Credit Card Reform Passes Senate

Citing the need to help consumers beleaguered by their credit card debt, the U.S. Senate has passed legislation that would ban abusive practices by credit card companies.

The Senate Bill, known as the CARD Act, passed on a 90-5 vote May 19. It followed the passage of the U.S. House of Representatives version, the so-called “Credit Cardholders Bill of Rights,” April 30. The Obama Administration has come in support of a credit card reform bill.

Among its features, the Senate bill:

• Requires 45 days notice to increase interest rates or to change fees or finance charges.
• Prevents “universal default,” a practice where a credit card company can raise your fee based on a late payment on an unrelated account.
• A cardholder must agree to permission to go over the card’s maximum limit and be charged an over-the-limit fee.
• Requires a signature from a parent or other responsible party to give credit to a person under 21 years old, unless the person can show he can pay back the debt.
• Increases the “grace period,” the amount of time you have to pay your bill on time, from 14 days to 21 days.
• Requires lenders to notify customers how long it will take to pay off a balance using minimum payments.
• Requires periodic reviews of a cardholder’s interest rates if it has been raised to see if it should be bumped back down.
• Requires periodic payments to be applied to the account with the highest interest rate,
• Increases the penalties for violations.

Supporters called the bill a historic victory for American families.

”We are on the verge of a historic victory for hardworking American families that have suffered for far too long at the hands of credit card companies,” said Sen. Christopher Dodd (D-Conn.), the chairman of the Senate Banking Committee. “ The Senate will vote on my bill on Tuesday, and I am committed to working with President Obama and my colleagues to ensure that it passes with overwhelming support.  As President Obama said today, enough is enough.  It’s time to put an end to the abusive credit card practices that drive millions of American families further into debt.”

Others fear the legislation will discourage companies from issuing credit cards to risky customers, thereby limiting the access to consumer credit during tough economic times. It could also place $139 million in mandates on the credit card companies.

“If companies are limited in their ability to impose higher rates on riskier consumers, the company has no incentive to provide access to credit for people without above-average credit ratings,” read a statement on the GOP.gov Web site.

A number of these changes have already been planned, as established by rules handed down by the Federal Reserve. Those rules were meant to be implemented by June 30, 2010. This bill would go into effect by that day or 12 months from passage, whichever comes first, which could speed up the timetable.