Consumers Could Benefit from Credit Card Reform
Credit card reform is another step closer to becoming a reality and these changes may truly benefit consumers. On July 31, the House Financial Services Committee passed H.R. 5244, the Credit Cardholders Bill of Rights. The vote was 39-27. The bill must pass the full House and Senate before becoming law.
Here is a summary of the Credit Cardholders’ Bill of Rights as passed by the House Financial Services Committee:
–Protections against arbitrary interest rate increases. Issuers would have to give cardholders 45 days notice of any rate increase.
–Prevent issuers from retroactively increasing the interest rates on the existing balances of a cardholder unless the cardholder is more than 30 days late.
–The bill would prohibit double-cycle billing and limit issuers from assessing fees on the remaining interest-only balance of a cardholder who has paid his bill on time.
–Protect cardholders from due date gimmicks. Give cardholders time to pay their bills by mailing statements 25 calendar days before the due date. It will also prohibit issuers from charging a late fee if cardholder can present proof of mailing payment within seven days of due date.
–Cardholders who are pre-approved for a card have the right to reject it up until the moment they activate it without having their credit adversely impacted.
–Issuers should fairly credit and allocate payments at different rates. They currently require cardholders to pay off a lower interest rate balance first.
–Issuers should not impose excessive fees on cardholders. The proposed reforms would cap the number of “over-the-limit” fees card companies are allowed to charge to three. Some issuers currently charge an unlimited number of fees when consumers exceed their credit limit.
This is an important issue in Congress, and the passage of this bill out of subcommittee is a good sign that Congress is taking action. These are needed changes, but it will be interesting to see if and how long it takes the bill to reach the Senate for a vote and what the final bill will include. The credit card issuers are under huge financial pressure from their own losses and seem to be spending a lot of money on lobbyists to fight this and minimize any changes.
Consumers should contact their Representatives and ask them to support the Credit Cardholders Bill of Rights. According to the New York Times, over 56,000 people replied to the Federal Reserve’s request for comments about abusive credit card practices. If Senators and Representatives get the same response, they will have to act on this bill and force reform for the lending practices of credit card issuers.
These reforms may be necessary, but they may not be free. Banks are saying that these reforms will force them to charge higher costs for consumers, reduce access to credit for those with an imperfect or limited credit history, and reduce low credit options.