Senate Passes 'The Credit Cardholders' Bill of Rights Act'

Posted by Staff, Demos.org at 3:11 PM on May 19, 2009.

[Editor's note: The following is a press release from Demos.org.]

Washington, DC--Today, the Senate passed legislation to rein in many of the most unfair and deceptive credit card industry practices.  The Credit Cardholders’ Bill of Rights Act of 2009, introduced in the Senate by Sen. Christopher Dodd (D-CT), a version of the similarly named bill that passed the House earlier this month, was approved by an overwhelming 90-5 bipartisan margin. Tamara Draut, Vice President for Policy and Programs at Demos, a non-partisan policy center that supports legislative measures to re-regulate the credit card industry and bolster America’s household economies, issued the following statement on the legislation:

"Today, for the first time in 20 years, the Senate has taken a stand on behalf of American households who are in dire need of relief from outrageous and predatory credit card practices. As the financial sector continues to reap the consequences of the mortgage meltdown, banks are brazenly increasing interest rates and fees on their credit card customers in order to cover losses in other areas. The only reason this is possible is because in the absence of almost any regulation, issuers have tilted the playing field heavily in their favor.

"These practices come at a time when families are already on the financial edge, having weathered a long-term economic shift towards stagnant wages, low savings rates and higher costs.  By the time of the recent economic downturn hit, they had been turning to credit cards for years just to cover basic costs like gas, groceries and utilities, and to deal with emergencies, such as an unexpected medical expense.

"Demos research shows that, since the late 80s, credit card underwriting practices have shifted the cost of credit—their revenue stream—to individuals least able to afford it, while at the same time generating some of the highest profits in the entire banking sector, a record $18 billion in fees last year alone. Low-income families and households of color, primarily African Americans and Latinos, bear the brunt of the cost of credit card deregulation through excessive fees and high interest rates. The lack of common-sense protections has made this recession much deeper and more painful for these families.

"Recognizing the severity of the deregulated credit card market, the Senate went beyond the rule written by financial regulators in December and the bill passed by the House last month to put in place a number of additional protections for American consumers.

"The Credit Cardholders' Bill of Rights Act would level the playing field between borrower and lender by putting an end to some of the most arbitrary, abusive and unfair credit card lending practices that trap consumers-particularly disadvantaged and minority borrowers-in an unending cycle of costly debt. Among the measure’s major provisions are:

--An end to arbitrary and unfair interest rate increases on existing balances, except in limited circumstances;

--Forty-five day advance notice of any rate increase or significant change in terms;

--A ban on “double-cycle” billing or charging interest charges on a portion of a balance that is paid by the due date;

--Application of payments in excess of the minimum amount to the credit card balance with the highest rate of interest;

--Disallowing over-limit fees unless the cardholder has affirmatively agreed to allow over-limit transactions;  and

--Barring the extension of credit to consumers under age 21 who cannot demonstrate an independent means to repay the loan, unless the person has a cosigner who has such ability.

“Additional protections rolled into the bill during Senate deliberation include:

--Putting the bill’s provisions into effect nine months after enactment.  The House measure would delay implementation a full year;

--Allowing a rate increase on a customer’s existing balance only the cardholder is more than 60 days late in paying a bill.  The trigger is 30 days in the House-passed bill;

--Prohibiting interest rate increases in the first year after a card account is opened and requiring a return to the original rate after six months of on-time payment following any such increase;

--A requirement that issuers consider a consumer’s ability to repay before opening a credit card account or increasing a credit limit;

--A requirement that penalty fees to be reasonable and proportional to the late or over-limit transgression;

--A minimum of five years before the expiration of a gift card;

--Banning fees for particular payment methods allowed by issuers, except for expedited service processed by a service representative.

"If the House moves swiftly to agree to the changes made by the Senate, Congress will fulfill the President’s request to have the credit card bill on his desk before the Memorial Day holiday. We urge our elected leaders to act quickly to restore some balance and fairness to the credit card issuer-borrower relationship, and to provide America’s families much needed relief from these unfair, unregulated practices."

Tagged as: america, senate, credit companies