The Senate voted overwhelmingly Tuesday for sweeping credit card reforms that consumer advocates say will end years of unfair and deceptive tactics by issuers.
Sen. Christopher Dodd, D-Conn., called the bill’s 90-5 passage a historic victory for American families who have “suffered for far too long at the hands of credit card companies.”
The House, which passed similar legislation last month, is expected to endorse the Senate bill by the end of the week. That would meet President Barack Obama’s request to send him a bill to sign by Memorial Day.
In a weekly radio address this month, Obama said consumers “have a right to not get ripped off by the sudden rate hikes, unfair penalties, and hidden fees that have become all too common in our credit card industry.”
But the American Bankers Association, which represents many of the nation’s credit card issuers, says the new rules threaten to limit credit availability and could lead to increased costs for cardholders.
The Senate bill’s provisions include:
• Companies must spell out all terms that apply to the card for the first year. During that time, interest rates will not increase unless a payment is more than 60 days late.
• Companies are required to give cardholders at least 45 days’ notice before interest rates are increased. That provision would take place 90 days after the bill is signed into law.
• Companies are required to send out bills at least 21 days before the due date, instead of the current requirement of 14 days.
• If a card has balances with different interest rates, such as purchases versus balance transfers, credit card companies will have to apply the payment to the balance with the highest interest rate or divide it among the balances—not apply it to the balance with the lowest interest rate, as is current practice.
• Double-cycle billing—when companies calculate interest based on days in the previous billing cycle as well as the current one, resulting in much higher finance charges—will no longer be allowed.
• Gift cards will be valid for five years.
Critics say help for Americans battling back abusive credit card practices may arrive too late. The Senate bill would take effect in nine months, enabling credit card issuers to jack up interest rates and fees for millions of cardholders ahead of the new regulations.
In fact, an estimated 10 million people holding cards from the eight largest issuers have already seen interest rate hikes of as much as 10 percentage points, according to the Center for Responsible Lending. The issuers—Citigroup, Bank of America, Capital One, HSBC, Discover, American Express, JPMorgan Chase and Wells Fargo—sent out rate increase notices after the Federal Reserve Board in December approved new rules restricting how credit card companies do business. Those rules become effective July 1, 2010.
Travis Plunkett, legislative director for the Consumer Federation of America, says many consumers who got hit by recent interest rate hikes did nothing wrong and made their monthly payments on time. He says higher interest rates are destabilizing to families struggling to meet their bills.
“The number of Americans who are late or in default on their credit cards is expected to peak at the end of the year,” Plunkett says. “The interest rate increases can be substantial and they can substantially increase what families owe on a monthly basis. They’re pushing many families on a very tight budget who can’t afford their [balances] toward bankruptcy.”
Before the Senate voted Tuesday, it considered several amendments, not all of which pertained to credit cards. An amendment by Sen. Bernie Sanders, I-Vt., that would have capped credit card interest rates at 15 percent failed.
One amendment that passed, which sweetened the measure for conservatives, allowed loaded concealed weapons in national parks. It was sponsored by Sen. Tom Coburn, R-Okla.
Rep. Carolyn B. Maloney, D-N.Y., who cosponsored the credit reform bill in the House, called the Coburn amendment “just wacky,” adding, “tacking on guns in parks to a strong consumer bill simply makes no sense.”
Carole Fleck is a senior editor of the AARP Bulletin.