Industry changing credit card bill passes the House

Thursday May 21, 2009 (foodconsumer.org) -- A bill that has been touted by the American Bankers Association as one of the “biggest reforms of the industry since the invention of credit cards” has passed the House with an overwhelming 90-5 majority vote.

The new credit card bill promises to alleviate some of the pressures faced by consumers during a downturn that has the potential of becoming the mother of all recessions, second only to the Great Depression of the 1930s.

Some of the biggest changes imposed by the bill:

• Students under 21 will be required to prove they can repay the debt, or have a parent co-sign in case of default

• Credit card companies will not be allowed to impose a rate increase until a consumer is 60 days late making a payment

• Hidden fees will become a thing of the past; no longer will credit card companies be allowed to charge fees for online or over-the-phone transactions

• Credit card companies will not be allowed to increase interest rates the first year, and promotional interest rates must remain stable for six months

• If a cardholder is more than sixty days late and subject to an interest rate increase, the rate must subsequently decrease after the consumer has paid on time for six months

The bill is causing an expected furor in the banking industry. Credit card companies claim that by limiting their ability to charge usurious fees to high risk debtors, they will no longer be able to offer credit to those who have defaulted in the past, or who are known credit risks.

The credit card industry is a lending process that provides unsecured loans to the public; this means there is no collateral backing up the debt. The only recourse the industry has, according to the banking interest groups, is to charge a higher rate to those who are at greater risk of defaulting on their loans.

Peter Garuccio, spokesperson of the American Bankers Association, states that being unable to charge a higher interest rate to those who actually are remiss in making their payments means that the playing field must be leveled: all consumers will pay higher rates initially in order to compensate for the industry’s new inability to charge interest rates commensurate with risk.

Although consumer groups are claiming victory in this round, they are urging caution and due diligence until the bill takes affect nine months after Obama signs off on it. The banking industry could use that time to rally the troops and increase rates while they can.

(By Rachel Stockton, and edited by Heather Kelley)