Senate Tackles Credit Card Reform
Yesterday, Senator Chris Dodd (D-CT), Chairman of the Senate Committee on Banking, Housing, and Urban Affairs, re-introduced the Credit Card Accountability, Responsibility and Disclosure Act (the Credit CARD Act).
Currently, the House, the Senate and the Federal Reserve are all tackling credit card reform but there is no legislation to actually help consumers right now during this economic crisis. The Fed’s regulations passed but don’t go into effect until July 2010.
Meanwhile, credit card issuers have tightened credit lending and increased rates to protect and help themselves. Cardholders are currently paying the price with higher rates and lower credit limits.
Experts say that of all of the acts, regulations, and proposals that have been introduced, the Credit CARD Act offers the most protection for consumers. They say it would be very helpful for consumers if these were passed quickly and went into effect immediately.
Here are a few provisions in the legislation:
* Protect consumers from interest rate increases and account changes for reasons that are unrelated to the card (universal default). This will prevent issuers from increasing interest rates on cardholders in good standing who have done everything right.
Financial experts advise that protection against rate increases “for any time, for any reason” is needed immediately. Cardholders with good credit scores who pay on time each month are getting hit with big rate increases. A number of the major issuers are increasing rates on their cardholders, perhaps thinking that they will get these rate hikes in before the Federal Reserve regulations take effect.
Many consumers are angry and want to know how to respond. Experts say that if your rate is increased, there aren’t many options beyond closing the account and paying off the balance at the original rate, or transferring the balance to a lower rate card.
* Interest rate increases will only apply to future credit card debt. If the rate is increased, customers may close the account and pay under the existing terms at the time the account was closed.
* If the rate was increased to the default or penalty rate, it requires issuers to lower that rate after six months if the cardholder does not commit any further violations.
* Requires payments to be applied first to the credit card balance with the highest rate of interest. This will minimize finance charges.
* Protects cardholders who pay on time. Prohibits interest charges on debt paid on time (double-cycle billing).
* Limits fees and penalties. Prohibits late fees if the issuer delayed crediting the payment. Requires credit card statements to be mailed out in 21 days before the bill is due, rather than the current 14 days.
* Prohibits the charging of interest on credit card transaction fees, such as late fees and over-the-limit fees.
* Prevents issuers from multiple over-the-limit fees for exceeding a card limit and allows such fees only when a cardholder’s action, not a fee or finance charge, causes the limit to be exceeded.
* Requires cardholders to be given 45-days notice before any rate increase.
* Requires issuers to provide individual consumer account information and to disclose the period of time and total interest it will take to pay off the card balance if only minimum monthly payments are made.