Where The Credit Cardholders’ Bill of Rights Stands

It’s been awhile since we’ve talked about this here, so I thought I’d update you on what’s taking place.

This bill that is currently making the rounds in Washington has stronger consumer protections then was originally stated in 2008. So much so, that this bill almost died before it even made it out of the banking committee – it was a 12-11 vote on March 31.

We’re seeing a lot of promise with this new bill now that it’s passed the banking committee, and it’s no wonder seeing as we have a Democratic president and a Democratic party majority in Congress. The Credit Cardholders’ Bill of Rights passed the House of Representatives with a 357 to 70 vote…69 Republicans and 1 Democrat said no. But, the bill also had the backing of the White House, unlike it did in September when Bush was in office.

So, what’s in this new bill you ask? Well, a lot of the same stuff we’ve been hearing since September, but for kicks and grins, let’s look at the list again.

Card Reform Items

  • Limiting retroactive interest rate hikes on existing balances
  • Requiring credit card companies to apply excess payments to the balances with the highest interest rate first. Currently these excess payments are applied to the lowest interest rate causing consumers to pay more interest.
  • Giving consumers a 45 day notice of changes in credit card terms and agreements.
  • Giving at least 21 days to make monthly credit card payments.
  • Prohibiting the double-cycle billing.
  • Capping student credit lines to $500 or 20% of the student’s income, whichever is greater. Also requires the card issuers to obtain proof that the student has income with which to pay their bills…this one is my personal favorite.
  • Prohibiting the credit card companies to charge you a fee to pay your bill over the phone.
  • Requiring at least 12-point font for all written materials effectively getting rid of the “fine print.”

There are also a few other regulations regarding how the Federal Reserve is to act with regard to credit card law., but overall this is the gist of the bill. Now, on the evening of before the vote, the Treasury Secretary Timothy Geithner met with the folks overseeing this bill and outlined what the Obama administration wanted to see in this bill. Apparently, all of Obama’s proposals were incorporated into the final bill.

Obama’s Wish List

  • Banning retroactive interest rates (we saw this one on the list above).
  • Giving consumer the choice of over-the-limit fees or having their card declined.
  • Requiring issuers to disclose how long it would take the consumer to pay off the card by only paying the minimum amount due.

The last one I feel is a bit gratuitous to Obama’s station. The reality is that people can go online and fine a zillion calculators to do that, why should credit card companies have to print out those calculations. A better option would have been to require the credit card companies to incorporate such calculators on their sites. But, whatever. That’s what Obama wanted, so they went ahead and stuck it in the bill.

What’s Next?

Now that the reform bill has passed the House, it’s time to head over to the Senate for review. Unfortunately, Senate approval is less certain then it was within the House. Additionally, Senate has the authority to add riders to this bill, which means they can add their own terms and it must be added to what the House has already come up with. Now, the Senate was supposed to have a vote on the 12th of May, but they haven’t come to a conclusive decision. I do know that they’ve nixed the measure that would allow a 15% interest rate ceiling.

It was introduced by Senator Bernie Sanders as a way to limit credit card companies and their (sometimes) arbitrary rate increases upwards of 25 and 30%. However, Senate did not agree with the 15% number, so it’s been tossed out. While the Senate continues to work out the details, it is expected that once it’s passed and put before Obama, he’ll sign it directly into law. We’ll see…how quickly the tides change in our political system.

****Update**** The bill has made it through the Senate virtually unscathed and is expected to be signed into law by the end of the week. Credit card companies everywhere are shedding tears of grief!

As usual, the banks and credit card companies are warning against these changes. Many of them have made changes to their business models in anticipation of the bill coming to pass, and not all of the changes have benefited the consumers. Consumer reactions have been mostly positive, though there are those who don’t believe in anymore government oversight. While I see their point, and to an extent agree, the fact remains that there needs to be some sort of regulation on the shark industry as they seem incapable of fairly regulating themselves.

That being said, what’s your take? Do you like the direction of the reform, or do you think the government should butt out? Is there anything in particular you’re hoping the Senate will address?

9 thoughts on “Where The Credit Cardholders’ Bill of Rights Stands”

  1. There was an article in todays NY Times about CC companies planning to going after card holders with stellar credit and who have never made any late payments. The CC companies are anticipating reduced revenue after the new credit card bill is signed into a law. So to bolster their revenue, we will see CC companies charging annual fee, charge interest immediately instead of giving grace period, cut back on cash backs and rewards etc.

  2. DD,

    Something tells me CC companies are not that stupid to start charging fees & interest to consumers who pay their bills on time. If they do, those consumers will shift to debit card & cash purchases and CC companies are going to loose big on transaction fees , which I think is between 1-3% of the cost of purchase. NY Times article may just be whining by CC companies about the new law

  3. I’d even be OK with the CC companies applying payments to the OLDEST debt first – the current practice of applying to the lowest interest debt seems to be of a questionable ethical nature. (And this is coming from someone who doesn’t even pay CC interest)

  4. I’m more concerned about my FICO score than credit card rules. These credit card companies can do a great deal of damage to one’s score if they lower your limit or close your card. How about protection from that? I feel these FICO scores have too much weight these days determining your insurance rates, interest rates, and being empolyable. I can’t believe no one has sued the credit reporting companies for selling information about our personal lives. I’m kind of tired so I apologize if this post is not very polished…
    I hope you guys can get the gist of my rant :)

  5. I’m torn – these are good consumer protectionist ideas, but I feel like They (government) are swatting at flies rather than addressing with a shovel the big pile of manure that’s fostering the flies… And to use another analogy, the CC companies being forced to look to other avenues for revenue development is like squeezing a balloon the volume of air doesn’t change, just its location – the regulation will just push their search for profits and growth in another direction, perhaps onto those who use credit responsibly (as suggested in the NYT article). I wish they would pass a law banning fees on pay-by-phone/pay-online for mortgage companies! I hate that Wells Fargo, with whom I have both my mortgage and checking won’t let me just transfer the payment online, NOR can I use WF’s bill pay to pay WF’s mortgage! If for whatever reason I can’t get to the branch or mail a payment and might need to pay-by-phone (this has never happened, but still!), there’s a $20 or $30 fee for moving money within WF’s organization – that’s robbery!

  6. I like the rules. It is too bad that we need them, because most of these seem like pretty common sense/good business practice items to me. Some of what the credit card companies were doing was pretty dirty, if not illegal, and if this is what it takes to fit it, so be it. I understand Michelle’s concern about this being “swatting at flies” but I also think that sometimes it takes a lot of small steps to go the mile. The little things add up, and if these become industry standard, it might help the mortgage companies to wake up as well.

  7. Kosmo – There is a lot that these companies do that is far from ethical. While I’m glad that these abusive practices are being addressed, I also know that it is only a matter of time before they find another series of fun and exciting policies that separate you from your money.

    Stacking Cash – The real problem is that insurance companies and other goobers are allowed to use such an arbitrary and irrelevant measure such as FICO against consumers.

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