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House OKs Credit Cardholders' Bill of Rights

Obama, Treasury secretary back credit card reform

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By a vote of 357 to 70, the U.S. House of Representatives today passed an expanded version of the Credit Cardholders' Bill of Rights that incorporates consumer protections backed by President Barack Obama and garners bipartisan support.

Banks and credit card issuers were quick to warn of the consequences of the reforms, namely that it will be more difficult and expensive for all consumers to obtain credit. The bill provides consumers with protections from surprise interest rate increases on existing credit card balances and from what the Federal Reserve has called unfair or deceptive billing, fee and payment practices.

Among the card reforms:

  • Limiting retroactive interest rate hikes on existing card balances.
  • Requiring that issuers apply payments in excess of the minimum amount owed each month to balances with the higest interest rates first. Currently, issuers allocate these payments to the lowest interest rate balances first -- thus increasing the interest consumers pay.
  • Giving consumers 45 days' advance notice of changes in terms in credit card agreements.
  • Setting a reasonable amount of time -- at least 21 days -- to make monthly credit card payments. 
  • Prohibiting interest charges assessed over more than one billing cycle (called double-cycle billing).
  • Capping credit lines for student credit cards at $500 or 20 percent of the student's income -- whichever is greater -- if there is no co-signer on the account, and requiring card issuers obtain proof of the student's income to repay card loans. Minors would be allowed to have credit cards in their names on a parent or guardian's account.
  • Banning so-called "pay to pay" fees, where consumers who pay their bills via telephone are charged additional fees.
  • Requiring at least 12-point type for all written materials, thus avoiding the proverbial "fine print."
  • Asking the Federal Reserve to review the potential positive or negative effects of the credit card law and report its findings to Congress every two years.
  • Directing the Fed and Federal Trade Commission to establish rules requiring credit card companies to quickly resolve final bills and outstanding balances with estate administrators when cardholders die.

Similar to federal rules
Many of the provisions mirror sweeping new rules approved by federal regulators in December 2008 and scheduled to take effect by July 1, 2010. However, lawmakers point out that the Fed rules can be more easily repealed than a federal law.

What's next for credit card reform?

The credit card reform debate is far from over. Here's what's next:

  • Attention now shifts to the U.S. Senate, where S. 414 may go before the Senate as early as next week. Senate approval is less certain. The bill, which has stronger consumer protections than the Credit Cardholders' Bill of Rights, narrowly passed out of the banking committee by 12-11 vote on March 31. 
  • Depending on what the Senate passes, it must be merged with the House bill.
  • The final bill will be sent to President Obama to sign; some are predicting it could happen by Memorial Day. 
  • As currently written, the majority of reforms won't likely take effect until July 1, 2010 -- when sweeping new federal regulations also begin.

The vote was deja vu for the House, which passed a version of the consumer credit card bill in September 2008 by a 312-112 vote. Today's vote had the support of 105 GOP members; only 69 Republicans voted against the bill. All but one Democrat voted to support the legislation. Unlike September, the latest version of the bill had strong backing from the White House.

"Today, the American public can see what a Democratic President and a Democratic majority can do for their lives," Rep. Carolyn Maloney declared on the House the floor a few minutes before the vote. Maloney sponsored the bill -- H.R. 627 -- and has worked more than three years for its passage. Maloney this week predicted Obama, who campaigned about the need for credit card reform during his presidential bid, could sign legislation into law by the end of May.

On the eve of the vote, Treasury Secretary Timothy Geithner met with the bill's sponsor and consumer and civil rights groups to outline the Obama Adminstration's wish list of credit card protections. They include banning retroactive interest rate increases (See Have you been 'rate-jacked'?); giving consumers the choice of over-limit fees or having their cards refused; and requiring issuers to disclose on monthly statements how long it would take to pay off balances if card users pay only the minimum amount due. All of the Obama proposals were incorporated into the final bill.   

"No more fine print, no more confusing terms and conditions," according to Geithner's statement. "We're going to require clarity and transparency from now on."

The latest House passage comes amid an intense climate of public pressure to give consumers relief from banks that have received billions in taxpayer bailout funds. 

When it comes to credit cards, doing the right thing and playing by the rules just doesn't work because the companies are engaging in 'unfair,' 'deceptive' and anti-competitive' practices.

-- Rep. Carolyn Maloney   
Chief sponsor, Credit Cardholders' Bill of Rights   

"When it comes to credit cards, doing the right thing and playing by the rules just doesn't work because the companies are engaging in 'unfair,' 'deceptive' and anti-competitive' practices. We are changing that today with the historic Credit Cardholders' Bill of Rights," Maloney said in a statement.

Credit card issuers and Republicans who lobbied against the bill warned that limiting interest rate increases (called re-pricing) would lead to higher interest rates for all card users and contract credit at a time when the faltering U.S. economy can least afford it.

Bankers: Credit cards drive the economy
Edward Yingling, president and CEO of the American Bankers Association, expressed serious concerns about the bill's passage. "As policymakers are aware, it is vitally important to maintain access to credit at this difficult economic time," Yingling said in a statement released after the vote. "This is especially true for credit cards, which serve as a driver of economic activity and are relied on by consumers and small businesses as a way to bridge short-term financial gaps."

It is vitally important to maintain access to credit at this difficult economic time.

-- Edward Yingling 
CEO, American Bankers Association 

"Sweeping new rules adopted in December by the Federal Reserve significantly enhance consumer protection for credit card users by vastly improving transparency in card agreements and prohibiting various practices considered problematic for cardholders," Yingling added. "The ABA strongly believes that any additional legislative efforts should strive to achieve the right balance between enhancing consumer protection and ensuring that credit remains available to consumers and small businesses at a reasonable cost."

Senate on deck
Sen. Christopher Dodd, chairman of the Senate Banking Committee and sponsor of a tougher Senate version of the bill (S. 414), issued a statement applauding the House action: "Now it is the Senate's turn to act."

Dodd's bill could go before the Senate as early as next week. "I will continue pushing for robust protections for students and other young consumers, a ban on retroactive rate increases, a fair allocation of payments, and tougher penalties for companies that violate the law when the Senate takes up my bill in the coming days, and urge my colleagues to support these vital protections for American consumers."

See related: Feds: Close rate-hike loophole in new credit card rules, House committee OKs Cardholders' Bill of rights, Credit Cardholders' Bill of Rights passes 1st legislative hurdle, Federal banking regulators finalize sweeping rule changes for credit cards, House again weighs Cardholders' Bill of rights, New credit card rules don't cover business, corporate credit cards 

Published: April 30, 2009


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