S 2411
110th CONGRESS
1st Session
S. 2411
To require the establishment of a credit card safety star rating
system for the benefit of consumers, and for other purposes.
IN THE SENATE OF THE UNITED STATES
December 5, 2007
Mr. WYDEN (for himself and Mr. OBAMA) introduced the following bill;
which was read twice and referred to the Committee on Banking, Housing,
and Urban Affairs
A BILL
To require the establishment of a credit card safety star rating
system for the benefit of 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.
This Act may be cited as the `Credit Card Safety Star Act of 2007'.
SEC. 2. FINDINGS.
(1) competition in the credit card market is severely hindered by
a lack of transparency, which results in inefficient consumer choices;
(2) such lack of transparency is largely due to confusing terms and
overwhelming information for consumers;
(3) the marketplace has not increased competition based on the merits
of credit cards;
(4) a Government rating system that would use market forces by encouraging
better transparency would increase such competition and assist consumers
in making better credit card choices; and
(5) such a rating system would not preclude additional regulation
or legislation that may eliminate certain practices considered unfair
or abusive.
SEC. 3. TRUTH IN LENDING ACT AMENDMENTS.
The Truth in Lending Act (15 U.S.C. 1601 et seq.) is amended by inserting
after section 127A the following new section:
`SEC. 127B. CREDIT CARD SAFETY STAR RATING SYSTEM.
`(a) Definitions- In this section--
`(1) the term `agreement' means the terms and conditions applicable
to an open end credit plan offered by an issuer of credit;
`(2) references to a reading grade level shall be as determined by
the Board, using available measurements for assessing such reading
levels, including those used by the Department of Education;
`(3) the term `Safety Star System' means the credit card safety star
rating system established under this section;
`(4) the term `multiple-cycle billing' means the practice of calculating
average daily balances over more than 1 billing cycle; and
`(5) the term `junk mail' means a form of disclosure that does not
inform the consumer in a meaningful and significant way about changes
in the contract, including small type, using separate pieces of paper
for separate disclosures, and mixing disclosure materials with product
advertisements.
`(1) IN GENERAL- Not later than 12 months after the date of enactment
of this section, the Board shall issue final rules to implement the
Safety Star System established under this section, to allow consumers
to quickly and easily compare the levels of safety associated with
various open end credit plan agreements.
`(2) CONSULTATION- The Board shall consult with the Comptroller of
the Currency in issuing rules to implement the Safety Star System.
`(c) Elements of Safety Star System- The Safety Star System shall consist
of a 5-star system for rating the terms and conditions of each open
end credit plan agreement between a card issuer and a cardholder, in
accordance with this section.
`(d) Safety Star Ratings-
`(1) ONE-STAR RATING- The lowest level of safety for an open end credit
plan shall be indicated by a 1-star rating.
`(2) FIVE-STAR RATING- The highest level of safety in an open end
credit plan shall be indicated by a 5-star rating.
`(e) Point Structure for Safety Star System-
`(1) VALUES- Each variation of a term in an agreement shall be worth
1 point or -1 point, as applicable.
`(2) STAR SYSTEM- For purposes of the Safety Star System--
`(A) 5-star credit cards are those with points totaling 7 points
or greater;
`(B) 4-star credit cards are those with between 3 points and 6 points;
`(C) 3-star credit cards are those with between -1 point and 2 points;
`(D) 2-star credit cards are those with between -6 points and -2
points; and
`(E) 1-star credit cards are those with -7 points or fewer.
`(f) Point Awards- One point shall be awarded for each of the terms
in an agreement under which--
`(1) no binding or nonbinding arbitration clause applies;
`(2) at least 90 days notice is provided to the cardholder if the
card issuer wants to change the terms of the agreement, with the option
for the consumer to opt out of the changes, while paying off their
previous balance according to the original terms;
`(3) changes are disclosed in a manner that highlights the differences
between the current terms and the proposed terms;
`(4) the original card agreement and all original supplementary materials
are in 1 document at 1 time, and, when the card issuer discloses changes
to the card agreement--
`(A) those materials are not in junk mail form; and
`(B) the changes are disclosed conspicuously, together with the
next billing cycle statement, before the changes becomes effective;
`(5) no over-the-limit fees are imposed for the transactions approved
at the time of transaction by the card issuer;
`(6) no fees are imposed to pay credit card bills using any method,
including over the phone;
`(7) the card issuer has in place a system to minimize fees to the
consumer that is at least as financially beneficial to the consumer
as a system under which payments are applied to principal in a manner
that divides the payment among the different interest rate balances
proportionally;
`(8) interest is not accrued on new purchases between the end of the
billing cycle and the due date when a balance is outstanding;
`(9) the card issuer does not use multiple-cycle billing;
`(10) with respect to a subprime, unsecured credit plan, fees are
below 10 percent of the minimum allowed credit balance;
`(11) the terms of the agreement are disclosed in a form that requires
at or below an 8th grade reading level;
`(12) any secondary disclosure materials meant to supplement the terms
of the agreement are disclosed in a form that requires at or below
an 8th grade reading level;
`(13) no late fee may be imposed when a payment is received, whether
processed by the issuer or not, within 2 days of the payment due date;
`(14) a copy of the agreement and all supplementary materials are
easily available to the cardholder online; or
`(15) a substantial positive financial benefit would be provided to
the consumer, as determined by the Board in accordance with subsection
(h).
`(g) Negative Points- One point shall be subtracted for each of the
terms in an agreement under which--
`(1) binding or nonbinding arbitration is required to resolve disputes;
`(2) fewer than 30 days notice before the billing statement for which
changes in terms take effect are provided to the cardholder when the
card issuer wants to change the terms of the card agreement (which
shall be assumed if notice of such changes is undisclosed in the agreement
materials);
`(3) junk mailer disclosures are used to inform cardholders of changes
in their agreements;
`(4) over-the-limit fees are imposed more than once based on the same
transaction;
`(5) fees are imposed to pay bills by check, over the Internet, or
by an automated phone system;
`(6) payment allocations are less financially beneficial to the consumer
than a system under which payments are applied to older balances before
newer ones;
`(7) interest is accrued on new purchases between the end of the billing
cycle and the due date when a balance is outstanding;
`(8) the agreement allows for multiple-cycle billing;
`(9) with respect to a subprime, unsecured credit plan, the fees to
obtain or maintain the card amount to more than 50 percent of the
minimum allowed credit balance;
`(10) the terms of the agreement are disclosed in a form that requires
a reading level that is above a 12th grade reading level;
`(11) any secondary disclosure materials meant to supplement the terms
of the agreement are written in a form that requires a reading level
above the 12th grade reading level;
`(12) a late fee may be imposed within 2 days of the payment due date;
`(13) the issuer may unilaterally change the terms in the agreement
without written consent from the consumer, or the issuer may unilaterally
make adverse changes to the terms in the agreement without written
consent from the consumer and written notice to the consumer of the
precise behavior that provoked the adverse change;
`(14) interest rate increases apply to already incurred debt;
`(15) the issuer charges interest on transaction fees, including late
fees; or
`(16) there would be a negative financial impact on the interests
of the consumer, as determined by the Board in accordance with subsection
(h).
`(h) Board Considerations- For purposes of subsections (f)(15) and (g)(16),
the Board may consider--
`(1) the level of difficulty in understanding terms of the subject
agreement by an average consumer;
`(2) how such terms will affect consumers who are close to the edge
of their credit limits;
`(3) how such terms will affect consumers who do not have a good credit
score, history, or rating, using commonly employed credit measurement
methods (if it creates greater access to credit by reducing safety,
or by other means);
`(4) whether such terms create what would appear to a reasonable consumer
to be an arbitrary deadline or limit that may frustrate consumers
and result in excess fees or worse financial outcomes for the consumer;
`(5) whether such terms, or the severity of such terms, is not based
on the credit risks created by a particular consumer behavior, but
rather is designed to solely increase revenue through lack of transparency;
`(6) whether any State has sought to limit such terms or terms that
are similar thereto;
`(7) whether provisions of State law relating to unfair and deceptive
practices would prohibit any such terms, but for the national bank
exclusion from non-home State banking laws;
`(8) whether such terms have an anticompetitive or procompetitive
effect on the marketplace; and
`(9) such additional terms or concepts that are not specified in paragraphs
(1) through (8) that the Board deems difficult for an average consumer
to manage, such as terms that are confusing to the typical consumer
or that create a greater risk of negative financial outcomes for the
typical consumer, and terms that promote transparency or competition.
`(i) Limitations- For purposes of subsection (h), the Board may not
consider, with respect to the terms of an open end credit plan agreement,
the profitability or impact on the success of any particular business
model of such terms.
`(j) Automatic Rating- Notwithstanding any other provision of this section,
or any other provision of State or Federal law, any open end credit
plan that allows the card issuer or a designee thereof to modify the
terms of the agreement at any time or periodically for unspecified or
unstated reasons, or under which other accounts, or changes in the credit
rating of the consumer by a third party, are used as a basis for adverse
changes in the agreement (including universal default) shall automatically
give rise to a 1-star rating for such open end credit plan.
`(k) No Points if Terms Are Required by Law- If a particular term in
an agreement becomes required by law or regulation, no points may be
awarded under the Safety Star System for that term.
`(l) Procedures for Ratings-
`(1) CERTIFICATION TO THE BOARD- Each issuer of credit under an open
end credit plan shall certify in writing to the Board, the number
of stars to be awarded, separately for each of the card issuer's agreements.
Each such certification shall specify which terms in each agreement
are subject to the Safety Star System, and how the issuer arrived
at the star rating for each agreement based on the Safety Star System
in accordance with paragraph (2).
`(2) SUBMISSIONS TO THE BOARD- Each agreement that is subject to a
Safety Star System rating shall be submitted electronically to the
Board, together with a written explanation of whether the agreement
has or does not have each of the terms specified in subsections (f)
and (g), before issuing or marketing a credit card under that agreement.
`(A) IN GENERAL- The Board shall verify that the terms in the submitted
agreement and supporting materials (such as examples of future disclosures
or examples of websites with cardholder agreements) comply with
the certification submitted to the Board by the issuer under this
subsection, not later than 30 days after the date of submission.
`(B) AVOIDING DUPLICATIVE VERIFICATIONS- A card issuer may certify
to the Board, in writing, that all agreements that it markets include
a particular term, or that the issuer will use certain practices
(with supporting documents, including showing how future disclosures
will be made) so that the Board is required to determine only once,
with respect to that term or practice, how that term or practice
affects the star ratings of the credit card agreements of the issuer.
`(4) MISREPRESENTATIONS AS VIOLATIONS- Any certification to the Board
under this section that the issuer knew, or should have known, was
false or misrepresented to the Board or to a consumer the terms or
conditions of a card agreement or of a Safety Star System rating under
this section shall be treated as a violation of this title, and shall
be subject to enforcement in accordance with section 108.
`(5) MODIFICATIONS BY CARD ISSUERS-
`(A) IN GENERAL- After the first annual review by the Board, mentioned
in subsection (o), before implementing any new term or concept,
or new way of approaching a term or concept, with respect to an
open end credit plan, the card issuer shall submit the new term
or concept and any supporting materials to the Board, other than
with respect to an adjustment to the applicable rate of interest
in an existing agreement that clearly specifies that such rate would
be adjustable and under what conditions such adjustments could occur.
`(B) DETERMINATION OF THE BOARD- Not later than 30 days after the
date of a submission under subparagraph (A), the Board shall complete
a review of the effects on safety of the subject new concept or
term, and shall issue a decision on whether it affects the Safety
Star System rating for the open end credit plan that will include
the term or concept.
`(m) Display of and Access to Ratings-
`(1) DISPLAY OF RATING REQUIRED- The Safety Star System rating for
each credit card shall be clearly displayed on all marketing material,
applications, billing statements, and agreements associated with that
credit card, as well as on the back of each such credit card, including
a brief explanation of the system displayed below each rating (other
than on the back of the credit card).
`(2) NEW CARDS REQUIRED FOR LOWER RATINGS- In any case in which the
Safety Star System rating for a credit card is lowered for any reason,
the card issuer shall provide new cards to account holders displaying
the new rating in accordance with paragraph (1).
`(3) GRAPHIC DISPLAY- The Safety Star System rating for a credit card
shall be represented by a graphic that demonstrates not only the number
of stars that the credit card has received, but also the number of
stars that the card did not receive.
`(4) DEVELOPMENT OF GRAPHIC BY THE BOARD- The Board shall determine
the graphic and description of the Safety Star System for display
on materials and the back of cards for purposes of this section.
`(n) Consumer Access to Ratings-
`(1) IN GENERAL- The Board shall engage in an extensive campaign to
educate consumers about the Safety Star System ratings for credit
cards, using commonly used and accessible communications media.
`(2) WEBSITE- Not later than 12 months after the date of enactment
of this section, the Board shall establish and shall maintain a stand-alone
website--
`(A) to provide easily understandable, in-depth information on the
criteria used to assign the ratings, as provided in subsections
(f) and (g); and
`(B) to include a listing of the Safety Star System ratings for
each open end consumer credit plan, information on how the issuer
arrived at that rating, and the number of consumers that have that
plan with the issuer.
`(o) Annual Review by the Board-
`(1) IN GENERAL- The Board shall conduct a thorough annual review
(of not longer than 6 months in duration) of the Safety Star System,
to determine whether the point system is effectively aiding consumers,
and shall promptly implement any regulatory changes as are necessary
to ensure that the System protects consumers and encourages transparent
competition and fairness to consumers, including implementing a system
in which terms are weighted to distinguish between different levels
of safety, in accordance with the purposes of this section.
`(2) AVAILABILITY OF RESULTS- Results of the review conducted under
this subsection shall be submitted to Congress, and shall be made
available to the public.
`(p) Periodic Review of Standards- Once every 2 years, the Board shall
determine whether the requirements to satisfy 2-star standards and above
should be raised on the grounds that card issuers have abandoned the
most unfair practices. In making such determination, the Board may not
consider the profitability of business models, but may consider whether
competition in the credit industry will improve consumer protection,
and how the change in standards will affect such competition.'.
SEC. 4. SAFETY STAR ADVISORY COMMISSION.
(a) Establishment- There is established the Credit Card Safety Star
Advisory Commission (in this section referred to as the `Commission').
(1) REVIEW OF THE CREDIT CARD SAFETY STAR SYSTEM AND ANNUAL REPORTS-
The Commission shall--
(A) review the effectiveness of the credit card Safety Star System
under this section, including the topics described in paragraph
(2);
(B) make recommendations to Congress concerning such system;
(C) study whether it would better protect consumers to ban some
practices by creditors rather than use a rating system for those
practices, including universal default, unilateral changes without
consumer consent, allowing interest charges on fees, or allowing
interest rate increases to apply to past debt; and
(D) by not later than March 1 of each calendar year following the
date of enactment of this Act, submit a report to Congress containing
the results of such reviews and its recommendations concerning such
system.
(2) SPECIFIC TOPICS TO BE REVIEWED- The Commission shall review--
(A) with respect to all credit card users--
(i) the methodology for awarding stars to credit cards under the
Safety Star System, and whether there may be a better way to award
stars that takes into account unfair or unsafe practices that
remain uncaptured in the Safety Star System;
(ii) the consumer awareness of the Safety Star System and what
may make the system more useful to consumers; and
(iii) other major issues in implementation and further development
of the Safety Star System;
(B) with respect to credit card users who are at or close to their
credit limits, whether such consumers are being specifically targeted
in credit card agreements, and whether the Safety Star System should
incorporate more terms or be revised to encourage more fair terms
for such consumers; and
(C) the effects of the Safety Star System on the availability and
affordability of credit and the implications of changes in credit
availability and affordability in the United States and in the general
market for credit services due to the Safety Star System.
(3) COMMENTS ON CERTAIN BOARD REPORTS-
(A) TRANSMITTAL TO COMMISSION- If the Board submits to Congress
(or a committee of Congress) a report that is required by law and
that relates to the Safety Star System, the Board shall transmit
a copy of the report to the Commission.
(B) INDEPENDENT REVIEW- The Commission shall review any report received
under subparagraph (A) and, not later than 6 months after the date
of submission of the report to Congress, shall submit to the appropriate
committees of Congress written comments on such report. Such comments
may include such recommendations as the Commission determines appropriate.
(4) AGENDA AND ADDITIONAL REVIEWS- The Commission shall consult periodically
with the chairperson and ranking minority members of the appropriate
committees of Congress regarding the agenda of the Commission and
progress towards achieving the agenda. The Commission may conduct
additional reviews, and submit additional reports to the appropriate
committees of Congress, from time to time on such topics relating
to the Safety Star System as may be requested by such chairpersons
and members, and as the Commission determines appropriate.
(5) AVAILABILITY OF REPORTS- The Commission shall transmit to the
Board a copy of each report submitted under this subsection, and shall
make such reports available to the public in an easily accessible
format, including operating a website containing the reports.
(6) APPROPRIATE COMMITTEES OF CONGRESS- For purposes of this subsection,
the term `appropriate committees of Congress' means the Committee
on Banking, Housing, and Urban Affairs of the Senate and the Committee
on Financial Services of the House of Representatives.
(7) VOTING AND REPORTING REQUIREMENTS- With respect to each recommendation
contained in a report submitted under paragraph (1), each member of
the Commission shall vote on the recommendation, and the Commission
shall include, by member, the results of that vote in the report containing
the recommendation. The Commission may file a minority report.
(8) EXAMINATION OF BUDGET CONSEQUENCES- Before making any recommendation
that is likely to have a Federal budgetary impact, the Commission
shall examine the budget consequences of such recommendation, directly
or through consultation with appropriate expert entities.
(1) NUMBER AND APPOINTMENT- The Commission shall be composed of 15
members appointed by the Comptroller General of the United States,
in accordance with this section.
(A) IN GENERAL- The membership of the Commission shall include individuals--
(i) who have achieved national recognition for their expertise
in credit cards, debt management, economics, credit availability,
consumer protection, and other credit card-related issues and
fields; or
(ii) who provide a mix of different professions, a broad geographic
representation, and a balance between urban and rural representatives.
(B) MAKEUP OF COMMISSION- The Commission shall be made up of 15
members, of whom--
(i) 4 shall be representatives from consumer groups;
(ii) 4 shall be representatives from credit card issuers or banks;
(iii) 7 shall be representatives from nonprofit research entities
or nonpartisan experts in banking and credit cards; and
(iv) no fewer than 1 of the members described in clauses (i) through
(iii) shall represent each of--
(II) economically disadvantaged consumers;
(III) racial or ethnic minorities; and
(IV) students and minors.
(C) ETHICS DISCLOSURES- The Comptroller General shall establish
a system for public disclosure by members of the Commission of financial
and other potential conflicts of interest relating to such members.
Members of the Commission shall be treated as employees of Congress
whose pay is disbursed by the Secretary of the Senate for purposes
of title I of the Ethics in Government Act of 1978 (Public Law 95-521).
(A) IN GENERAL- The terms of members of the Commission shall be
for 5 years except that the Comptroller General shall designate
staggered terms for the members first appointed.
(B) VACANCIES- Any member appointed to fill a vacancy occurring
before the expiration of the term for which the member's predecessor
was appointed shall be appointed only for the remainder of that
term. A member may serve after the expiration of that member's term
until a successor has taken office. A vacancy in the Commission
shall be filled in the manner in which the original appointment
was made.
(A) MEMBERS- While serving on the business of the Commission (including
travel time), a member of the Commission shall be entitled to compensation
at the per diem equivalent of the rate provided for level IV of
the Executive Schedule under section 5315 of title 5, United States
Code, and while so serving away from home and the regular place
of business of the member, the member may be allowed travel expenses,
as authorized by the Chairperson.
(B) OTHER EMPLOYEES- For purposes of pay (other than pay of members
of the Commission) and employment benefits, rights, and privileges,
all employees of the Commission shall be treated as if they were
employees of the United States Senate.
(5) CHAIRPERSON; VICE CHAIRPERSON- The Comptroller General shall designate
a member of the Commission, at the time of appointment of the member
as Chairperson and a member as Vice Chairperson for that term of appointment,
except that in the case of vacancy in the position of Chairperson
or Vice Chairperson of the Commission, the Comptroller General may
designate another member for the remainder of that member's term.
(6) MEETINGS- The Commission shall meet at the call of the Chairperson.
(d) Director and Staff; Experts and Consultants- Subject to such review
as the Comptroller General determines necessary to assure the efficient
administration of the Commission, the Commission may--
(1) employ and fix the compensation of an Executive Director (subject
to the approval of the Comptroller General) and such other personnel
as may be necessary to carry out its duties (without regard to the
provisions of title 5, United States Code, governing appointments
in the competitive service);
(2) seek such assistance and support as may be required in the performance
of its duties from appropriate Federal departments and agencies;
(3) enter into contracts or make other arrangements, as may be necessary
for the conduct of the work of the Commission (without regard to section
3709 of the Revised Statutes of the United States (41 U.S.C. 5));
(4) make advance, progress, and other payments which relate to the
work of the Commission;
(5) provide transportation and subsistence for persons serving without
compensation; and
(6) prescribe such rules and regulations as it determines necessary
with respect to the internal organization and operation of the Commission.
(1) OBTAINING OFFICIAL DATA- The Commission may secure directly from
any department or agency of the United States information necessary
to enable it to carry out this section. Upon request of the Chairperson,
the head of that department or agency shall furnish that information
to the Commission on an agreed upon schedule.
(2) DATA COLLECTION- In order to carry out its functions, the Commission
shall--
(A) utilize existing information, both published and unpublished,
where possible, collected and assessed either by its own staff or
under other arrangements made in accordance with this section;
(B) carry out, or award grants or contracts for, original research
and experimentation, where existing information is inadequate; and
(C) adopt procedures allowing any interested party to submit information
for the Commission's use in making reports and recommendations.
(3) ACCESS OF GAO TO INFORMATION- The Comptroller General shall have
unrestricted access to all deliberations, records, and nonproprietary
data of the Commission, immediately upon request.
(4) PERIODIC AUDIT- The Commission shall be subject to periodic audit
by the Comptroller General.
(f) Administrative and Support Services- The Comptroller General shall
provide such administrative and support services to the Commission as
may be necessary to carry out this section.
(g) Authorization of Appropriations- There are authorized to be appropriated
to the Commission, not more than $10,000,000 for each fiscal year to
carry out this section.
END
