Understanding the Credit Card Reform Legislation
Last week, the House easily passed the Credit Cardholders’ Bill of Rights and sent it on to the Senate.
But the Senate is considering its own version of a credit card reform bill called the CARD Act. This week, the Senate begins discussions on the Credit Card Accountability Responsibility and Disclosure Act, an entirely different credit card bill than what passed in the House.
In a number of ways, the CARD Act in the Senate is similar in a number of ways to the House’s Cardholder Bill of Rights, but it is also considered stronger with more regulations. Both end some of the unfair practices used by credit card companies and require more notice on all interest rate and fee increases. However, the Senate bill is not expected to pass quite as easily as the House bill. Republican senators are expected to be more sympathetic to the difficulties that new regulations will place on banks and are hesitant to make laws that limit a bank’s ability to raise rates when they are needed.
If the Senate passes the CARD Act, the next step will be to merge the Senate and House bills together. Since they passed different bills for credit card reform, both bills will be sent to a conference committee. Members from each house form a conference committee to work out the differences. If the conference committee reaches a compromise, they prepare a report detailing the changes they have proposed and send the new bill to both houses for a vote. Both the House and Senate must approve this report, or the bill will be sent back to the committee for further work. Once the bill is approved by each house, it is sent to the President for his signature. President Obama has already declared that he will sign a credit card reform bill.
While the Fed, House and Senate are addressing many of the same issues, the Senate’s version includes these stronger legislative regulations:
* Requires interest rate increases to apply only to future credit card debt
* Prohibits late fees if the card issuer delayed crediting the payment
* Prohibits the charging of interest on credit card transaction fees, such as late fees and over-limit fees
* Prevents issuers from multiple over-limit fees for exceeding a card limit, and allows such fees only when a cardholder’s action, rather than a fee or finance charge, causes the limit to be exceeded
* Strengthens credit card industry regulation and supervision
*Provides each federal financial regulator with the authority to prescribe regulations governing unfair or deceptive practices by banks and savings and loan institutions
* Requires issuers to offer consumers the option of operating under a fixed credit limit
* Requires issuers to lower penalty rates that have been imposed on a cardholder after six months if the cardholder commits no further violations
* 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
* Requires issuers soliciting to persons under the age of 21 to obtain an application that contains: the signature of a parent, guardian, or other individual who will take responsibility for the debt; proof that the applicant has an independent means of repaying any credit extended; or proof that the applicant has completed a certified financial literacy course