Research and Statistics

House passes Credit Cardholders’ Bill of Rights bill


The U.S. House of Representatives voted 312-112 to pass a controversial bill that would give credit card users more consumer protections.

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See update: House passes Credit Cardholders’ Bill of Rights of 2009

In another blow to the banking industry, the U.S. House of Representatives Tuesday passed a landmark consumer protection measure aimed at leveling the playing field for credit card users.

The Democratic-controlled House voted 312-112, mostly along partisan lines, to support the Credit Cardholders’ Bill of Rights. The vote came amid a tumultuous week for Wall Street and the credit markets and days before Congress considers an administration plan for a $700 billion bailout of mortgage lenders.

“Amidst the financial turmoil on Wall Street, today the House took steps to help those on Main Street,” said Rep. Carolyn Maloney, the New York Democrat and the bill’s chief sponsor, who is credited with keeping the bill alive on Capitol Hill despite heavy opposition from banking industry lobbyists. “This historic legislation will help working families who face their own credit crunch as a result of what the Federal Reserve itself calls ‘unfair,’ ‘deceptive,’ and ‘anti-competitive’ credit card practices.”

Banking industry reaction
The banking industry was quick to condemn the passage and issued a statement within minutes of the vote. The bill, “while well-intentioned, will increase the cost of credit for consumers and small businesses across the country, result in less access to credit for consumers and businesses alike, and may further roil the securities markets — all at a time when our economy can least afford it,” Edward Yingling, president and CEO of the American Bankers Association, said in a statement.

JP Morgan Chase, the No. 2 U.S. credit card issuer, expressed disappointment at the House vote.

“As an industry leader, Chase does not engage in several practices — universal default, two-cycle billing and increasing a rate based on a change in a credit score — addressed by the bill, but we believe the legislation as passed today has the potential of increasing overall costs to consumers, reducing access to credit, and reducing or eliminating low-rate options for consumers,” according to a statement issued by Stephanie Jacobson, first vice president of public affairs for Chase Card Services.

The passage may represent a hollow victory for those pushing for real reform. A companion bill would have to pass in the U.S. Senate — an event seen as unlikely by both Democrats and Republicans. Maloney called on the Senate to “recognize the strong grassroots support for these reforms.”

The bill, H.R. 5244, would ban or curtail what consumers and advocates call unfair and arbitrary credit card practices, including interest rate hikes on existing balances, over-the-limit fees, double-cycle billing and fee-harvesting credit cards that charge large upfront fees and offer limited credit.

The bill would also bar issuing credit cards to people under the age of 18 who are not emancipated minors. Also covered in the legislation: Credit card users would have at least 25 days to pay their monthly bills and would not be charged late fees for payments that reached the credit card companies before 5 p.m. on the due date.

Resembles Fed plan
Many of the provisions of the Credit Cardholders’ Bill of Rights are also included in a package of proposed rules announced in May by the Federal Reserve, the Office of Thrift Supervision and the National Credit Union Administration. A Fed spokeswoman has said they expect to finalize those rules by year’s end. Opponents of the bill argued that Congress should leave the business of curbing credit card industry practices to federal regulators.

The proposed rules generated a record 56,000 public comments — mostly from angry consumers relating stories of negative experiences with credit card companies.

Advocates react
“Yahoo!” Linda Sherry, national priorities director for the Consumer Action advocacy group, said in response to the vote. “Now we will turn our attention to the Senate. We’ll ask for similar language on credit cards to be added to bailout legislation. “I think this happened now because people and lawmakers are waking up to the fact that you can’t keep dumping on consumers. The restructuring must recognize that consumer protection is a core function of regulators and Congress.”

Recognizing the need for swift action, Ed Mierzwinski, consumer program director for U.S. Public Interest Research Group (PIRG), said, “Congress is running out of time. But still, a huge victory for consumer protection over abusive credit card companies that have not treated their customers fairly.”

Mierzwinski added Tuesday’s vote “will send a strong message to the Fed not to weaken the proposed rules.”

Tuesday’s vote split largely along party lines, but 84 Republicans sided with Democrats to support the measure. Only one Democrat voted against the bill. In a debate leading up to Tuesday’s vote, both Democratic and Republican legislators drew parallels between the credit card industry and the current mortgage market crisis — but for different reasons.

Democrats pointed to the $700 billion commercial credit market bailout proposal as the reason why more consumer protections and oversight are needed. Some representatives called for folding the credit card bill into the bailout plan proposed by the Bush administration.

“We are providing a $700 billion rescue for banks. How can we not provide some basic protections for consumers and Main Street?” asked Maloney during debate earlier in the day.

The credit card bill would “prevent the recurrence of a crisis in credit in credit cards that is happening in our housing industry,” said Peter Welch, a Democrat from Vermont.

Republicans argued that current fears over the credit crunch in the commercial credit market are the reason to stop credit card reforms that could further tighten credit  for consumers.

Bad timing?
“Passing legislation like this will discourage lending,” said Rep. Pete Sessions, a Texas Republican, who questioned the timing of the vote on the credit card bill given the Wall Street crisis. “This comes at a particularly bad time when consumers and our economy have already had enough stress to deal with.”

Added Sessions: “It’s not wise policy to create a consumer credit crunch at the same time that our economy is experiencing a commercial credit crunch.”

White House opposition
The White House issued a statement Monday expressing opposition to the bill. Although the administration is “concerned about unfair and deceptive credit card practices,” they felt curbing abuses was a task best left to the Fed: “Regulations are better suited to addressing these problems than legislation because they can be adapted more readily to changes in market conditions.”

In addition, “Legislation likely to result in higher interest rates for consumers is not the answer,” according to the statement. The bill “would broadly constrain the ability of financial institutions to price risk, likely resulting in less access to credit and in higher interest rates for consumers,” the statement said.

Maloney told her colleagues: “Without legislation, regulation can be stopped or scaled back and lucrative abusive practices can continue.”

See related: House OKs Credit Cardholders’ Bill of Rights of 2009, What the new credit card rules mean for you, 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’?, Proposed credit card regulations draw a record 66,000 public comments

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