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Bills in the House and Senate hope to help consumers
By Heather M. Smith, Staff writer
Legislation to help credit card holders passed in the U.S. House of Representatives and a similar bill is in the Senate, but some Congressmen have concerns that the bills will restrict consumer credit.
The House version of the bill is authored by Rep. Carolyn Maloney who calls the bill the “credit cardholders’ Bill of Rights.” While writing the legislation, Maloney strove to protect cardholders against random interest rate increases, protect against “due date gimmicks,” protect cardholders from misleading terms and to protect consumers from “fee-heavy” subprime cards. She also wanted to ensure that those who pay on time not be penalized and give cardholders the option to set limits on their credit.
In her bill, Maloney included provisions to force companies to fairly credit payments that are made and stated that “card companies should not impose excessive fees on cardholders.” Maloney also felt that Congress should provide better oversight of the industry.
“Like most Americans, I support banning retroactive rate hikes on existing balances and requiring advance notice of interest rate hikes,” Johnson said. “I also back adding more transparency to the contractual relationship between credit card companies and consumers and giving people the tools they need to responsibly manage their own credit. But I could not support the Maloney bill.”
Under the new legislation, passed by the House, credit card companies are prohibited from increasing the annual percentage rate on an existing balance. The only circumstances that a company may increase the rate is if it is due to an expiration of a promotional rate or if the cardholder fails to comply with a set workout plan, which is an agreement to settle on the debt owed. If a creditor chooses to raise the rate after a promotional period, the new rate may not exceed the rate available at the current time. In addition, if the cardholder does not send in their minimum payment within 30 days after the due date, creditors may then raise their rates.
For cardholders with a remaining balance, after a rate change, the creditor would have to work out a plan for repayment. Finally, if creditors are going to impose a rate increase, they would have to notify consumers at least 45 days in advance. The notification must be in writing and identify what extent the increase would be to existing balances.
In terms of billing, the legislation requires that any payment received by 5 p.m. local time, including phone and online payment, is to be considered an on-time payment. Also, the cardholder’s statement must be sent at least 21 days prior to the due date. The legislation also bans double cycle billing in which credit card companies impose finance charges on balances from the previous billing cycle.
“While eliminating some of the devious tricks credit card companies use, such as onerous double-cycle billing, the bill would unintentionally hamstring credit for many people, including small business owners who rely on credit cards for their operations,” Johnson said. “Specifically, this bill prevents credit card companies from charging based on a consumer’s risk.”
An over-the-limit portion of the bill would allow consumers to force creditors to stop the authorization of transactions that exceed their credit limit. A phone number, e-mail address and Web page must be provided by the creditor to those consumers wishing to participate in the new program. Additionally, over the limit fees may only be enforced once during a billing cycle. At least once a year, creditors must notify their customers of their options.
Unlike in the past when creditors would issue pre-approved cards to incoming college freshmen, the new legislation prohibits such practices to a certain extent. Unless individuals, who are under 18, are emancipated, the new legislation prohibits companies from issuing them a card.
“If at any time a consumer’s credit worthiness changes, like making late payments, credit card companies would not be able to adjust for this. Ultimately, to make up for not being able to price according to the risks associated with borrowers who have poor credit histories, credit card companies would have to turn around and raise rates on all borrowers, good and bad,” Johnson said. “That’s not fair. In fact, I think this bill would hurt the very people it was intended to help.”
On Tuesday, a similar bill to ban abusive credit card practices barely passed the Senate banking, housing and urban affairs committee. The vote for SB 414 was primarily along party lines, with most Democrats in favor.
The Senate bill would amend the consumer credit protection act by banning “double-cycle billing” and prohibiting “universal default.” The default practice is when a cardholder’s interest rate is raised due to a flawed record with another creditor, regardless of their record with the company in question.
Some similarities are apparent in the Senate and House versions. Both pieces of legislation call for credit card statements to be mailed 21 days before the due date and both move to ban “double-cycle billing.” However, the Senate version takes protecting younger consumers even further. In the Senate bill, creditors would be prohibited from issuing a card to those under 21 years old. Creditors could only issue cards to that group if a parent or guardian, who can repay the debt, signs the application. The only other option creditors have is if the underage consumer completes a financial literacy course, which would be certified by the Treasury Department.
Banking panel chairman Sen. Chris Dodd is the sponsor of the legislation. He said his bill is designed to stop “sinister practices.”
However, as the Federal Reserve prepares to apply their own new rules, some Republicans argue that the bill oversteps its bounds. The new rules handed down by the Federal Reserve will take effect on July 1, 2010, and include much of the protections in the legislation.
“Senator Kay Bailey Hutchison is hopeful that a consensus bill can be brought forward, that addresses the concerns of many consumers while protecting access to credit for families and small business,” said Jeff Sadosky, communications director for Hutchinson.
While working on the bill, the banking, housing and urban affairs committee amended the original legislation. Among the changes were to more the effective date of the legislation to nine months after enactment. In order to add extra protection for younger consumers, another amendment would require creditor to get written approval from account holders, who are jointly liable before they could raise credit lines. Also, creditors would have to establish a toll-free number for consumers to get information about counseling and debt management services.
Sen. Dodd said he would continue to work on the bill during the spring recession.
For information or to read the entire bill visit www.congress.gov.
Contact Heather Smith at HSmith@acnpapers.com.
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