A new law is set to go into effect in California on July 1st that requires credit card issuers to show certain consumers the impact of making minimum payments. However, the big credit card players, some of who had a hand in creating the legislation, are now trying the block the new law. As a result, consumer groups are furious. The new law, AB 865, requires credit card companies to disclose on customer bills the total costs and length of time it will take to retire credit card debt of $1,000, $2,500, and $5,000 if a consumer makes just the minimum payment. Consumers who make the minimum payment for six months will receive this information based on their exact outstanding balance. Credit card companies are also required to maintain a toll-free telephone number to call a "live" customer service representative so that individualized minimum payment information can be obtained. The new disclosure requirement was a compromise proposal signed into law after the financial industry lobbied Governor Gray Davis in 2000 to veto a stronger version of the bill that would have required credit card issuers to send minimum payment warnings to all cardholders. Citigroup, the nation's largest bank credit card issuers, drafted the outline of the compromise that eventually watered-down the legislation. Consumers Union says no financial institutions opposed the compromise proposal when it was considered and adopted by the California legislature last year. However this month, a group of banks and credit card companies, including Citigroup, filed suit in U.S. District Court to block the law from taking effect on July 1. The lawsuit claims that the new state law is preempted by the National Bank Act and that national banks cannot be required to abide by state laws that impede their business. It also alleges that the California law violates the commerce clause by significantly impeding interstate commerce. The case is scheduled for a hearing on June 28.
A new law is set to go into effect in California on July 1st that requires credit card issuers to show certain consumers the impact of making minimum payments. However, the big credit card players, some of who had a hand in creating the legislation, are now trying the block the new law. As a result, consumer groups are furious. The new law, AB 865, requires credit card companies to disclose on customer bills the total costs and length of time it will take to retire credit card debt of $1,000, $2,500, and $5,000 if a consumer makes just the minimum payment. Consumers who make the minimum payment for six months will receive this information based on their exact outstanding balance. Credit card companies are also required to maintain a toll-free telephone number to call a "live" customer service representative so that individualized minimum payment information can be obtained. The new disclosure requirement was a compromise proposal signed into law after the financial industry lobbied Governor Gray Davis in 2000 to veto a stronger version of the bill that would have required credit card issuers to send minimum payment warnings to all cardholders. Citigroup, the nation's largest bank credit card issuers, drafted the outline of the compromise that eventually watered-down the legislation. Consumers Union says no financial institutions opposed the compromise proposal when it was considered and adopted by the California legislature last year. However this month, a group of banks and credit card companies, including Citigroup, filed suit in U.S. District Court to block the law from taking effect on July 1. The lawsuit claims that the new state law is preempted by the National Bank Act and that national banks cannot be required to abide by state laws that impede their business. It also alleges that the California law violates the commerce clause by significantly impeding interstate commerce. The case is scheduled for a hearing on June 28.