Credit Card Reform via the 2009 Cardholders' Bill of Rights
[Updated May 15th] Looks like credit card reform is gaining steam as the Senate is expected to vote (and approve) the controversial bill this week. The Credit Card Reform Bill, approved by the House on April 30th, is expected to pass in Congress with more than 20 amendments to the original house version of the legislation (see below). President Obama wants to sign it into law by Memorial Day. Senate Democrats and Republicans made some critical compromises over the bill and have strengthened a number of provisions which include:- Retroactive Rating: Consumers who are paying more in interest because they have fallen behind on their credit card bills could regain their older, lower rates if they pay their bills on time for six months. Lawmakers contend that the practice of hiking rates on past balances prevent consumers from climbing out of debt, and that this provision is needed for any real reform to take place.
- Require anyone under 21 to prove that he or she can repay the money before being given a card, or have a parent or guardian promise to pay off the debt if he or she defaults. This is aimed at lowering the soaring credit debts (and defaults) that many college students are accumulating and get burdened by throughout their working lives.
- Ban fees if customers want to pay their bills by phone or online and prohibit over-the-limit fees unless a cardholder elects to be allowed to go over their limit.
- Require lenders to disclose how much time it would take and how much money in interest would be paid if only the minimum monthly
payments are made.
"There's no time for delay," Mr. Obama said. "It's time to get it done. We can't depend on profits that depend on misleading American families--those days are over." Americans know that they have a responsibility to live within their means and pay what they owe," Obama said in his weekly radio and Internet address. "But they also have a right to not get ripped off by the sudden rate hikes, unfair penalties and hidden fees that have become all-too common"Mr. Obama's meeting sent a clear signal to the executives that credit-card legislation would be forthcoming and it would likely happen quickly. Mr. Obama told reporters that he told the executives "credit cards are an important convenience for a lot of people." He said he expressed concerns about rates that quickly doubled after starting at low levels and "a whole lack of clarity and transparency" in terms and conditions on cards.
He also outlined four key principles and goals: an end to "anytime, any-reason rate boosts and late-fee traps"; plain-language statements without fine print and "no more confusing terms and conditions"; the availability of comparison shopping for cards and the option of a "plain-vanilla, easy-to-understand, simplest-terms-possible credit card" as a default option; and more effective oversight and enforcement against issuers that violate the law.
Credit card reform is a growing concern for American consumers who rely on credit cards for large and small purchases. About three-fourths of all U.S. households have a credit card with an average unpaid balance of $12,000. The Center for Responsible Lending this month showed that, within the last six months, the top eight credit card issuers have all increased the interest rates on existing balances for some of their account holders for no particular reason. The organization says an estimated 10 million account holders may have been impacted
If the bill and provisions become law, the new provisions won't take effect for a year, except for a requirement that customers get 45 days' notice before their interest rates are increased. That would take effect in 90 days.
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Long suffering credit card holders may finally get some benefit amongst all the government fiscal spending and stimulus packages. The re-introduction in Congress of the Credit Cardholders' Bill of Rights legislation, to rein in abusive credit card practices, has set the stage for a political battle that will determine whether small business' and other credit card users get relief soon from soaring rates and fees.
Earlier reforms to address retroactive rate increases and on double-cycle billing were already put in place in late last year through new regulations issued by the Federal Reserve and other federal agencies. However, those new rules, don't take effect until July 2010. The latest bill specifies that new regulations would be enacted 90 days after President Obama signs the bill into law.
The Credit Cardholders' Bill of Rights legislation, introduced by Rep. Carolyn Maloney, D-N.Y., in the House, and Senators Mark Udall, D-Colo., and Charles Schumer, D-N.Y., in the Senate. would take a number of steps to restrict credit card issuers, including:
"A credit card agreement is supposed to be a contract, but in recent years cardholders have lost the ability to say no to unfair interest rate hikes and fees," Maloney said in a press statement. "This bill levels the playing field between card companies and cardholders while fostering fair competition and free market values."- Banning retroactive rate increases on existing balances for cardholders in good standing. Rates could still be raised if a customer were more than 30 days late with a payment.
- Requiring 45 days' notice of all rate increases on new charges and protect cardholders against arbitrary interest rate increases
- Banning "double-cycle billing," which allows fees to be charged for balances that were already paid off.
- Allowing cardholders to set limits on their credit card and cap how much they can charge to their cards, to avoid overdraft fees.
- Outlawing "universal default" clauses, which automatically hike rates on a card based on unrelated financial activity, such as being late paying another bill.
- Prevents cardholders who pay on time from being unfairly penalized and protects cardholders from due date gimmicks and misleading terms.
- Requires card companies to fairly credit and allocate payments- Prevents card companies from giving subprime credit cards to people who can't afford them
- Requires Congress to provide better oversight of the credit card industry [I question if this is too much government intervention]
Credit card companies are expected to oppose the bill. The American Bankers Association, which represents several major credit card companies, says that a 90-day implementation would be too onerous for banks to put into effect. "In effect, these new regulations completely rework the current credit card system and mark the beginning of a new market structure for credit cards," ABA President Edward Yingling said in a prepared statement.
"Precipitous action, such as the implementation period in the new bill, could have serious and detrimental effects on consumers and the economy at a time when access to credit is in particular demand."
Industry critics don't buy that argument
"Three months seems like plenty of time to rejigger their computer systems," said Travis Plunkett of the Consumer Federation of America, which backs increased credit card regulation. "There are plenty of ways to allow the banks a reasonable period of time to implement the law without making consumers wait for a year and a half while they're still dealing with practices that the Federal Reserve has determined are unfair and deceptive."
If legislation does make it through Congress, it's almost certain to be signed by Obama, who during his presidential campaign endorsed credit card reform. Obama singled out unilateral rate hikes and rate changes on existing debt as two industry practices in need of abolition. "Over the years I've been pretty pessimistic about the opportunities for federal legislation, but the prospects are really good," he says. "Members of Congress are hearing from constituents on this issue. Sixty-thousand people wrote the Federal Reserve. This is a very big issue with the American public."
What do you think? Is Credit card reform overdue and will it change the way people use Credit Cards? Click here to leave a Comment.
References : NY Times, WSJ.com
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February 4, 2009 10:52 AM
Seems like too much government involvement to me. That being said, perhaps there are practices that are occurring that are worse than I think. The most common complaints I hear are the two that Obama mentioned: raising rates on existing balances and unilateral rate hikes.
I do agree that the first is a problem, but only if the consumer is given no choice. I do not know if that is happening, but I suspect that it may not be. Instead, I think that the consumer is generally offered the choice of closing the account to new charges and paying off the existing balance under the previous terms. I believe this is perfectly reasonable.
Similarly, as long as the first issue is handled as I've described, then I don't think I have a problem with the unilateral rate hikes either -- as long as they are actually based on the consumers debt activities and not something like their zip code (which I have heard has happened).
The rest of the issues seem like they should be able to be handled by the market. Now, perhaps there are other issues that are preventing the credit card market from being a real market -- such as too few players. If that is the case, then I would be in favor of the government taking action to open that market, be it via the justice department or Congress.
February 8, 2009 5:12 PM
I always pay the balance monthly, have a 17,000 credit limit and still the CCC incresed my interest rate. Why? Greed, period
February 27, 2009 12:59 AM
Let’s clarify the problem since this is a very serious issue. The interest rate hikes taking place are real and exorbitant (30% and larger). There is little or no interest in negotiations from the credit card companies. If you are late one minute, the default rate will be applied and in many instances will make payments unaffordable to consumers.
If I was late in my mortgage payment and my mortgage rate was increased to 30%, I would loose the house and my credit. Good thing this not allowed, but it is allowed for the credit cards.
Increasing interest rates ties the consumer in a vicious debt cycle that can only be broken by either negotiations with the credit card company (unlikely with the present laws), having someone else negotiate (this is also becoming more difficult and has inherent risks), defaulting, or bankruptcy.
If credit cards were interested in having the balanced paid for, they would make arrangements with the consumer. However, it’s obvious that this is not the credit card companies’ interests or goals. Their major goal is to ensure that revenue is increased, which requires maintaining a large supply of consumers in debt. The interest of the consumer is to get out of debt. These two goals are in opposite directions and unless the government steps in, the credit card companies will continue their predatory practices of ensuring a large pool of consumers deep in debt.
The statement from the credit card companies that these actions will have detrimental effects on consumers and the economy is FALSE. An increase in debt to income ratio does not help the consumer and clearly damages the economy by decreasing the pool of credit worthy consumers. Let’s not underestimate the negative impact that no action on this subject can have on our economy.
If the credit card companies are left unchecked, the negative impact on our economy will be major. The purchasing power of consumers, already decreased by unemployment, housing market, etc, will be drastically reduced by placing large number of Americans in deep debt. In addition, many consumers who were once motivated to pay their debt will invariably be forced to default. Also, if lending is limited now, who will we lend to when the pool on available consumers goes down?
I am hoping that the government legislation will force the credit card companies to negotiate with the consumers to pay what they rightly owe at an appropriate interest rate. Not to pay extravagant fees and interest rates designed to generate large pools of consumers in debt. Our economy will have a much more difficult time recovering if we don’t have healthy consumers.
March 7, 2009 8:38 PM
It is way overdue. A credit card company simply raises your interest rates more than 10% if you miss or are late on any payment elsewhere even if you are current on that card. They claim something vague about you are now a higher risk for paying all cards late!
Well if all my cards suddenly go up to 23% I am at higher risk of not being able to pay - self fulfilling prophecy.
This and other outrageous rules hidden in the small print are there only do defraud the card user.
Since the banks have no problem changing their charges quickly when it benefits them so 90 days should be plenty!
And while Congress is looking at solutions how about some regulation on the Pay Day loan industry and their 500% interest!
April 11, 2009 1:54 PM
usually i prefer less government involvement but considering how much bail out recently there has been and to banks that charge exorberant fees or intrest rates and then will make it almost imposssible to catch up example if you are late in payment and close to your limit you get a 40 dollar late payment fee and a 40 dollar over balance fee caused by the late payment fee then you have to pay to get back under the limit plus or normal bill and fees. so lets say this caused you to go 20 dollars over and your normal payment is 20 dollars you would have to pay120 dollars to get back to current even if you got credits that is not fair to the consumer and has caused many peoples credit to go sour
April 15, 2009 9:14 PM
I strongly believe in Credit Card Reform and the idea that Banks can arbitrarily increase credit card rates; particularly on credit card holders that are in good standing and have been for decades is an insult and a violation of consumers rights. They are getting bailed out by the public and they now seek to penalize the same people who have bailed them out!!!
April 24, 2009 6:31 AM
The over limit fees and late payment fees are very abusive. I've had to close accounts because of it. When you don't have a lot of money and get overdrawn the banks make it much worse by adding exorbitant fees. They steal your money basically. What's wrong with charging reasonable interest for those overdrafts and allowing a reasonable time to catch up (say three months) before starting to charge REASONABLE fees? How has the system allowed these high fees to begin with? Free market forces seem to not work in the interest of the consumer.
April 24, 2009 6:49 AM
If - IF Obama can pull this off he will have accomplished something vital for America.
Neither Bush, nor Clinton, had the will or motive to combat this injustice.
I hope this is not just another shakedown by the Congress hoping the Credit Card companies will fill their pockets with cash to just go away.
April 24, 2009 9:03 AM
It's about time. I am tired of being a good customer paying on time and everywhere you turn around my interest rate is increasing because the banks can't manage their own money.
What will happen to the banks that are increasing the interest rate 100% now before this bill gets passed. Will they have to turn back the clock? or are we stuck with the high interest rates that get snuck in before this bill?
April 24, 2009 5:53 PM
i lost my job and got behind on my card payments.....they said i could pay 30 dollars a month but late fees would be 39 dollars a month...i dont see no way to get caught up like that....im glad to see someone do something about this.
April 28, 2009 10:41 PM
Thanks for all the comments. Good to see progress being made on this bill and I am sure we could all use some reform. The key is also ensure education of credit card usage is also included.
April 30, 2009 7:47 PM
There is no reason for credit card rates of 20-50% when our inflation is in the low single digits and prime is in similar ranges.
There is no reason for allowing them to rape the american public with that kind of usury.
How about protecting our ecomonmy, and American citizens by putting a reasonable cap on card rates that is not more than 10% above prime?
That help stop the credit card defaults, auto loan defaults, and mortgage loan defaults, when the credit card companies force people into default on all loans by pushing rates and payments several times what consumers initially agreed to with rates less than 10% initially ... or even into bankruptcy where all lenders suffer because of the credit card abuses ... and in the end, all Americans which pickup the tab for those unnecessary defaults.
May 19, 2009 8:36 AM
I do believe that they are handed out way to easily. That is the only thing that I agree with!!! However, Americans are living outside their means EVERYWHERE in their lives. Few are saving for retirement. Few have money asside for emergencies. Few live with in a budget monthly. We have been in a spending mode for years. We have to have the biggest houses and the most expensive cars. We have to have a new cell phone each year or so. We are out of control. And the only way to get back in control is to own up and take responsibility. Most of the reform is just an excuse for many Americans. Something has to be done and that is STOP SPENDING outside your means!!!
May 23, 2009 12:47 AM
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May 25, 2009 10:49 PM
If they do anything to increase my costs, I, as a good bill paying customer with a high credit score, I will flush the cards down the toilet!
May 31, 2009 11:34 AM
Well it has been way too long for this to take place ,but good things come to those who wait.I only wish and hope that some of the money that has already been ripped off could be given back . Now that would be change-no pun intended -we can believe in.
August 25, 2009 9:00 AM
I truly believe that the Credit Card Reform will change the lives of Americans. For a start, the Act stated laws in favor to the credit card holders, giving them the opportunity to re-enjoy the low rates after paying bills on time for six months. It is also right for under 21 people to provide proof that they can pay their credit card bills to avoid the burden of paying debts for the rest of their working lives. Though I totally agree to the credit card reform, I think that to is still best to limit the use of credit card and spend less.
August 27, 2009 6:13 AM
The Credit Card Bill will definitely change the way we use credit cards. For a start, we will be able to enjoy low interest rates if we pay our bills late and given the circumstances that our economy is offering, it is now easy to understand why consumers often pay late. Though the bill offers rules which can help us - credit card holders achieve a healthy credit life amidst the recession, I think that it is still best if consumers will do their part and start using credit card wisely.