May 4, 2009
Ali Razzaghi

 

Last Thursday, April 30, 2009, the House overwhelmingly approved, by a vote of 357-70, a bill designed to restrict credit card practices and eliminate sudden rate increases and late fees.

The legislation, also referred to as the Credit Card Holders’ Bill of Rights, was initially approved by the House Financial Services committee on April 22, 2009 and incorporates many of the Federal Reserve regulations adopted last year but due to take effect in July 2010. In addition to reinforcing these regulations, the bill goes further to protect consumers by adding more restrictions for credit cards. Some of the highlights of the bill include the following:

- It eliminates double-cycle billing, which is the interest that begins to accrue on the balance of a previous billing cycle when a new balance has revolved;

- It prohibits retroactive rate hikes;

- It prevents companies from giving credit cards to minors;

- It requires payments made by cardholders in excess of the minimum monthly level to be applied first to the portion of the balance with the highest interest rate;

- It requires that consumers be given 30-days notice before their accounts are closed; and

- It eliminates tricky fine print buried in credit card agreements.

The bill is consistent with President Obama’s recent emphasis on imposing harsher restrictions on credit card companies and affording greater protections to consumers. Following a meeting last week at the White House with executives of the credit card industry, President Obama made clear that signing the bill into law remained a priority. According to White House figures, almost 80% of U.S. households have a credit card. At the same time, credit card debt has increased 25% in the past 10 years and has reached an all-time high of $963 billion in January.

Advocates of the bill are hoping that the overwhelming approval in the House will create even bigger momentum as it goes before the Senate. They are expecting to present a final congressional package for President Obama’s signature by the Memorial Day holiday. If the bill becomes law, it will not take effect until next year.

Credit card industry executives and lobbyists believe the bill will have the effect of reducing lenders’ ability, resulting in less credit available to a large number of Americans at a time when credit card companies and consumers are already facing tight credit restrictions due to the existing difficulties in obtain financing. It is projected that the changes brought on by the bill would cost the banking industry more than $10 billion a year in interest payments.