Congress OKs credit-card reform

Congress passed far-reaching credit-card-reform legislation on Wednesday, and the president is expected to sign the bill into law this week.

The law will curb credit-card-rate hikes, fees and practices decried as unfair and abusive by some. The Senate overwhelmingly approved legislation on Tuesday and the House followed suit Wednesday. A signing ceremony is scheduled for Friday afternoon.

“This is a great victory for consumers,” said Pam Banks, policy counsel for Consumers Union, the nonprofit publisher of Consumer Reports. “Consumers can wake up the day after this passes with a smile on their face, saying finally someone is helping Main Street, we’ll get some relief.”

Legislation is needed to protect consumers, supporters say, while industry representatives warn that it could increase costs and cut access to credit. Despite the warnings, momentum has been building for the bill as the recession straps families across the country and banks receive hundreds of billions of dollars in government support.

The administration has been pushing for Congress to ready a bill for the president’s signature by Memorial Day. Credit-card reform is “key,” and new rules will protect consumers from “predatory and unfair lending practices,” said Treasury Secretary Timothy Geithner after the Senate passed the bill on Tuesday.

Last year the Federal Reserve approved final credit-card rules that go into effect July 1, 2010. The legislation would speed up the rules, calling for implementation within nine months of enactment.

While the regulators’ rules contain many provisions that are in the law, consumer advocates say legislation is needed to ensure that the requirements are firmly set in place. Further, the legislation is stronger than the Fed’s rules in some ways. The bill would ban raising rates on an existing balance unless a consumer’s payment is 60 days late, among other exceptions, while the Fed calls for a 30-day window. If consumers pay their bill on time for six months, the legislation would require issuers to revert to the lower rate.

Among other steps, legislation would:

? Limit issuers’ ability to raise the annual percentage rate of interest during an account’s first year

? Ban universal default ? a practice through which issuers use a consumer’s history with another creditor to raise interest rates.

? Require payments above the minimum to be applied first to the highest-interest-rate balance.

? Protect younger consumers by limiting prescreened offers and their access to credit.

? Rein in fees for exceeding credit limits and for paying bills via telephone and other electronic vehicles.

? Require cardholders to receive 45 days notice of increases in interest rates ? this provision would go into effect within 90 days of enactment.

Because of an amendment tacked on in the Senate, the legislation would also allow people to carry firearms in national parks and wildlife refuges where they are permitted to by state law.

“Visitors to national parks also should have the right to defend themselves in accordance with the laws of their states,” said Sen. Tom Coburn, R-Okla., who offered the amendment.

While the bill takes a variety of important steps, more work may be needed, Consumers Union’s Banks said.

“The credit-card industry will get this bill and review it … and see if there are loopholes to take advantage of,” Banks said. “With time there will be new problems that will crop up, and we’ll have to deal with them going forward.”

For example, consumers and credit scores that have already suffered from unfair practices may need assistance, she said.

Industry representatives have repeatedly warned that rules could have the unintended consequence of harming consumers by increasing costs and cutting access to credit cards. Read Capitol Report.

“Most importantly, this bill fundamentally changes the entire business model of credit cards by restricting the ability to price credit for risk,” said Edward Yingling, president and chief executive of the American Bankers Association, in a statement after the Senate’s Tuesday vote. “What has been a short-term revolving unsecured loan will now become a medium-term unsecured loan, which is significantly more risky.”

(c) 2009, Inc. Source: McClatchy-Tribune Information Services.