Congress Looks to Supplant Fed with Credit Card Bill Push

In a bid to accelerate the enforcement of rules already approved by the Federal Reserve, the U.S. House of Representatives passed a bill Thursday that significantly alters the practices of many credit card issuers.

But the vast majority of the new rules have already been addressed through regulatory changes approved by the Fed in December. Those rules are slated to take effect in July 2010

The “Credit Cardholders’ Bill of Rights,” HR 627, was approved by the House Financial Services Committee last week, a day before President Barack Obama met with credit card officials.

Edward L. Yingling, president and chief executive officer of the American Bankers Association, noted that many of the President’s concerns had been addressed by the Fed.

“The card executives listened carefully to [the President’s] concerns and agreed to work with the Administration to address them,” said Yingling. “[The Fed’s] sweeping new rules directly address many of the issues raised by the officials and by members of Congress.  The card issuers are currently hard at work implementing these new rules, although the Federal Reserve itself has indicated these rules are likely to shrink credit availability and result in increased rates for some consumers.  The goal of any additional efforts should be to achieve the right balance between enhancing consumer protections and ensuring that credit remains available to consumers and small businesses at a reasonable cost.”

The Cardholders’ Bill of Rights prevents credit card companies from arbitrarily increasing interest rates on existing card balances. Additionally, it will end “double cycle” billing, meaning that credit card companies cannot charge interest on debt consumers have already paid on-time.  

The bill also requires even allocation of consumer payments. Many companies credit payments to a cardholder’s lowest interest rate balances first, making it impossible for the consumer to pay-off high-rate debt.  The Credit Cardholders’ Bill of Rights requires that payments to be allocated proportionally to balances that have different rates.

“This landmark legislation helps level the playing field between cardholders and card companies,” bill sponsor Carolyn Maloney (D-NY) said after the legislation succeeded in committee. “For too long the relationship has been one-sided; but markets function best when all sides know what they’re getting into — and these deceptive practices need to be stopped.”

“The substantial reforms in this bill are needed now more than ever, as working Americans have increasingly turned to credit cards to help pay medical bills, buy groceries, and make ends meet in this troubled economy,” Maloney added.

According to some reports, amendments to the bill on behalf of the White House could be offered on Thursday.

^pullquoteThe goal of any additional efforts should be to achieve the right balance between enhancing consumer protections and ensuring that credit remains available to consumers and small businesses at a reasonable cost.pullquote^

Among the elements already in place in the legislation:

• Retroactive increases are permitted only if a cardholder is more than 30 days late, if a preagreed promotional rate expires, if the rate adjusts as part of a variable rate, or if the cardholder fails to comply with a workout agreement.
• Card companies must give 45 days notice of all interest rate increases or significant contract changes (e.g. fees) so consumers can pay off their balances and shop for a better deal.
• Requires companies to let consumers set their own fixed credit limit.
• Limits (to three) the number of over-the-limit fees companies can charge for the same transaction – some issuers now charge virtually unlimited fees for a single limit violation.
• Ends unfair penalties for cardholders who pay on time.
• Ends unfair “double cycle” billing – card companies couldn’t charge interest on debt consumers have already paid on time.
• If a cardholder pays on time and in full, the bill prevents card companies from piling additional fees on balances consisting solely of left over interest.