This excerpt taken from the COF 10-Q filed May 8, 2009.
Throughout 2008 and into 2009, Congress focused on a number of areas related to Capital Ones businesses. Seven Congressional hearings were held and numerous legislative proposals introduced on credit card practices. Concurrently, the Federal Reserve Board issued final rules in December 2008 that address many of the same issues raised by legislators. For additional information regarding the Federal Reserve Boards final rules, see Regulation of Lending Activities in our Annual Report on Form 10-K for the year ended December 31, 2008, Part I, Item 1 Supervision and Regulation. The effective date of the regulations is July 1, 2010.
Legislation has been introduced in Congress to codify the Federal Reserve rules and extend limitations to additional credit card practices. Also, in April 2009, President Obama met with executives for the largest credit card issuers including Capital One. Following that meeting the President and Treasury Secretary Geithner called for changes within the credit card industry as discussed below and included in legislation passed by the U.S. House of Representatives.
Legislation introduced by Representative Carolyn Maloney, H.R. 627, passed the House Financial Services Committee and the U.S. House of Representatives in April 2009. The legislation as passed by the House would codify the Federal Reserve rules and, within 90 days after enactment, require issuers to provide 45 days advanced notice on customer account repricings. Additionally, the legislation places limitations on the issuance of credit cards to individuals aged 18-21, requiring income verification and parental cosigners. The bill, as amended on the Floor, also added provisions at the request of the Obama Administration, including an opt-in requirement for fees assessed on over-limit transactions, data collection on interest and fees by the Federal Reserve, payment allocation methodology that requires high to low interest rate application and a 6 month period for all promotional rates. These provisions, other than those related to repricing as described herein, would become effective the earlier of one year after enactment or on July 1, 2010.
In addition, in March 2009 legislation passed the Senate Banking Committee that codifies many of the Federal Reserve rules and also greatly expands the scope, including removing the 30-day late exemption for repricing, adding limits on credit cards for individuals 18-21, limiting interest on fees and requiring a reasonableness standard for the fees, among other provisions. This legislation will be considered by the full U.S. Senate in May, and the scope of the provisions may be expanded. As currently drafted, this legislation would become effective nine months after enactment.
As a result of the overall political environment, new legislation governing the credit card industry appears imminent. Although the Company has not engaged in many of the practices prohibited by the Federal Reserve amendments or the proposed legislation, the additional rules could have a material adverse effect on future revenues in our U.S. credit card business and could reduce the overall returns of our card business and make the card business generally less resilient in future economic downturns.
In 2008, legislation was also introduced to regulate interchange fees. Several hearings were held, but the legislation was not considered by the full House or by the U.S. Senate. An amendment was submitted to the U.S. House of Representatives Committee on Rules to address interchange on H.R. 627; however, it was not among the amendments made in order for Floor debate and therefore was not included in the legislation. It could be raised in the U.S. Senate as credit card practices continue to be debated. Additionally, it is expected this issue will continue to be raised at the state level.
Since 2008, Congress also focused on the housing market, looking at both retrospective and prospective solutions. In July 2008, legislation was enacted to create additional federal backstops and strengthen regulation of the Government Sponsored Enterprises (GSEs), including an overhaul of Federal Housing Administration (FHA) programs. In March 2009, H.R. 1728, the Mortgage Reform and Anti-Predatory Lending Act was introduced in the U.S. House. This legislation was considered and passed by the House Financial Services Committee in April. As passed by the Committee, H.R. 1728 would place a federal duty of care on mortgage originators, lower the threshold for loans covered under the Home Ownership Protection and Equity Act (HOEPA), as well as address assignee liability and require that securitizers retain access to all loans packaged and sold. This legislation is expected to be considered by the U.S. House in May 2009; however, there is no companion legislation currently in the U.S. Senate.