To amend the Consumer Credit Protection Act to ban abusive credit practices, enhance consumer disclosures, protect underage consumers, and for other purposes.

March 2, 2005

Mr. DODD introduced the following bill; which was read twice and referred to the Committee on Banking, Housing, and Urban Affairs

To amend the Consumer Credit Protection Act to ban abusive credit practices, enhance consumer disclosures, protect underage consumers, and for other purposes.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

This Act may be cited as the `Credit Card Accountability Responsibility and Disclosure Act of 2005' or the `Credit CARD Act of 2005'.

SEC. 2. REGULATORY AUTHORITY.

The Board of Governors of the Federal Reserve System may issue such rules or publish such model forms as it considers necessary to carry out this Act and the amendments made by this Act.

TITLE I--ABUSIVE PRACTICES

Subtitle A--Use of Default Clauses

SEC. 111. PRIOR NOTICE OF RATE INCREASES REQUIRED.

Section 127 of the Truth in Lending Act (15 U.S.C. 1637) is amended by adding at the end the following:

`(h) ADVANCE NOTICE OF INCREASE IN INTEREST RATE REQUIRED-

`(1) IN GENERAL- In the case of any credit card account under an open end consumer credit plan, no increase in any annual percentage rate of interest (other than an increase due to the expiration of any introductory percentage rate of interest, or due solely to a change in another rate of interest to which such rate is indexed)--

`(A) may take effect before the beginning of the billing cycle which begins not less than 15 days after the obligor receives notice of such increase; or

`(B) may apply to any outstanding balance of credit under such plan as of the date of the notice of the increase required under paragraph (1).

`(2) NOTICE OF RIGHT TO CANCEL- The notice referred to in paragraph (1) with respect to an increase in any annual percentage rate of interest shall be made in a clear and conspicuous manner and shall contain a brief statement of the right of the obligor to cancel the account before the effective date of the increase.'.

SEC. 112. FREEZE ON INTEREST RATE TERMS AND FEES ON CANCELED CARDS.

Section 127 of the Truth in Lending Act (15 U.S.C. 1637), as amended by this Act, is amended by adding at the end the following:

`(i) FREEZE ON INTEREST RATE TERMS AND FEES ON CANCELED CARDS- If an obligor referred to in subsection (h) closes or cancels a credit card account before the beginning of the billing cycle referred to in subsection (h)(1)--

`(1) an annual percentage rate of interest applicable after the cancellation with respect to the outstanding balance on the account as of the date of cancellation may not exceed any annual percentage rate of interest applicable with respect to such balance under the terms and conditions in effect before the date of the notice of any increase referred to in subsection (h)(1); and

`(2) the repayment of the outstanding balance after the cancellation shall be subject to all other terms and conditions applicable with respect to such account before the date of the notice of the increase referred to in subsection (h).'.

SEC. 113. LIMITS ON FINANCE AND INTEREST CHARGES FOR ON-TIME PAYMENTS.

Section 127 of the Truth in Lending Act (15 U.S.C. 1637), as amended by this Act, is amended by adding at the end the following:

`(j) PROHIBITION ON PENALTIES FOR ON-TIME PAYMENTS-

`(1) PROHIBITION ON FINANCE CHARGES FOR ON-TIME PAYMENTS- In the case of any credit card account under an open end credit plan, where no other balance is owing on the account, no finance or interest charge may be imposed with regard to any amount of a new extension of credit that was paid on or before the date on which it was due.

`(2) PROHIBITION ON CANCELLATION OR ADDITIONAL FEES FOR ON-TIME PAYMENTS OR PAYMENT IN FULL- In the case of any credit card account under an open end consumer credit plan, no fee or other penalty may be imposed on the consumer in connection with the payment in full of an existing account balance, or payment of more than the minimum required payment of an existing account balance.'.

SEC. 114. PROHIBITION ON OVER-THE-LIMIT FEES FOR CREDITOR-APPROVED TRANSACTIONS.

Section 127 of the Truth in Lending Act (15 U.S.C. 1637), as amended by this Act, is amended by adding at the end the following:

`(k) LIMITATION ON IMPOSITION OF OVER-THE-LIMIT FEES- In the case of any credit card account under an open end consumer credit plan, a creditor may not impose any fees on the obligor for any extension of credit in excess of the amount of credit authorized to be extended with respect to such account, if the extension of credit is made in connection with a credit transaction which the creditor approves in advance or at the time of the transaction.'.

TITLE II--ENHANCED CONSUMER DISCLOSURES

SEC. 211. DISCLOSURES RELATED TO `TEASER RATES'.

Section 127(c) of the Truth in Lending Act (15 U.S.C. 1637(c)) is amended--

(1) by redesignating paragraph (5) as paragraph (7); and

(2) by inserting after paragraph (4) the following:

`(5) ADDITIONAL NOTICE CONCERNING `TEASER RATES'-

`(A) IN GENERAL- An application or solicitation for a credit card for which a disclosure is required under this subsection shall contain the disclosures referred to in subparagraph (B) or (C), as applicable, if the application or solicitation offers, for an introductory period of less than 1 year, an annual percentage rate of interest that--

`(i) is less than the annual percentage rate of interest which will apply after the end of the introductory period; or

`(ii) in the case of an annual percentage rate which varies in accordance with an index, is less than the current annual percentage rate under the index which will apply after the end of the introductory period.

`(B) FIXED ANNUAL PERCENTAGE RATE- If the annual percentage rate which will apply after the end of the introductory period will be a fixed rate, the application or solicitation shall include the following disclosure: `The annual percentage rate of interest applicable during the introductory period is not the annual percentage rate which will apply after the end of the introductory period. The non-introductory annual percentage rate will apply after [insert applicable date] and will be [insert applicable percentage rate].'.

`(C) VARIABLE ANNUAL PERCENTAGE RATE- If the annual percentage rate which will apply after the end of the introductory period will vary in accordance with an index, the application or solicitation shall include the following disclosure: `The annual percentage rate of interest applicable during the introductory period is not the annual percentage rate which will apply after the end of the introductory period. The permanent annual percentage rate will be determined by an index and will apply after [insert applicable date]. If the index which will apply after such date were applied to your account today, the annual percentage rate would be [insert applicable percentage rate].'.

`(D) CONDITIONS FOR INTRODUCTORY RATES- If the annual percentage rate of interest which will apply during the introductory period described in subparagraph (A) is revocable or otherwise conditioned upon any action by the obligor, including any failure by the obligor to pay the minimum payment amount or finance charge or to make any payment by the stated monthly payment due date, the application or solicitation shall include a disclosure of--

`(i) the conditions that the obligor must meet in order to retain the annual percentage rate of interest during the introductory period; and

`(ii) the annual percentage rate of interest that will apply as a result of the failure of the obligor to meet such conditions.

`(E) FORM OF DISCLOSURES- The disclosures required under this paragraph shall be made in a clear and conspicuous manner, in a format that is at least as prominent as the disclosure of the annual percentage rate of interest which will apply during the introductory period.'.

SEC. 212. PAYOFF TIMING DISCLOSURES.

(a) IN GENERAL- Section 127(b) of the Truth in Lending Act (15 U.S.C. 1637(b)) is amended by adding at the end the following:

`(11)(A) Repayment information that would apply to the outstanding balance of the consumer under the credit plan, including--

`(i) the outstanding balance in the account at the beginning of the statement period, as required by paragraph (1) of this subsection;

`(ii) the required minimum monthly payment on that balance, represented as both a dollar figure and as a percentage of that balance;

`(iii) the due date, within which, payment must be made to avoid addition charges, as required by paragraph (9) of this subsection;

`(iv) the number of months (rounded to the nearest month) that it would take to pay the entire amount of that balance, if the consumer pays only the required minimum monthly payments and if no further advances are made;

`(v) the total cost to the consumer, including interest and principal payments, of paying that balance in full, if the consumer pays only the required minimum monthly payments and if no further advances are made; and

`(vi) the monthly payments amount that would be required for the consumer to eliminate the outstanding balance in 36 months if no further advances are made.

`(B)(i) Subject to clause (ii), in making the disclosures under subparagraph (A) the creditor shall apply the interest rate in effect on the date on which the disclosure is made until the date on which the balance would be paid in full.

`(ii) If the interest rate in effect on the date on which the disclosure is made is a temporary rate that will change under a contractual provision applying an index or formula for subsequent interest rate adjustment, the creditor shall apply the interest rate in effect on the date on which the disclosure is made for as long as that interest rate will apply under that contractual provision, and then apply an interest rate based on the index or formula in effect on the applicable billing date.

`(C) FORM OF DISCLOSURE-

`(i) IN GENERAL- All of the information described in subparagraph (A) shall--

`(I) be disclosed in the form and manner which the Board shall prescribe by regulations; and

`(II) be placed in a conspicuous and prominent location on the billing statement in typeface that is at least as large as the largest type on the statement, but in no instance less than 12-point in size.

`(D) TABULAR FORMAT-

`(i) FORM OF TABLE TO BE PRESCRIBED- In the regulations prescribed under subparagraph (C), the Board shall require that the disclosure of such information shall be in the form of a table that--

`(I) contains clear and concise headings for each item of such information; and

`(II) provides a clear and concise form stating each item of information required to be disclosed under each such heading.

`(E) REQUIREMENTS REGARDING LOCATION AND ORDER OF TABLE- In prescribing the form of the table under subparagraph (D), the Board shall require that--

`(i) all of the information in the table, and not just a reference to the table, be placed on the billing statement, as required by this subparagraph; and

`(ii) the items required to be included in the table shall be listed in the order in which such items are set forth in subparagraph (A).

`(F) BOARD DISCRETION IN PRESCRIBING ORDER AND WORDING OF TABLE- In prescribing the form of the table under subparagraph (C), the Board shall--

`(i) employ terminology which is different than the terminology which is employed in subparagraph (A), if such terminology is easily understood and conveys substantially the same meaning.'.

(b) CIVIL LIABILITY- Section 130(a) of the Truth in Lending Act (15 U.S.C. 1640(a)) is amended, in the undesignated paragraph following paragraph (4), by striking the second sentence and inserting the following: `In connection with the disclosures referred to in subsections (a) and (b) of section 127, a creditor shall have a liability determined under paragraph (2) only for failing to comply with the requirements of section 125, 127(a), or paragraph (4), (5), (6), (7), (8), (9), (10), or (11) of section 127(b), or for failing to comply with disclosure requirements under State law for any term or item that the Board has determined to be substantially the same in meaning under section 111(a)(2) as any of the terms or items referred to in section 127(a), or paragraph (4), (5), (6), (7), (8), (9), (10), or (11) of section 127(b).

SEC. 213. REQUIREMENTS RELATING TO LATE PAYMENT DEADLINES AND PENALTIES.

Section 127 of the Truth in Lending Act (15 U.S.C. 1637), as amended by this Act, is amended by adding at the end the following:

`(l) REQUIREMENTS RELATING TO LATE PAYMENT DEADLINES AND PENALTIES-

`(1) LATE PAYMENT DEADLINE AND POSTMARK DATE REQUIRED TO BE DISCLOSED- In the case of a credit card account under an open end consumer credit plan under which a late fee or charge may be imposed due to the failure of the obligor to make payment on or before the due date for such payment, the periodic statement required under subsection (b) with respect to the account shall include, in a conspicuous location on the billing statement--

`(A) the date on which the payment is due or, if different, the date on which a late payment fee will be charged, together with the amount of the fee or charge to be imposed if payment is made after that date;

`(B) the date by which the payment must be postmarked, if paid by mail, in order to avoid the imposition of a late payment fee with respect to the payment; and

`(C) a statement that no late fee may be imposed in connection with a payment made by mail which was postmarked on or before the postmark date.

`(2) DISCLOSURE OF INCREASE IN INTEREST RATES FOR LATE PAYMENTS- If 1 or more late payments under an open end consumer credit plan may result in an increase in the annual percentage rate the account, the statement required under subsection (b) with respect to the account shall include conspicuous notice of such fact, together with the applicable penalty annual percentage rate, in close proximity to the disclosure required in paragraph (1) of the date on which payment is due under the terms of the account.

`(3) REQUIREMENTS RELATING TO POSTMARK DATE-

`(A) IN GENERAL- The date included in a periodic statement pursuant to paragraph (1)(B) with regard to the postmark on a payment shall allow, in accordance with regulations

prescribed by the Board under subparagraph (B), a reasonable time for the consumer to make the payment and a reasonable time for the delivery of the payment by the due date.

`(B) BOARD REGULATIONS- The Board shall prescribe guidelines for determining a reasonable period of time for making a payment and delivery of a payment for purposes of subparagraph (A), after consultation with the Postmaster General and representatives of consumer and trade organizations.

`(4) PAYMENT AT LOCAL BRANCHES- If the creditor, in the case of a credit card account referred to in paragraph (1), is a financial institution which maintains branches or offices at which payments on any such account are accepted from the obliger in person, the date on which the obliger makes a payment on the account at such branch or office shall be considered as the date on which the payment is made for purposes of determining whether a late fee or charge may be imposed due to the failure of the obligor to make payment on or before the due date for such payment, to the extent that such payment

is made before the close of business of the branch or office on the business day immediately preceding the due date for such payment.'.

TITLE III--RESPONSIBILITIES IN BANKRUPTCY

SEC. 311. AMENDMENTS TO THE BANKRUPTCY CODE.

Section 523(a)(2)(C) of title 11, United States Code, is amended by adding at the end the following: `However, this subparagraph shall not apply for any portion of debt incurred under an open end credit plan, as defined in section 103 of the Truth in Lending Act, if the annual rate of interest charged with respect to the account was more than 20 percentage points above the Federal prime lending rate on the last day of the month during which the interest was charged.'.

TITLE IV--PROTECTION OF YOUNG CONSUMERS

SEC. 411. EXTENSIONS OF CREDIT TO UNDERAGE CONSUMERS.

Section 127(c) of the Truth in Lending Act (15 U.S.C. 1637(c)) is amended by inserting after paragraph (5), as added by this Act, the following:

`(6) APPLICATIONS FROM UNDERAGE CONSUMERS-

`(A) PROHIBITION ON ISSUANCE- No credit card may be issued to, or open end credit plan established on behalf of, a consumer who has not attained the age of 21, unless the consumer has submitted a written application to the card issuer that meets the requirements of subparagraph (B).

`(B) APPLICATION REQUIREMENTS- An application to open a credit card account by an individual who has not attained the age of 21 as of the date of submission of the application shall require--

`(i) the signature of the parent, legal guardian, or spouse of the consumer, or any other individual having a means to repay debts incurred by the consumer in connection with the account, indicating joint liability for debts incurred by the consumer in connection with the account before the consumer has attained the age of 21;

`(ii) submission by the consumer of financial information indicating an independent means of repaying any obligation arising from the proposed extension of credit in connection with the account; or

`(iii) proof by the consumer that the consumer has completed a credit counseling course of instruction by a nonprofit budget and credit counseling agency approved by the Board for such purpose.

`(C) MINIMUM REQUIREMENTS FOR COUNSELING AGENCIES- To be approved by the Board under subparagraph (B)(iii), a credit counseling agency shall, at a minimum--

`(i) be a nonprofit budget and credit counseling agency, the majority of the board of directors of which--

`(I) is not employed by the agency; and

`(II) will not directly or indirectly benefit financially from the outcome of a credit counseling session;

`(ii) if a fee is charged for counseling services, charge a reasonable fee, and provide services without regard to ability to pay the fee; and

`(iii) provide trained counselors who receive no commissions or bonuses based on referrals, and demonstrate adequate experience and background in providing credit counseling.'.

SEC. 412. ENHANCED PENALTIES.

Section 130(a)(2)(A) of the Truth in Lending Act (15 U.S.C. 1640 (a)(2)(A)(iii)) is amended by striking `or (iii) in the' and inserting the following:

`(iii) in the case of an individual action relating to an open end credit plan that is not secured by real property or a dwelling, twice the amount of any finance charge in connection with the transaction, with a minimum of $500 and a maximum of $5,000 or such higher amount as may be appropriate in the case of an established pattern or practice of such failures; or

`(iv) in the'.

SEC. 413. RESTRICTIONS ON CERTAIN AFFINITY CARDS.

Section 127 of the Truth in Lending Act (15 U.S.C. 1637), as amended by this Act, is amended by adding at the end the following:

`(m) RESTRICTIONS ON ISSUANCE OF AFFINITY CARDS TO STUDENTS- No credit card account under an open end credit plan may be established by an individual who has not attained the age of 21 as of the date of submission of the application pursuant to any agreement relating to affinity cards, as defined by the Board, between the creditor and an institution of higher education, as defined in section 101(a) of the Higher Education Act of 1965 (20 U.S.C. 1001(a)), unless the requirements of section 127(c)(6) are met with respect to the obliger.'.

END