Credit-card bill: What it does, what it doesn’t do
Supporters and critics agree that it greatly empowers consumers and changes the credit-card industry.
By Gail Russell Chaddock | Staff writer/ May 19, 2009 edition
Lauren Victoria Burke/AP
Senate Banking Committee chairman Christopher Dodd (D) of Connecticut speaks at a press conference in Washington after the Senate passed a bill that further regulates the credit-card industry Tuesday.
Washington
In a rare rebuff to financial interests, the Senate voted 90 to 5 to impose new terms and limits on the credit-card industry.
It is a comprehensive measure that “fundamentally changes the entire business model of credit cards,” says the American Bankers Association, which opposed the bill. They say it will raise costs to consumers and limit access to credit.
Consumers groups also say the legislation will significantly change the relationship between Americans and their credit-card companies. But that, they say, is all to the good.
For months, members of Congress have been deluged with calls from constituents angry at surprise fees and rate increases – especially from those financial institutions also accepting taxpayer bailouts.
“You could no find a more popular piece of legislation than that that just passed the Senate,” said Senate majority leader Harry Reid, after Tuesday’s midday vote.
Lawmakers expect the bill to pass the House and be signed by President Obama by Memorial Day. The Senate bill will take effect nine months after the law is enacted.
Among the things it does:
-Hidden fees. It bans arbitrary interest-rate increases and hidden fees, such as charges for paying off a credit-card bill over the telephone.
-Full disclosure. It requires clear disclosure of the terms of credit-card agreements and any changes made to them.
-Universal default. It bans the practice of “universal default,” which allows companies to dramatically raise interest rates on a credit card if the consumer is more than 30 days late on any other payment.
-Freeze on rate increases. It prohibits companies from increasing rates on a cardholder in the first year and requires promotional rates to last at least six months. Rate increases must be periodically reviewed and decreased if the cardholder pays the minimum balance on time for six months.
-Delays in payment. It prohibits companies from assessing late fees if the card issuer has delayed crediting the payment.
-Same-day payments at local banks. It stipulates that payments made at local branches must be credited the same day.
-Credit-limit fees. It bans credit-card companies from charging fees when users exceed their credit limits, unless the cardholder has specifically agreed to allow over-limit transactions. In this case, all penalty fees must be reasonable and proportional to the overcharge – that is, no huge rate increases for a purchase that barely tipped the credit limit. If the cardholder has not agreed to allow over-limit transactions, they would simply be rejected.
-Early-morning deadlines. It prohibits issuers from setting early-morning deadline for credit-card payments.
-Statements and notifications. It stipulates that credit-card statements must be mailed 21 days before the bill is due. Previously, the requirement was 14 days. Consumers must now be given 45 days notice of any fee, rate, or penalty increases.
-Application of overpayments. It mandates that payments over the minimum be applied first to the credit-card balance with the highest rate of interest. Card-companies typically apply extra payments to balances with the lowest rate of interest.
-Fair disclosure. It requires issuers to disclose the time and total interest costs it would take to pay off credit card balances, if consumers pay only the required minimum.
-Protections for young cardholders. It provides special protections for consumers under the age of 21. These applicants must have a co-signer who is willing to accept responsibility for payment or proof that he or she has means to repay any credit extended. In cases of joint liability, the co-signer must approve in writing any increase in the credit limit.
Among the things the legislation does not do:
-No cap on interest rates or fees. It does not put a maximum on the interest rates or fees that credit-card companies can charge consumers.
-Disputes don’t go to court. It does not do away with the requirement that consumers with a dispute against their credit card companies take it to arbitration, rather than to the courts. Arbitration decisions typically favor credit-card companies, consumer groups say.
-Interchange fees. The highly controversial issue of “interchange fees” was deferred to a study by the US Government Accountability Office. Retailers wanted Congress to regulate the fees charged to merchants every time a consumer uses a credit card for payment, eating into their profits.
These omissions signal that “the banks still have residual power on Capitol Hill,” says Ed Mierzwinski, a consumer advocate with US PIRG in Washington. “Those are things we’ll need to do in the future. It’s still a great bill, though.”
But banking groups say that the bill will raise costs to consumers and limit access to credit among people who need it.
“We are concerned that the Senate bill will have a dramatic impact on the ability of consumers, students, and small businesses to obtain and use credit cards,” said Edward Yingling, president and CEO of the American Bankers Association, in a statement after the Senate vote.
If the big banks and credit-card issuers raise their rates, smaller banks could benefit.
“Our banks are going to learn to live with the restrictions,” said Steve Verdier, director of congressional relations at Independent Community Bankers of America, after the vote. “But if the big banks make their products even less friendly than they already are, I’m hoping that consumers will rediscover the value of getting credit cards from community banks.
Comments
2. RICHARD A. | 05.19.09
Because of future increase in credit card’s rate some consummers will seek credit cards from foreign banks with law rates. Not only this but also will investing their capitals with foreign banks and U.S. bank might feels the impact for their survival. I hope most Americans will become intelligent enough to avoid the U.S. bank and deal with foreign banks with reasonable mentality.
3. Terri D | 05.19.09
Used to be that the credit cards were governed by the state where the cardholder lived, not the state of domicile of the credit card company. We used to be able to pay our bills too. The Bush Administration moved it to the state of the credit card company. Then, the S hit the proverbial fan. The lobbyists are still winning folks. Let’s pay ‘em off (if we can) and live on cash. There’s no reason for anybody to make this kind of money, even with the help this bill gives us. The greed has to stop.
4. joe gellenbeck | 05.19.09
Banks lower your line of credit and then tell you that your credit rateing is going down,even if you pay on time and pay more than the mininum.Banks and credit card companies hold your credit rating hostage,( pay the higher intrest rate or we will lower your beacon )It is about time not only the goverment but the people stand up to them, but why give them 9 months to gouge the customer? thanks Joe Gellenbeck
5. dale peterson | 05.19.09
So it appears changes will be made by banks and credit card issuers, but changes nothing really. They simply have to tell us that there will be outrageous charges in advance, then they may run with our wallets. the changes do nothing but offer our politicians a political pay day. Those up for reelection need something to bring to their constituents, something to hang on the wall as a trophy.
6. Virginia | 05.19.09
This bill is long overdue and doesn’t correct all the abuse the credit card companies rain down on the unsuspecting consumer. I don’t feel the least amount of pain for these banks that take the public’s money anyway they can get it. I just hope this is a start and not the end.
9. Whereseldomisheardadiscouragingword | 05.19.09
The argument against this legislation put forth by bankers is bunk. This bill will began to protect credit consumers from loan sharking and predatory practices by credit card issuers. However, it does not go far enough. Interest rates should be capped and profiling for rate increases should be prohibited. The only criteria for raising interest rates should be the consumers payment history. Concluding that an individual is in a high risk catagory and increasing interest rates based on profile is illegitimate when an individual has never missed or been short on making a payment. Profiling is prejudice and unfair especially when the criteria used to make these decisions is not made available to the consumer. It is only used as an excuse to make detrimental changes in terms to someone who is carrying a balance and unable to pay down quickly. Also, there was no mention of arbitrarilly reducing credit limits and raising APR without sufficient notice or cause. People many times depend on having a given credit limit as a backup in case of unexpected emergencies etc.
10. Stephanie | 05.19.09
Do you know who wins as long as they can keep us squabbling for a pence?
The corrupt two parties and the loansharking banks.
We are supposed to consume kids , it makes the great Nation that we were.
But, we are taken over by big war chest politicans worse than Britain was, when the founding fathers left it.
Keep the money away from the the markets and these banks, and show no profit to tax. Keep the money in the matress to break their plans.
Have one pure voice and register Independent Party this round.
Scare the hell out of them all.
People are the power under the Constitution, so stand up for yourselves.
11. Dennis Reed | 05.19.09
It appears that the government may be taking partial action against this legalized mafia. They now need to take the necessary steps to really rein them in.
12. JC2 | 05.19.09
Good news for the consumer! This bill patches many of the glaring holes and deficiencies in the bill passed by the lame duck Bush administration. It also brings the effective date in a little though we are still looking out to 2010.
There are things that could be improved but the message this bill sends may encourage the credit card industry to behave in a more honest fashion. Relief that our nation desperately needs.
Next to go… usurious interest rates and settling disputes by industry owned arbitrators. Then we need to help the retailers who have been crushed for so long.
13. ss jackson | 05.19.09
Having worked in finance for almost 40 years, here is what I can tell you will happen as the result of passing this bill. Much of it will be good. Some will be very bad. This bill essentially moves the credit card business back fifteen years to exactly where it was before the democrats in power at the time demanded more credit be made available to less than excellent credit risks. In response card issuers cleverly offset their increased risks with a raft of hidden fees, default charges and rates based on demonstrated risks. The result: more credit available to more people, but at higher costs and more fees for risk compensation. Now credit cards will be issued to a much smaller audience–but a higher quality audience…the government will get its wish, costs of credit will come down a bit..fewer people will get cards, and then deprived consumers will once again demand action in favor of poor credit risks and the whole thing begins again. The shallowness of the democrats will be exposed again, but in a shallow society who cares? ssj.
14. Dennis Davidson | 05.20.09
Well, I have nearly given up on politics…I am refusing to vote on anything until I see a change in the way “elected officials” do business. This bill is simply a bone thrown to the hungry people who make this country’s workforce. I guess if everyone didn’t vote no one would get elected to public office, except those who “continously” vote for “themselves”. The average person in this country will see no “bailout” from the banks or from the government of their state or the feds. In the end the hungry trudges on and the fat cats on the hill get fatter on the pork….
15. Owl | 05.20.09
I’m 46, and I’ve never had a credit card. I guess I’m not overly concerned that students (I have a BA) can’t borrow money they don’t have. I think that if the Repugnicans don’t make available GOVERNMENT, LOW INTEREST loans to students, that they are rat finks, and that it should not be left up to the banks to finance our youths’ education.
16. B | 05.20.09
Smart. Finally. And why shouldn’t the retailer have to pay whatever fee they impose? The retailer could just choose not to use them, like they choose not to advertise or use anyone else’s commercial service (duh). Oh, wait, that was the lobbyists … obviously, if it were the lobbyists, a lot more than just three things wouldn’t have gotten passed (obvious).
17. Ernest L. morell | 05.20.09
Yeah, it’s about time that some one did something about how we as consumers have been paying unexplained fees on our creditcards. I tell ya there are times when I feel totally importancy,I also think there should be a roll back on all creditcards debts under $5.000.00 for those person who have been in debt for the last 7 to 10 years….thank you very much…..Ernest
18. Linda Balk | 05.20.09
The most important thing the bill could have done would be to limit the interest rate charged to reasonable rates under 7% so that consumers could pay off debt faster and live like people lived in the 50’s. Rates like you see now were unheard of then. This ommision in the bill makes it another piece of useless legislation.
19. Dj Osbore | 05.20.09
For all those hard working, non over spending people who pay off their Credit Cards monthly and do not want to pay fees and be charged interest starting on the day that you purchase an item.If we cancel our credit cards will it affect our FICO scores? Dammed if you do dammed if you don’t. FICO score , somebody needs to fix this system!
20. mike | 05.20.09
Before you count this as a big win for the consumer you might want to step back to reckon how we got here and where we’ve been. To understand the rentier society we have become and where we are heading try: http://www.michael-hudson.com Warning: if you have studied economics in the U.S. prepare for some cognitive dissonance. The tab ‘Interviews’ - 2004 might be a good place to start.
21. Lee Russ | 05.20.09
Finally, a sensible degree of control over an industry that has long been out of control. The credit industry’s attempts to spin this as the death of credit for people who are poor credit risks is nonsense. The credit card companies can still charge exorbitant interest rates (which not that long ago would have been banned by usury laws, by the way), they just can’t do it sneakily and without the knowledge of the cardholder.
Industry whining about government infringement on their “sophisticated” credit risk assessments is laughable. Sophisticated risk assessment would not produce “pre-approved” cards for everyone, including infants, dead people, and animals.
22. Jean | 05.20.09
Although I think the legislation will have a positive impact on some consumers by reducing the amount they end up paying credit card companies over time, I see how benefits may be offset by other negatives. If some consumers are PAYING LESS, then the credit card companies will see LOWER REVENUE. Just like any other company, they will need to balance their books by making up the revenue in other ways or by cutting costs (jobs, e.g.). The changes in this bill resulted from past efforts by these companies to raise revenues and make ever-increasing growth goals and offer credit to a riskier segment of the consumer market. It’s difficult to balance this equation. We may have just replaced it with a different equation where a new set of loopholes or creative revenue-generating will be exploited by card companies seeking to continue profitable operations. This will certainly come in the way of tighter credit standards, increases to fees they continue to charge, and higher rates.
23. Epaphroditus | 05.20.09
Why do we need legislation on these matters? Individuals are not forced to get credt cards. If they don’t want to accept the terms credit cards give them, then go with a different credit card or (dare I say) don’t get one. Americans need to stop rellying on the government to bail them out of bad decisions.
24. Zebra | 05.20.09
At the risk of being ‘censored’ , I can’t wait for the hackers to clean out the bank CEO’s personal accounts! I’ll sit on my hands to keep fron clapping!
25. Tom | 05.20.09
What alot of you don’t understand is that for those consumers who always payy off their credit card bills, this new law will allow these credit card companies to start charging interest on purchases the day of the purchase. This hurts everybody. Thanks Obama
26. curious | 05.20.09
Tom (#25) writes “… for those consumers who always payy off their credit card bills, this new law will allow these credit card companies to start charging interest on purchases the day of the purchase…” No, that’s not true. Has Tom actually read the bill? Why is he spreading misinformation? Does he work for a credit card company?
27. S. Sandlin | 05.20.09
Phooey to banks and their paws in the credit card till. Go find yourself a credit union!
28. Lauren | 05.20.09
I’d say the people who don’t get access to credit because of these stipulations are probably the kind of people who don’t need it. The kind that buy a wide screen plasma tv and then complain that they can’t buy groceries. Maybe this will cause people to save more to get big ticket items that they need. What a shock.
29. dj | 05.20.09
While a good start, this bill misses one big flaw in the current system: mndatory arbitration. A consumer has no right to go to court with disagreements with credit card companies; they must go to mandatory arbitration where credit card companies win 90% of the time.
The other tihng the US still needs very badly is a usury law. We still have loans in this country that can legally charge loan-shark interest rates — some in the hundreds of percent! Loans like “payday” and “car title” loans can literally put low-income consumers in debt that makes the loan companies, in effect, their owners for life. Something must be dome about this.
30. dj | 05.20.09
While a good start, this bill misses one big flaw in the current system: mndatory arbitration. A consumer has no right to go to court with disagreements with credit card companies; they must go to mandatory arbitration where credit card companies win 90% of the time.
The other tihng the US still needs very badly is a usury law. We still have loans in this country that can legally charge loan-shark interest rates — some in the hundreds of percent! Loans like “payday” and “car title” loans can literally put low-income consumers in debt that makes the loan companies, in effect, their owners for life. Something must be dome about this.
31. Alfred di Genis | 05.21.09
These minimal “concessions” by credit card issuers are meant to avoid any serious changes to their piratical practices and outrageous profits. Interest rates on cards should be fixed at X above prime as other loans are. This easy to understand adjustment would only be a beginning to stop the usury employed by banks. The “concessions” made by credit card issuers are an example of the “concessions” that will be made by health insurers in order to stave off real changes, including the dreaded (to them) universal single payer plan.
32. Aureus Von Humboldt | 09.02.09
Now that this has passed can someone please tell me why Obama hasn’t signed it into law? Is he to busy? Has he forgotten about his commitments? Or is this simply another attempt to divert the attention of the american public and appease our wants and needs to increase his approval rating. Since the legeslation was passed here is what I have experienced, all of my credit card companies have raised my rates…capital one 8% increase…chase 5% increase…juniper (HSBC or who ever they are now) 8% increase…now does the law protect me at all? No because when my interest rate was 9.9% it is now 17.9% and that is the rate it will remain. When I finish paying these things off I will NEVER SEEK CREDIT FROM A CREDIT CARD COMPANY AGAIN…THEY ARE CROOKED PIRATES AND HAVE STOLEN MONEY IN TWO WAYS FROM THE AMERICAN PEOPLE THEY HAVE DEFRAUDED THE GOVERNMENT AND SHOULD ALL BE SHUT DOWN…at least that is my humble opinion!
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1. Art Williams | 05.19.09
I’m usually the type who’d rather see the market bring about changes such as these, but after reading the article summarizing the bill, I have to say the reforms seem sensible and moderate. Hard to imagine how it will hurt the banks, raise interest rates, or cut off credit to those who realistically qualify for it.