Consumer-Friendly Credit Card Bill Passes House Committee

By a 39-27 vote, the House Financial Services Committee late Thursday approved a bill informally titled “The Credit Cardholders’ Bill of Rights.” The proposed legislation is designed to limit interest rate increases and fees as well as some billing and payment practices.

Under the bill, credit card issuers would need to notify cardholders 45 days before raising interest rates and would have to provide at least 25 days between the date of the statement and the payment due date. Many issuers had reduced the time between payment and due dates in the wake of the credit crunch. The proposed legislation would also block credit cards issued to people under 18 years old and would eliminate over-limit fees caused by holds placed on accounts.

“The passage of this bill is an historic victory for American consumers and for the free market.  This landmark legislation will help level the playing field between cardholders and card companies, and give consumers the tools they need to responsibly manage their own credit,” said Rep. Carolyn Maloney, D-New York, the bill’s sponsor, in a prepared statement immediately after the vote. “The substantive reforms in this bill are needed now more than ever.  Americans are turning to their credit cards to help pay bills, buy groceries, and make ends meet in this troubled economy.  Families with credit card debt are spending more of their paychecks servicing their debt, instead of making new purchases to boost our sagging economy.”

Vote totals ran mostly along party lines, with all Democrats on the committee voting in favor of the bill and two Republicans joining their ranks. The bill, HR 5244, now moves to the full House for consideration.

The bill has plenty of detractors in the financial services industry. "In its current form this bill seeks to lock into law restrictions on fundamental risk management activities, the way interest is calculated, and other responsible business practices," said Edward L. Yingling, president and CEO of the American Bankers Association (ABA), in a statement. "The result will be higher costs for consumers, reduced access to credit for those with an imperfect or limited credit history, and less access to low credit options."

The advancement of the legislation comes in the wake of the closing of commentary on regulators’ proposals to provide more disclosures regarding credit card practices ("Bernanke References Credit Card Reform in House Testimony", July 17). The regulatory proposals cover some of the same issues as the proposed legislation.

In May, the Federal Reserve, the Office of Thrift Supervision and the National Credit Union Administration issued proposed rules that would, under the Federal Trade Commission Act, attempt to address unfair or deceptive practices for credit card accounts and overdraft protection plans ("Regulators Propose Credit Card Rule Changes," May 2).

The ABA said that it supports the regulatory moves by the Fed and OTS over the bill passed Thursday. “The proposal by the federal banking regulators will address many of the concerns expressed by policymakers and others and hopefully achieve the right balance between consumer protection and negative consequences for American consumers,” said Yingling.