American people, taking away their credit card options and opportunities. I heard from the Juarez family in Mesquite. ``I oppose this legislation, as I have utilized my credit cards to pay for costly oral surgeries. I do not want to get penalized by this legislation for making my payments on time.'' Taking away risk-based pricing, which is disclosed, disclosed in the agreement, is punishing, punishing people like the Juarez family in Mesquite. I urge adoption of the amendment.

Mr. HENSARLING. Mr. Chairman, I yield myself such time as I may consume. Mr. Chairman, the underlying legislation here again seeks to erode the ability of consumers to access credit, especially those who may have checkered pasts, especially those who may be of low income. It does it by trying to restrict risk-based pricing. Again, there was an era in our country's history where a third fewer people had access to consumer credit through credit cards. Everybody had to pay the same universal high rate, 25 percent more than what we are seeing today. We had the dreaded annual fees. There was no such thing as airline miles, cash back, any of this. The ability for creditors to price for what they view the risk of the consumer has opened a market for people to have credit cards who previously couldn't have them, people who might have had to turn to pawn shops or payday lenders, who, again, serve very valuable functions in our society, but people ought to have options. The underlying bill functionally outlaws a practice called universal default and a practice called double-cycle billing. Universal default doesn't offend me. Double-cycle billing offends me. But I don't feel a need to outlaw every practice in America that offends me personally, because it may not offend somebody else. Mr. Chairman, if there is an option out there in the marketplace with 14,000 different issuers, and through every hearing, every markup, there was not one shred of evidence that we didn't have a competitive market and that consumers had choices. Now, they may not understand their choices, and that is the disclosure issue, but they have choices. So I don't like double-cycle billing. I don't think it is particularly fair and I wouldn't choose a credit card with it. But, Mr. Chairman, you know, out there in the marketplace, people ought to have options. Somebody ought to be able to say I prefer to have a credit card with a 10 percent interest rate that has universal default and double-cycle billing in it as opposed to paying a 13 percent interest rate that doesn't have universal default, doesn't have double-cycle billing. Why are we taking consumer choices away from them and why do we continue to contract credit when it is already being contracted in this economic recession? I just don't understand that, Mr. Chairman. I do not think it is good practice. Now, universal default, some cards use it, some cards don't. It is a risk management tool for some. I am not in the credit card business. I don't know what works. I just want consumers to have choices. I want there to be a competitive marketplace. I want there to be effective, fair disclosure, and I want our Federal Government to police it. And there needs to be repercussions for credit card companies that defraud, that mislead, that use deceptive practices. But for us to come in and say subjectively, well, we don't like that practice, we think it is unfair, we think it is offensive. Well, maybe it is unfair and offensive to you, but if it allows somebody a lower interest rate, shouldn't in the land of the free they have that option? They should have that option. So my amendment is a simple one. It simply says if a credit card company has a credit card and they want to offer this credit card that features either universal default or double-cycle billing, as long as they offer a card that doesn't have these features, which many consider to be unfair, unjust, then they can offer it. As long as all of their customers are offered a card without the feature, then a consumer, if they want to, can opt in to the card with these features if they think the trade-offs benefit them and their family. That is all it says. This is a consumer choice amendment, pure and simple. I urge its adoption. I reserve the balance of my time.

Mr. HENSARLING. Mr. Chairman, I yield myself the balance of my time.

Mr. HENSARLING. Mr. Chairman, again what I see is we are trying to protect consumers from their choices. We are trying to protect consumers from their freedom. The consumer has the option. But I do thank my friend, the distinguished chairman of the subcommittee, for adding some clarity to the debate when he says the people with the good credit ratings will get the better interest rate. That pretty well makes my bailout argument. That is what is happening. Half of America pays their bill on time at the end of each month. Another 20 to 25 percent at least make the minimum payment. Why should they be punished? Why should they be punished with higher interest rates? Why do they have to be homogenized? We are getting away from risk-based pricing, and what will happen if we don't pass this amendment is, number one, we will achieve the bailout, and many people who would have received credit will no longer receive credit. I urge adoption of the amendment.

Mr. HENSARLING. Mr. Chairman, we have no one to claim time in opposition.

Mr. HENSARLING. Mr. Chairman, we have no one to claim time in opposition.

Mr. HENSARLING. I will continue to reserve.

Mr. HENSARLING. Mr. Chairman, I claim time in opposition.

Mr. HENSARLING. Mr. Chairman, I'm somewhat uncertain, frankly, whether I am actually opposed to the underlying amendment. I think the intention is good. I just hope there's not an unintended consequence here. And so, if my friend from Illinois, the chairman of the subcommittee, would yield for a question, my concern would be this: We all know from our constituents how much identity theft is taking place in our society. I, myself, at one time have been victimized by identity theft; and many of our constituents have. So if there is fraudulent activity, if identity theft is suspected, it at least would appear to me, in a reading of the amendment, that the credit card issuer would have to keep the account open for at least 30 days, and so I was concerned about its impact in trying to combat identity theft. That was my reading of the amendment. And I'd be happy to yield to the gentleman from Illinois just to see if he could help explain how this would work.

Mr. HENSARLING. Reclaiming my time, I certainly respect the gentleman from Illinois (Mr. Gutierrez). We do have an excellent working relationship. I don't know that this is a problem. I fear it may be a problem. Given his commitment that we can work on this at our conference, Mr. Chairman, I no longer oppose the amendment. And I yield back the balance of my time.

Mr. HENSARLING. Mr. Chairman, I rise to claim time in opposition.

Mr. HENSARLING. I yield myself such time as I may consume. Mr. Chairman, I listened carefully to the gentleman, and I appreciate the intent of his particular amendment, but I fear, again, that this will be one more in a series of amendments that may have unintended consequences. I heard the gentleman, as well as other speakers on the other side of the aisle, say they want to prevent tricks by the credit card companies. I think that is one of the few items, besides renaming a post office, that could receive a unanimous vote in this institution. Out of, I believe, 1,200 pages of Federal Reserve regulations where they spent 3 years studying the issues, we will have disclosure under the Federal Reserve regulations that will prevent such tricks unless one defines the actual period of a teaser rate to be a trick. I believe a consumer can understand the difference between 1 month, 6 months, 6 years, and 12 years. Let the consumer choose. Let me tell you what I believe the practical result of this amendment will be. Particularly those who may have a more checkered credit past, consumers, instead of having the ability to have a teaser rate--and I'm just using numbers for an example--at 8 percent for 3 months that then goes up to 15 percent for 9 months--they'll just end up having to pay 15 percent for the whole 12 months. They'll lose consumer choice. They'll lose that opportunity. Now, some maintain that there are some concepts--and I've heard it said from friends on the other side of the aisle--certain aspects of their credit card agreements that consumers just can't understand. They're just too difficult to understand. Again, I congratulate the gentlelady from New York, yet again, for having a disclosure title, I believe, very roughly equivalent to that of the Federal Reserve's. This is a problem that can be solved with disclosure. Empower the consumers. Don't take away their options. Empower the consumers with effective disclosure, and let them choose in a competitive marketplace. Let there be competition. Again, today, I can understand how consumers are confused. These forms are so long. They're written in legalese. It's easy to hide it. The answer is effective disclosure. The answer is not an arbitrary date on how long a teaser rate ought to be. What you are doing is protecting the consumer out of having any opportunity of having a teaser rate. A teaser rate, when averaged with the other rate, again gives you an average of what the interest rate would be for a year. If you pass this, there is going to be a universe of consumers who are going to end up paying more, paying more on average for their credit than they otherwise would. So I urge rejection of the amendment. I reserve the balance of my time.

Mr. HENSARLING. Mr. Chairman, one, what I believed I said in my comment is that, for some universe of people, they would lose their teaser rates under this legislation. I listened to the chairman spend a fair amount of his time debating Internet gambling, which I do not believe is on the floor at this time; but if the chairman is so supportive of having consumer choice, I don't understand why we just spent a day and a half in markup in his committee taking away consumers' choice in the mortgage market. So we will continue to have this debate throughout. Again, it's a simple argument. I believe that we can have effective disclosure and can allow consumers to make choices. If they're not allowed, if this type of arbitrary date is imposed, some universe of borrowers will probably lose their teaser rates and will effectively end up paying more, which will restrict their options. Again, I urge rejection of the amendment. I reserve the balance of my time.

Mr. HENSARLING. No.

Mr. HENSARLING. Mr. Chairman, may I inquire as to who has the right to close.

Mr. HENSARLING. In this case, I continue to reserve.

Mr. HENSARLING. Mr. Chairman, I urge rejection of the amendment, and I yield back the balance of my time.

Mr. HENSARLING. Mr. Chairman, I claim time in opposition to the amendment.

Mr. HENSARLING. Mr. Chairman, who has the right to close?

Mr. HENSARLING. Then I will continue to reserve.

Mr. HENSARLING. Mr. Chairman, I rise to claim time in opposition.