House of Representatives Approves Bill to Protect Credit Card Users

The U.S. House of Representatives approved legislation last week that is meant to protect consumers from many of the tricky practices commonly used by credit card issuers. The Credit Card Holder's Bill of Rights, HR 5244, was approved by a vote of 312-112.

“This legislation will level the playing field by putting an end to unfair and abusive credit card practices that outrage so many American families,” said Michigan Rep. Sandy Levin. “Americans are struggling to make ends meet and they have the right to be able to understand their credit card accounts, control their credit, and manage their debt.”

The legislation, which still requires Senate approval, protects credit card users from a number of unfair practices:

Ends Unfair, Arbitrary Interest Rate Increases - Prevents card issuers from increasing interest rates on existing account balances, except when: 1) the cardholder pays more than 30 days late, 2) if a pre-agreed promotional rate expires, or 3) if the rate adjusts as part of a variable rate.

Requires a 45 day notice before an interest rate increase - This is meant to give the consumer a chance to pay off the balance and shop around for a better rate.

Let's consumer set hard limits to avoid excessive "over-limit" fees - Requires card issuers to allow consumers to set their own fixed credit limit and prevents card issuers from assessing over-limit fees when the consumer sets a hard limit, or when a preauthorized credit "hold" pushes the consumer over the limit. Also, the number of over-limit fees charged for the same transaction will be limited to 3; some credit card companies charge virtually unlimited fees for a single over-limit violation.

Ends unfair penalties for cardholders who pay on time - Ends the unfair practice of "double-cycle" billing, which penalizes the card holder with additional interest charges from the previous month's balance even when they pay their full balance; card issuers won't be allowed to charge interest on debts that have been paid on time. Also prevents card issuers from assessing additional interest fees when the card issuer pays the full balance on time.

Requires credit card issuers to fairly apply the consumer's payments to their balances - Many card issuers currently apply all payments to the lowest interest balance first, in order to maximize their profits, keeping the consumer stuck with a high-interest debt. This practice will be banned under the new bill, and card issuers will generally be required to proportionately apply payments to balances with different interest rates.

Restricts due-date gimmicks - Credit card companies will be required to mail billing statements 25 calendar days before the due date to give the consumer a chance to pay off the balance within the grace period; the current requirement is only 14 days. Also, payments made by 5 p.m. local time on the due date will be credited as on-time.

Prevents consumers' credit ratings from being damaged - Standard definitions of "prime-rate" and "fixed-rate" so card issuers can't try to confuse or mislead consumers with tricky wording in their marketing and advertising. Consumers pre-approved for a card will have the right to reject a card prior to activation without negatively affecting their credit score.

Protects vulnerable consumers from high-fee sub-prime credit cards - Sub-prime cards are cards that charge total yearly fixed fees that are more than 25% of the credit limit. The bill prevents card issuers from charging those fees to the card itself, a practice that is often responsible for a sub-prime card user going over the limit and being assessed over-limit fees, often before they get much use out of the card.

Bars issuing credit cards to minors - Credit card issuers will be prohibited from knowingly issuing credit cards to anyone under 18 unless they are an emancipated minor.

The White House opposes the bill, saying that it would lessen card issuers' ability to price risk, and that it would be likely to lead to less access to credit and at a higher cost to consumers. Also, that "for the credit market to operate efficiently, creditors must have the flexibility to react to changes in customer risk and market conditions."

Credit card issuers are also unhappy about the bill, but that isn't too surprising. American Bankers Association President and CEO Edward L. Yingling said about the bill, “Legislation resulting in higher prices to consumers makes little sense at any time, let alone when global markets face the degree of turmoil that confronts them today. By limiting their ability to manage risk in making loans, this bill will force lenders to increase prices for everyone to compensate for that added risk. That’s unfair."

Unfair? The banks have already shown that they don't know how to manage risk in making loans, as proven by the massive $700 billion taxpayer government bailout they're counting on for their very survival.

Financial institution's predatory lending practices are what have led us to the current state of the economy, and now we are all suffering for it. They want to take our money when we're a borrower, and they want to take our money when we're a taxpayer. I think that's unfair.



Sources:
The White House
Congressman Sandy Levin Press Release
Forbes.com
LA Times
American Bankers Association