Credit Card Reform Underway

The rules governing credit cards may soon change, as Congress and the President pursue sweeping changes to the nation’s credit card laws that could affect many people suffering with credit card debt.

In April, the U.S. House of Representatives passed the extensive Credit Cardholders’ Bill of Rights Act of 2009. The legislation, if approved, would establish new rules about the charges, fees and interest that a credit card provider can use to zap its consumers. The bill also makes rules about opening and closing accounts, billing, and other practices that are viewed by some as unfair to the consumer.  

Among the many regulations it lists, the bill:
1.    Requires 45 days of advance notice before the lender can raise rates or make a significant contract change.
2.    Makes a promotional interest rate last six months before it can change.
3.    Gives the cardholder 30 days of notice before a lender can close an account.
4.    Prevents a “double billing” cycle due to late payments.
5.    Forces banks to apply a “periodic” payment to the account with the highest interest rate.
6.    Makes credit card companies send bills 21 days before their due date.
7.    Limits the credit that can be given to a college student.
8.    Prohibits credit cards to customers under age 18 without emancipation or parental approval.
9.    Allows only one over-the-limit fee per cycle.
10.     Expands what a lender must reveal about minimum monthly payments.

It also limits the reasons that a credit card company can raise a card’s interest rate. The annual percentage rate can be raised are for an index change, the end of a promotional rate, a payment 30 days past due or if a cardholder doesn’t stick to his workout plan.
With passage of the House version, the bill has moved to the U.S. Senate, where it is currently under debate. A vote is expected in the coming weeks. A White House statement says that President Barack Obama’s administration “strongly supports” passage of this bill.   

Supporters see the new rules as a way to free the consumer of unfair practices by credit card companies.

“The evidence is clear, consumers need protection from the unfair, deceptive and anticompetitive credit card companies’ practices,” said Rep. Carolyn Maloney, D-NY, a sponsor of the bill.  “As families struggle to make ends meet, these unchecked practices reduce the amount of money that families have to spend on new purchases because they are servicing their old debt. This report shows why the Credit Cardholder’s Bill of Rights is essential to assisting our economic recovery.  I proudly look forward to the day President Obama signs my bill into law.”

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.