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Cracking Down on the Credit Card Companies

April 22, 2009 - by Donny Shaw

Congress is switching gears a bit, turning their attention from hearings on the financial crisis to markups on legislation that would protect consumers against credit card companies. The House Financial Services Committee today approved a bill, the Credit Cardholders’ Bill of Rights, that seeks to restrict interest rate hikes, penalties and fees. The vote was 48-19, with 9 of the 29 Republicans in the Committee voting in favor. All Democrats supported the bill.

Here’s the committee’s summary:

Ends Unfair, Arbitrary Interest Rate Increases.

* Prevents card companies from unfairly increasing interest rates on existing card balances — retroactive increases are permitted only if a cardholder is more than 30 days late, if a pre-agreed promotional rate expires, or if the rate adjusts as part of a variable rate.
* Requires card companies to give 45 days notice of all interest rate increases so consumers can pay off their balances and shop for a better deal.

Lets Consumers Set Hard Credit Limits, Stops Excessive “Over-the-Limit” Fees.

* Requires companies to let consumers set their own fixed credit limit.
* Prevents companies from charging “over-the-limit” fees when a cardholder has set a limit, or when a preauthorized credit “hold” pushes a consumer over their limit.
* Limits (to 3) 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.

Requires Fair 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 bill bans this practice, generally requiring payments to be allocated proportionally to balances that have different rates.

Protects Cardholders from Due Date Gimmicks.

* Among other measures, requires card companies to mail billing statements 25 calendar days before the due date (up from the current 14 days), and to credit as “on time” payments made before 5 p.m. local time on the due date.

Prevents Companies from Using Misleading Terms and Damaging Consumers’ Credit

* Establishes standard definitions of terms like “fixed rate” and “prime rate” so companies can’t mislead or deceive consumers in marketing and advertising.
* Gives consumers who are pre-approved for a card the right to reject that card prior to activation without negatively affecting their credit scores.

Protects Vulnerable Consumers From High-Fee Subprime Credit Cards.

* Prohibits issuers of subprime cards (where total yearly fixed fees exceed 25 percent of the credit limit) from charging those fees to the card itself. These cards are generally targeted to low-income consumers with weak credit histories.

Bars Issuing Credit Cards to Vulnerable Minors

* Prohibits card companies from knowingly issuing cards to individuals under 18 who are not emancipated minors.

Swift Implementation of Provisions

* Legislation would be implemented 3 months following the President signing the legislation into law.

The Wall Street Journal has some details on the four Democrat-sponsored amendments to the bill that were approved today:

Under an amendment approved by the panel, credit-card companies, beginning 90 days after the bill’s signing, would have to give consumers 45 days’ notice of any rate increases.

The panel adopted another amendment to require small issuers to include on the monthly statement a toll-free telephone number, Internet address or Web site where consumers can request the balance on the account.

The panel also approved an amendment requiring the Fed to report back within six months on whether issuers had reduced credit limits or raised interest rates in the three years before the bill’s enactment.

Another approved change would require card issuers to insert a notice allowing consumers to opt out of over-the-limit protection in the monthly statement rather than in a separate mailing.

All Republican-sponsored amendments were rejected.

The Republican support in Committee today on the bill, as amended, indicates that it will have no problem getting through the full House. In the Senate, however, where a somewhat tougher version (S. 414) passed the Banking Committee without a single Republican vote, it will face an uphill climb and may end up being weakened.

Financial Services Committee Chairman Barney Frank [D, MA-4] told reporters that he expected the bill to pass the House next week with additional amendments that are being recommended by the Obama administration. He didn’t say what those amendments would be.

Related from NYT: Banks Sway Bills to Aid Consumers

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