Research and Statistics

Cardholders’ Bill of Rights passes 1st legislative hurdle


The 2009 version of the Credit Cardholders’ Bill of Rights passes its first legislative hurdle, but quick implementation was stripped out.

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See update: House OKs Credit Cardholders’ Bill of Rights

The Credit Cardholders’ Bill of Rights, which would ban some unpopular credit card issuer practices, cleared a hurdle Thursday when it passed out of a House of Representatives subcommittee, but only after it was stripped of the 90-day implementation period that had caused objections from bankers and regulatory agencies.

“The Credit Cardholders’ Bill of Rights levels the playing field between card issuers and cardholders by applying common-sense regulations: no retroactive rate increases on existing balances, no double-cycle billing and no due-date gimmicks,” Rep. Carolyn Maloney, the bill’s chief sponsor, said after Thursday’s voice vote by the Subcommittee on Financial Institutions and Consumer Credit.

The bill would:

  • Prevent retroactive rate increases for cardholders who pay on time.
  • Establish rules for issuers in setting credit card payment due dates. Consumers complain that arbitrary due date changes often trigger late fees.
  • Shield cardholders from misleading terms by requiring greater disclosure from issuers.
  • Allow cardholders to set limits on their credit.
  • Require that when a consumer’s balance has multiple rates, card issuers would have to allocate payments so that at least some money goes toward the highest rate.
  • Regulate “fee harvesting” subprime credit cards in which the account’s balance is immediately swallowed up by fees.

With its subcommittee passage, the bill (H.R. 627) now goes to the full House Committee on Financial Services.

It’s the second go-round for Maloney’s bill. The CreditCardholders’ Bill of Rights 2008 passed in the House of Representatives in December 2008 but died because the Senate did not pass its own bill. This week, a similar Senate bill regulating credit cards cleared committee and is headed toward a vote of the full Senate, and President Barack Obama has offered general support for increasing consumer protection on credit cards.

“Last year, the House passed my bill by an overwhelming, bipartisan vote; the Federal Reserve, Office of Thrift Supervision and National Credit Union Administrator have now implemented a similar set of regulations; and just yesterday, the Senate Banking Committee has voted out its set of reforms,” Rep. Maloney, a Democrat representing New York City, said in a prepared statement. “Clearly, momentum is on the side of consumers.”

At Thursday’s hearing, the bill survived a series of party-line votes that defeated Republican representatives’ efforts to water the bill down. One important change was added: Instead of being phased in 90 days after enactment, it would go into effect in 12 months or on July 1, 2010, whichever comes first. At an earlier subcommittee hearing, the swiftness of enactment drew fire from bankers, regulators and some Democratic members.

The new implementation date brings the bill closer in line with the arrival of similar credit card regulations passed in December 2008. Maloney has said her bill is still necessary because regulations can be changed.

Bankers group questions need
The American Bankers Association disagrees with the need for the bill.

“The Fed’s new credit card rules eliminate most of the practices that are of concern to this committee and represent a fundamental overhaul of the credit card industry as we know it,” said Kenneth J. Clayton, ABA senior vice president. “We still believe it is an open question whether any further legislation is necessary.

“Banks are working aggressively to implement these new rules, but the bill’s differences from the rules, and the potential for more add-ons that may appear as the legislative process continues, could have a very real effect on lenders’ ability to offer reasonably-priced credit to consumers and small businesses, further exacerbating the problems faced by the broader economy.  These are serious concerns and could conflict with other government initiatives designed to promote the flow of credit.”

No date has been set for a full committee vote in the House.

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

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