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House committee OKs consumer credit card protections

Vote comes on eve of Obama meeting with credit card industry execs

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Is the American love affair with credit cards over?

On the eve of a key meeting between President Barack Obama and top credit card industry executives, the U.S. House Committee on Financial Services voted 48-19 approving the Credit Cardholders' Bill of Rights.

The bill (H.R. 627) gives credit cardholders protection against interest rate hikes on existing balances, limits fees and sets standards for billing and payment practices. It is now slated to go to the full House of Representatives for a vote on April 28.

"The substantial reforms in this bill are needed now more than ever, as working Americans have increasingly turned to credit cards to help pay medical bills, buy groceries, and make ends meet in this troubled economy," Rep. Carolyn Maloney, the bill's New York sponsor, said in a statement after the vote.  

Obama meeting with execs
The version of the bill passed April 22 may undergo further revisions as Obama is expected to seek additional consumer credit card protections in the proposed legislation. The president and White House staff are holding closed-door meetings April 23 to discuss credit card industry practices reportedly with executives from Bank of America, Citi, Chase, American Express, Wells Fargo, Capital One, Visa and MasterCard.

Credit card reform, including a bill of rights and five-star credit card rating system, was an Obama campaign promise. In recent weeks, the president has alluded to the need for more consumer protections in credit cards, mortgages and other loans.

The push for more credit card protections comes at a time when the top banks have all received billions in federal taxpayer bailout funds, but have continued to raise interest rates and cut credit limits on millions of consumers. Quarterly earnings reports released in April show many of the major banks logged profits during the first quarter, although their credit card divisions are experiencing growing defaults.  

The House committee hearing shed light on at least one credit card reform Obama is expected to push for in the Credit Cardholders' Bill of Rights: requiring credit card issuers to inform cardholders of the consequences of making only minimum monthly payments toward their balances.

Powerful White House ally
Democrats on Capitol Hill are relying on Obama to balance out the political clout of powerful banking industry lobbyists who have fought vigilantly against credit card legislation in both the House and Senate. "Fortunately, we have a White House that is engaged," Rep. Luis Gutierrez, an Illinois Democrat, said during the hearing, a clear reference to the impending meeting with card executives.

In a letter to House committee members, the American Bankers Association trade group called the bill "unnecessary" since many of the provisions in the proposed bill are included in sweeping new federal credit card rules finalized by the Federal Reserve and other regulators in December 2008. Those measures aren't slated to take effect until July 1, 2010. Members of Congress and consumer groups say those federal rules can be repealed or changed more easily than laws enacted by Congress.

The American Bankers Association continues to have real concerns that the bill passed by the House Financial Services Committee today will have a negative effect on lenders' ability to offer reasonably priced credit to consumers and may make matters worse for the broader economy.

-- Kenneth Clayton    
ABA senior vice president    

Following the April 22 vote, the ABA issued a similar statement of concern about duplicating regulations already in place and the effect on availability of credit. "The American Bankers Association continues to have real concerns that the bill passed by the House Financial Services Committee today will have a negative effect on lenders' ability to offer reasonably priced credit to consumers and may make matters worse for the broader economy," said Ken Clayton, the ABA's senior vice president of card policy.

Republicans on the House financial services committee argued strongly against passage of the bill arguing, if passed, it would limit and contract credit at a time when consumers and the economy need it most. Only nine of the committee's 29 Republicans voted for the bill, while all of the Democrats present supported the measure.   

"Those who previously had access to credit -- the poor and those with bad credit -- are going to be denied access to credit," said Rep. Jeb Hensarling, a Texas Republican. "Maybe we ought to call this the pawn shop owners and payday lenders relief act of 2009. If you take away one credit option for people, they will have to go to another."

Second time around
This is the second time around for the Credit Cardholders' Bill of Rights. The CreditCardholders' Bill of Rights 2008 passed in the House of Representatives in December 2008, but died in the Senate. Last month, a similar Senate bill cleared the Senate Banking Committee and is headed toward a vote of the full Senate.

When the committee voted on the 2008 version of the bill on Sept. 16, 2008, only two Republicans supported the legislation, which passed by 39-27 vote. The measure went on to pass in the fulll House a week later in a 312-112 bipartisan vote with 84 Republican supporters.

The latest version of the House bill includes a provision to make almost all of the consumer protections effective 12 months after the president signs it into law or by July 1, 2010, whichever is soonest. However, Maloney was successful in passing an amendment requiring an earlier time frame for one aspect of the reforms. A provision requiring credit card issuers to notify consumers at least 45 days in advance of any interest rate changes would start within 90 days of enactment.

Another successful amendment: requiring the Federal Reserve and other regulatory agencies to study card issuers' practices of limiting credit to cardholders based on where they shop, where they live or with whom they carry a mortgage. Rep. Maxine Waters, the California Democrat who sponsored by the provision, said the practice smacks of redlining, a reference to discriminatory lending practices common 30 years ago.   

"Where a person shops in my opinion has little bearing on whether they can pay back a credit balance," Waters said.

See related: House OKs Credit Cardholders' Bill of Rights, New credit card rules don't cover business, corporate credit cards, Feds: Close rate-hike loophole in new credit card rules, Have you been 'rate-jacked'?Federal banking regulators finalize sweeping rule changes for credit cards, House again weighs Cardholders' Bill of rights

Updated: April 23, 2009


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