Dear Member of the House Financial Services Committee:

On behalf of the Small Business & Entrepreneurship Council (SBE Council), I write to you regarding H.R. 5244 which would require that all the fees for subprime credit cards in excess of 25% of the total credit limit, be paid up front before the card is issued.  While this legislation may be well intended, its practical effect would be to severely limit access to credit for many Americans and cause harm to consumers, businesses and our economy. 

The mortgage crises and tightening credit conditions have made it increasingly difficult for many consumers to obtain a loan, or gain access to credit -- especially those with credit history problems.  In today's world, credit cards are vital credentials that are responsible for generating and driving a wide range of commercial activity.  

To meet the demand for credit in underserved segments, companies offering low limit credit cards play a critical role in our economy by allowing individuals to rebuild their credit, and for families to re-enter the economic mainstream.  Should H.R. 5244 become law, this important tool for financial stability and success would be greatly diminished if not eliminated entirely. 

As you move forward, it is that you understand that the role low limit credit providers play is dramatically different than subprime mortgage lenders.  For starters, the credit card accounts are both low limit and unsecured, such accounts cannot burden consumers with substantial debt or put their homes at risk.  Also, low limit credit providers use stringent, widely-accepted criteria, including FICO scores, when screening applicants.  As a result, a significant percentage of individuals who apply do not receive cards.

"Low limit" or "subprime" credit cards are a lifeline for millions of Americans looking to rebuild and restore their financial situation.   In fact, hundreds of thousands of consumers have restored their credit and have graduated to higher limit cards.  Low limit cards provide much needed credit for consumers, particularly the growing number of those who can no longer fall back on the equity in their homes as a source of credit in the current crisis.  

As you proceed, we believe that you should consider the adoption of several common sense reforms to protect consumers while protecting continued access to credit.  Of course, credit card companies should be held to high standards when it comes to disclosing terms and requirements to consumers.  Card issuers should also use consistent standards when selecting applicants to receive a card.  

However, we feel it is imperative that you avoid policies that dictate that fees be paid upfront in order to receive a card.  This policy ignores the fact that the vast majority of otherwise qualified applicants do not have the requisite funds on hand to pay such fees up front, which is why they are seeking a low limit card in the first place.  So long as consumers are fully informed about the responsibilities of becoming a cardholder, we believe the individual consumer -- not the federal government -- should be empowered to make important decisions about their financial future. 

Thank you for continuing to keep the interests of businesses and consumers in mind as you move forward.  Please do not hesitate to contact SBE Council if you have questions, or need additional information.

Sincerely,

Karen Kerrigan, President & CEO