Senate nears passage of bill to benefit credit card holders

Consumers jolted by sharp, sudden interest rate increases on their credit cards would get strong new protection from such surprises under legislation that appears headed for Senate passage later this week.

The bill’s journey became smoother Tuesday as key lawmakers from both parties agreed to push a measure giving 45 days’ notice before interest rate, fee or finance charge increases can go into effect and requiring promotional rates to stay in effect for six months.

The Senate bill is almost identical to the one passed in the House. A key Senate section, one that helped produce the compromise bill debated this week, would bar card issuers from imposing retroactive rate increases until a consumer was more than 60 days behind in making a payment.

If, after six months, the consumer paid the minimum balance on time, the lower rate would be reimposed.

The measure also would put tough new restrictions on issuing credit cards to minors and make it easier to use gift cards.

The House of Representatives passed its own “Credit Cardholders’ Bill of Rights” last month with strong bipartisan support ? and a strong push from President Barack Obama, who plans to discuss the issue at an Albuquerque, N.M., town hall meeting later this week.

Many banking industry officials are concerned about the legislation. The American Bankers Association sent a letter to senators Tuesday saying that while it understood the need for some of the bill’s consumer protections, the measure also “contains various provisions that limit a lender’s ability to manage risk, price fees, allocate payments, and otherwise prudently conduct business.”

Those limits, the ABA warned, “will necessitate reductions in available credit given current economic conditions, while increasing the price of credit where it remains available.”

The bankers, however, are up against strong political momentum that comes after some lawmakers and consumer groups have pushed for changes for more than a decade. Three recent developments have stoked a dramatic change in the legislative mood.

“The president is No. 1 and the economy is No. 2,” said Travis Plunkett, legislative director for the Consumer Federation of America. “And third, little by little, the interest rates have affected so many households, I don’t have to convince senators that this is a problem anymore.”

Senate Banking Committee Chairman Christopher Dodd, D-Conn., felt the sting when his 7-year-old daughter got a credit card solicitation in the mail, at the same time he was hearing from constituents about sudden interest rate jolts.

“The range of abusive practices is as long as it is appalling,” he said.

A Pew Safe Credit Cards Project survey of 12 large credit card issuers, conducted during 2008, found that 93 percent of cards “allowed the issuer to raise any interest rate at any time by changing the account agreement.”

And, it said, some 87 percent of cards “allowed the issuer to impose automatic penalty interest rate increases on all balances, even if the account isn’t 30 days or more past due. The median allowable penalty interest rate was 27 percent per year.”

The study found that “current credit card practices place American cardholders at risk of sudden, potentially drastic price increases, which can seriously impair a household’s stability and spending power.”

There is some congressional resistance to approving changes, as some lawmakers were concerned that companies could tighten credit if faced with new restrictions.

“I appreciate trying to straighten out any problems, but sometimes we over-regulate,” said Sen. Orrin Hatch, R-Utah. “When you start doing that, there are sometimes unforeseen consequences.”

The bill also would:

– Require a credit card issued to someone under 21 ? say, a college student ? to be approved by a parent or guardian who would assume responsibility for unpaid debt.

– Require any gift card to have at least a five-year lifespan and eliminate any hidden fees in the card, fees sometimes charged when a card is used.

– Bar issuers from charging a fee to pay a credit card debt in most cases.

– Require payments above the minimum balance to be applied first to the card balance with the highest interest rates

– Bar issuers from establishing early morning deadlines for payments.

– Require full, understandable disclosure in billing statements of due dates and late payment penalties.

The Federal Reserve Board has issued similar rules that would take effect next year, though the legislation goes further. For instance, the House bill bars adding fees for paying card balances by phone, requires companies to file detailed annual reports about card rates and usage with the proper regulatory agency, and bans issuance of cards to most minors under 18.

(c) 2009, McClatchy-Tribune Information Services.