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Credit card reform legislation nears passage
By MARCY GORDON, AP Business Writer Marcy Gordon, Ap Business Writer 16 mins ago
WASHINGTON – Legislation to rein in credit card practices and eliminate sudden rate hikes and late fees that have entangled millions of Americans moved closer to becoming law Thursday, bolstered by presidential pressure and the backdrop of economic calamity.
Measures before the House and Senate are designed to enhance protections for credit card customers. The House debated a bill that would prohibit so-called double-cycle billing and retroactive rate hikes and ban the issuance of credit cards to people under 18, but wouldn't take effect until a year after enactment. Another requirement in the bill, that customers receive 45 days notice before their interest rates are increased, would go into effect in 90 days.
Double-cycle billing eliminates the interest-free period for consumers who move from paying the full balance monthly to carrying a balance.
Similar regulations by the Federal Reserve don't take effect until July 2010.
The House measure, dubbed the "Credit Card Holders' Bill of Rights," was expected to garner bipartisan support and passage Thursday. Yet some opposition was evident.
In debate on the House floor, Rep. Pete Sessions, R-Texas, said the legislation could prompt lenders to restrict credit in an already tight market to compensate for the new requirements. That would choke off credit for consumers relying on it to meet needs in tough economic straits "and small businesses that count on this credit," Sessions said.
That's the leading argument made by banking industry executives against the legislation.
Supporters of the bill also drew on the economic crisis to make their case.
"Americans deserve a fair shake," said Ed Perlmutter, D-Colo. The credit card industry "has taken advantage of millions of vulnerable Americans."
Boosters of the bill are tapping into rising public anger over corporate excesses and the conduct of banks and other companies receiving billions of dollars in taxpayer money.
"At a time when millions of families continue to struggle to make ends meet, additional safeguards are needed to ensure consumers are not being saddled by questionable industry practices," the powerful AARP, the lobbying group representing seniors, said in a statement supporting the House bill.
Prospects for a similar measure in the Senate also appear promising.
"I will continue to fight to ensure that the bill we send to the president includes robust protections for students and other young consumers, a ban on retroactive rate increases, a fair allocation of payments and tougher penalties for companies that violate the law," Sen. Chris Dodd, D-Conn., chairman of the Senate Banking Committee, said in a statement.
The Obama administration has been pressing for passage of the legislation, which would bring unprecedented new rules for the industry that consumer advocates and some Democrats have unsuccessfully sought for years. President Barack Obama met at the White House last week with executives of the credit card industry and made clear he wants to sign a bill into law. He reaffirmed it as a priority at his prime-time news conference Wednesday evening, saying legislation was a must to protect consumers from "abusive fees and penalties."
Earlier Wednesday, Treasury Secretary Timothy Geithner and Rep. Carolyn Maloney, D-N.Y., the House bill's chief sponsor, met with representatives of consumer and civil rights groups to discuss the credit card overhaul.
The administration's efforts to revive lending and the economy will be complemented by an overhaul of the nation's financial rule book to avoid a recurrence of the economic crisis while protecting consumers and investors, Geithner said. "We need to change the rules of the game" to make the credit card business more transparent, fairer and simpler for consumers, he told reporters after the meeting at the Treasury Department. "This administration and this Congress are committed to changing the system."
The administration is advocating stricter practices that could crimp banks' revenue at the same time the government is shoring up the financial institutions with hundreds of billions of dollars in bailout aid.
The credit card changes could cost the banking industry more than $10 billion a year in interest payments, according to a study by the law firm Morrison & Foerster.
Amid the recession and rising job losses, consumers — even those with strong credit records — have been defaulting at high levels on their credit cards. Banks already battered by the mortgage and credit crises have been bleeding tens of billions in red ink from the losses.
U.S. credit card debt has jumped 25 percent in the past 10 years, reaching $963 billion in January, according to figures from the White House. The average outstanding credit card debt for households that have a card was $10,679 at the end of 2008, according to CreditCard.com, an online market.
WASHINGTON – Legislation to rein in credit card practices and eliminate sudden rate hikes and late fees that have entangled millions of Americans moved closer to becoming law Thursday, bolstered by presidential pressure and the backdrop of economic calamity.
Measures before the House and Senate are designed to enhance protections for credit card customers. The House debated a bill that would prohibit so-called double-cycle billing and retroactive rate hikes and ban the issuance of credit cards to people under 18, but wouldn't take effect until a year after enactment. Another requirement in the bill, that customers receive 45 days notice before their interest rates are increased, would go into effect in 90 days.
Double-cycle billing eliminates the interest-free period for consumers who move from paying the full balance monthly to carrying a balance.
Similar regulations by the Federal Reserve don't take effect until July 2010.
The House measure, dubbed the "Credit Card Holders' Bill of Rights," was expected to garner bipartisan support and passage Thursday. Yet some opposition was evident.
In debate on the House floor, Rep. Pete Sessions, R-Texas, said the legislation could prompt lenders to restrict credit in an already tight market to compensate for the new requirements. That would choke off credit for consumers relying on it to meet needs in tough economic straits "and small businesses that count on this credit," Sessions said.
That's the leading argument made by banking industry executives against the legislation.
Supporters of the bill also drew on the economic crisis to make their case.
"Americans deserve a fair shake," said Ed Perlmutter, D-Colo. The credit card industry "has taken advantage of millions of vulnerable Americans."
Boosters of the bill are tapping into rising public anger over corporate excesses and the conduct of banks and other companies receiving billions of dollars in taxpayer money.
"At a time when millions of families continue to struggle to make ends meet, additional safeguards are needed to ensure consumers are not being saddled by questionable industry practices," the powerful AARP, the lobbying group representing seniors, said in a statement supporting the House bill.
Prospects for a similar measure in the Senate also appear promising.
"I will continue to fight to ensure that the bill we send to the president includes robust protections for students and other young consumers, a ban on retroactive rate increases, a fair allocation of payments and tougher penalties for companies that violate the law," Sen. Chris Dodd, D-Conn., chairman of the Senate Banking Committee, said in a statement.
The Obama administration has been pressing for passage of the legislation, which would bring unprecedented new rules for the industry that consumer advocates and some Democrats have unsuccessfully sought for years. President Barack Obama met at the White House last week with executives of the credit card industry and made clear he wants to sign a bill into law. He reaffirmed it as a priority at his prime-time news conference Wednesday evening, saying legislation was a must to protect consumers from "abusive fees and penalties."
Earlier Wednesday, Treasury Secretary Timothy Geithner and Rep. Carolyn Maloney, D-N.Y., the House bill's chief sponsor, met with representatives of consumer and civil rights groups to discuss the credit card overhaul.
The administration's efforts to revive lending and the economy will be complemented by an overhaul of the nation's financial rule book to avoid a recurrence of the economic crisis while protecting consumers and investors, Geithner said. "We need to change the rules of the game" to make the credit card business more transparent, fairer and simpler for consumers, he told reporters after the meeting at the Treasury Department. "This administration and this Congress are committed to changing the system."
The administration is advocating stricter practices that could crimp banks' revenue at the same time the government is shoring up the financial institutions with hundreds of billions of dollars in bailout aid.
The credit card changes could cost the banking industry more than $10 billion a year in interest payments, according to a study by the law firm Morrison & Foerster.
Amid the recession and rising job losses, consumers — even those with strong credit records — have been defaulting at high levels on their credit cards. Banks already battered by the mortgage and credit crises have been bleeding tens of billions in red ink from the losses.
U.S. credit card debt has jumped 25 percent in the past 10 years, reaching $963 billion in January, according to figures from the White House. The average outstanding credit card debt for households that have a card was $10,679 at the end of 2008, according to CreditCard.com, an online market.
Replies to This Discussion
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Permalink Reply by Brian Turner on -
This is great news. The banks were getting away with borrowing for nothing and raising rates to those individuals who were paying on time.
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Permalink Reply by Administrator on -
What the New Credit Card Law Means for You
by Connie Prater
Now that lawmakers are close to finalizing federal laws to protect millions of consumers who rely on credit cards, it signals a new era of managing credit.
The new normal for credit cards may be more transparent and easier to understand for everyday Americans. Credit card issuers and credit industry analysts say the new law will make credit cards more costly for all users and unaccessible for low-income families. Look for the return of routine annual fees, fewer rewards cards and the possibility that credit card bills will be payable immediately rather than after a month-long grace period.
The New Normal
With the passage of a bill Tuesday by the Senate, it assures that a new law containing the most far-reaching changes to the credit card industry in decades will be enacted. The House passed a similar bill in April, and President Barack Obama has indicated strong support for credit card reform. While the bills differ in many details, and will have to be reconciled before reaching the president's desk, they agree in their broad outlines.
What will the credit card law mean for cardholders? Millions of credit card users will avoid retroactive interest rate increases on existing card balances and have more time to pay their monthly bills, greater advance notice of changes in credit card terms and fewer penalty fees, late charges and interest payments. Once in effect, the law will also fundamentally change the way credit card issuers market, bill and advertise credit cards.
Here are the highlights of the proposed law:
Limited interest rate hikes: Interest rate hikes on existing balances would be allowed only under limited conditions, such as when a promotional rate ends, there is a variable rate or if the cardholder makes a late payment. Interest rates on new transactions can increase only after the first year. Significant changes in terms on accounts cannot occur without 45 days' advance notice of the change.
No more universal default: "Universal default," the practice of raising interest rates on customers based on their payment records with other unrelated credit issuers (such as utility companies and other creditors), would end.
More time to pay monthly bills: Credit card issuers would have to give card account holders "a reasonable amount of time" to make payments on monthly bills. That means payments would be due at least 21 days after they are mailed or delivered. Consumers have complained about due dates that change without notice or are moved up, giving them less time to pay their bills and increasing the likelihood of late fees.
Clearer due dates and times: Credit card issuers would no longer be able to set early morning or other arbitrary deadlines for payments. Cut-off times set before 5 p.m. on the payment due dates would be illegal under the new law. Payments due at those times or on weekends, holidays or when the card issuer is closed for business will not be subject to late fees.
Highest interest balances paid first: When consumers have accounts that carry different interest rates for different types of purchases (i.e., cash advances, regular purchases, balance transfers or ATM withdrawals), payments in excess of the minimum amount due must go to balances with higher interest rates first. Current industry practice is to apply all amounts over the minimum monthly payments to the lowest-interest balances first -- thus extending the time it takes to pay off higher-interest rate balances.
Limits on over-limit fees: Consumers must "opt in" to over-limit fees. Those who opt out would have their transactions rejected if they exceed their credit limits, thus avoiding over-limit fees. Fees charged for going over the limit must be reasonable.
No more double-cycle billing: Finance charges on outstanding credit card balances would be computed based on purchases made in the current cycle rather than going back to the previous billing cycle to calculate interest charges. So-called two-cyle or double-cycle billing hurts consumers who pay off their balances, because they are hit with finance charges from the previous cycle even though they have paid the bill in full.
Subprime credit cards for people with bad credit: People who get subprime credit cards and are charged account-opening fees that eat up their available balances would get some relief under the new law. These upfront fees cannot exceed 25 percent of the available credit limit in the first year of the card.
Minimum payments: Credit card issuers must disclose to cardholders the consequences of making only minimum payments each month, namely how long it would take to pay off the entire balance if users only made the minimum monthly payment. Issuers must also provide information on how much users must pay each month if they want to pay off their balances with 12, 24 or 36 months, including the amount of interest.
Source: Yahoo Finance
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