Credit card 'bill of rights' on its way

  • Article by: KEVIN DIAZ
  • Star Tribune
  • May 1, 2009 - 11:42 AM

WASHINGTON - With ever more consumers maxed out on their credit cards, Congress is edging closer to sweeping legislation that would crack down on lending practices that critics say put borrowers deeper in debt.

Billed as the Credit Card Holders Bill of Rights, the White House-backed measure passed 357-70 in the House on Thursday, sending it to the Senate for possible action next week.

"We are on the side of consumers," said Rep. Keith Ellison, D-Minn., who championed a provision that would prevent banks from jacking up interest rates on people who owe money to other banks. "Vote 'no' on this bill at your own peril," he told his colleagues.

The average credit card debt for people carrying a balance is about $7,300, according to the Federal Reserve.

Passage of the bill would represent a major victory for Ellison, a second-term congressman who has made the practice known as "universal default" a top target since 2007, his first year in Congress.

The House bill would tighten restrictions on practices long condemned by consumer groups, curbing retroactive interest rate increases, hidden fees, come-ons to minors, short teaser rates and murky terms of use.

Portrayed as a way to help consumers level the playing field against banks, the legislation won broad bipartisan support in the House, with 105 Republicans, including freshman Minnesota Rep. Erik Paulsen, joining 252 Democrats in support. Two Minnesotans voted against the bill: Republicans John Kline and Michele Bachmann.

Bankers and GOP leaders in the House opposed the legislation on the grounds that it could have the unintended effect of raising credit card costs and killing credit for many debt-ridden consumers.

Backers said the bill would end "predatory" credit card practices by banks, which they say have become increasingly unpopular with voters since the federal bailouts of several large banks and Wall Street institutions.

Election issue

The bill is being treated by Democrats as a potential election issue next year, with the Democratic Congressional Campaign Committee (DCCC) trying to put pressure on Republican holdouts. The DCCC issued statements Thursday accusing Kline and Bachmann of voting to "protect big credit card companies at the expense of responsible consumers."

Kline's office declined to comment on the DCCC attack; Bachmann's office did not return several calls and e-mails seeking a comment.

Republican leaders, however, argued that the bill would erode banks' ability to offer more favorable terms, rebates and benefits to consumers with solid credit histories, a business strategy known as risk-based pricing. "People ought to have options," said Rep. Jeb Hensarling, R-Texas. "Why are we trying to protect people from their choices?"

The bill includes many changes proposed by President Obama, who met with the heads of the largest card companies at the White House last week. It also builds on regulatory changes that the Federal Reserve is putting in place by July 2010, the target date for many of the bill's provisions to take effect.

Limits on rate hikes

Administration officials have called credit card reform a key to boosting the economy, while Republican leaders argue that it will only serve to restrict credit, further hampering a recovery.

While the bill does not impose price caps, it establishes new disclosure requirements and places restrictions on the way credit card companies raise interest rates and fees.

For example, one provision requires card issuers to apply payments over the minimum to the debt with the highest interest rate first. With some exceptions, the bill also would bar banks from raising rates on existing balances. Another provision would keep credit card companies from calculating interest against card balances from more than one billing cycle. Critics say that the practice, known as double-cycle billing, can sometimes lead to card-holders paying interest on charges they have already paid off.

A similar bill passed the House last year but was stymied in the Senate. Supporters say it got new momentum this year because of support from the White House.

The bill's sponsor, Rep. Carolyn Maloney, D-N.Y., predicted that the measure would become law by Memorial Day.

Kevin Diaz • 202-408-2753

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