Bernanke: Speeding up credit card rules could hurt consumers

Federal Reserve Chairman Ben S. Bernanke warned Congress this week about efforts to move up the effective date of tough new rules for credit card companies, saying such action could hurt consumers as much or more than help them.

Mr. Bernanke’s comments may pose difficulties to the House Financial Services Committee as it anticipates marking up a bill this week that would move up enactment of credit card protection regulations to Dec. 1 - weeks earlier than scheduled.

While the new deadline could benefit consumers by providing protections earlier than scheduled, it also would force the Federal Reserve to implement the new rules without giving the public and the credit card industry time for comment, “which could lead to unintended consequences.”

Mr. Bernanke’s comments were included in a letter dated Tuesday to the House Financial Services Committee’s top Republican, Rep. Spencer Bachus of Alabama, who had written to the chairman earlier this month asking for his input on moving up the enforcement date of the credit card rules.

Congress in May passed sweeping credit card reform legislation to significantly limit the industry’s powers that curbs credit card companies’ ability to increase interest rates and assess fees and penalties on consumers. The bill easily passed both chambers with significant bipartisan support, and quickly was signed into law by President Obama.

House Financial Services Committee Chairman Barney Frank, Massachusetts Democrat, upset that some credit card companies pushed through rate increases ahead of the new rules - many of which are slated to take effect Feb. 22 - has introduced legislation to move up the date to Dec. 1.

But Mr. Bernanke in his letter - released Wednesday - said such a move could lead to credit card companies having troubles implementing the new protections.

“Creditors must make extensive changes to their systems and business models in order to comply” with the new rules, Mr. Bernanke said.

Opponents of moving the date to Dec. 1 fear that credit card companies would push the costs of complying the laws earlier than expected on to consumers.

Mr. Bernanke said that the Federal Reserve can’t predict how speeding up the effective date would affect the availability of credit and rates on credit cards.

But he added that although a Dec. 1 effective date “could provide benefits for consumers, the [Fed] continues to believe that, given the breadth of the changes required by the [law], card issuers must be afforded sufficient time for implementation to allow for an orderly transition.”

Mr. Bachus, who argues the effective date shouldn’t be changed, said Mr. Bernanke’s letter will make it more difficult for Democrats to support the legislation.

“Obviously the rational thing to do is to support the position of the financial regulators,” Mr. Bachus said.

But Sen. Charles E. Schumer, New York Democrat, said Wednesday that if Mr. Bernanke won’t act to speed up the effective date of the credit card reforms, “we should quickly pass legislation in both the House and Senate to do so.”