Senate Approves Overhaul of Credit-Card Rules
The Senate approved a major overhaul of credit-card rules, including curbs on sudden interest rate increases and hidden fees. The vote was 90-5.
The House, which passed a less stringent version of the bill three weeks ago, is now expected to approve the Senate bill later this week, meeting President Barack Obama's request to send him legislation to sign into law by Memorial Day weekend.
The House is likely to vote Wednesday or Thursday, according to Congressional sources, with a wide margin of approval expected.
If Obama signs the bill as expected, the credit card industry in the next year would have to change the way it does business.
Lenders would have to post their credit card agreements on the Internet and let customers pay their bills online or by phone for free. They'd also have to give consumers a chance to spare themselves from over-the-limit fees and give them 45 days notice and an explanation before interest rates are increased.
Passage of the bill was widely expected, given the President's unusually vocal support and the House's landslide vote in favor of the measure almost three weeks ago.
Though the House and Senate versions differ somewhat, the legislation is meant to protect consumers from excessive interest rates and penalty fees.
Public opinion polls have also shown strong support for credit card reform. Congressional leaders, as well as the President, seem well aware of that. Eighty percent of American households have credit cards, according to the White House, and pay about $15 billion in penalty fees every year.
The Senate legislation, formally known as The Credit Card Accountability, Responsibility and Disclosure Act, was authored by banking committee Chairman Chris Dodd (D-Conn.) but has since become a bipartisan effort with the backing of ranking GOP panel member Richard Shelby (R-Ala). Some 20 senators co-sponsored the bill.
Some of the measures in the legislation are also in new rules announced by the Federal Reserve in December 2008. Those Fed rules are not scheduled to take effect until July 2010. Legislation could hasten that implementation.
Key among the measures are prohibitions against interest rate hikes on existing balances in most cases as well as instant, unannounced rate increases. The legislation would also make credit card agreements simpler and more transparent.
A recent analysis by the non-profit Center for Responsible Lending found that credit card issuers are generally “raising interest rates on a larger portion of customers than usual and increasing the number of fees they impose.”
Business opposes the legislation, saying it could backfire by limiting credit at a time when the economy is already weak and making fewer consumers qualified for credit cards.
At the same time, the White House, as well as many Democrats in Congress, expect the financial services industry to do more for consumers since it accepted financial aid under the TARP.
The House version of the legislation was sponsored by key committee chairs Barney Frank (D-Mass) and Carolyn Maloney (D-NY), both of whom have been outspoken critics of some of the practices of big financial firms.
The President has taken an active interest in the legislation and is thought to have made his personal preferences on certain measures known to legislators.
Obama and Treasury Secretary Timothy Geithner also went so far as to meet with representatives of the credit card industry at the White House last month.
- AP contributed to this report.