Aug. 5, 2008 at 8:00 AM ET
Legislation that would ban many unpopular credit card company tactics has been passed by a congressional committee, opening a path for the so-called "Credit Card Holders Bill of Rights" to be considered by the full House of Representatives.
The bill, which was approved by the House Financial Services Committee last week, would prohibit many triggers that cause consumers to pay fees and higher interest rates. For example, it would stop card issuers from imposing higher rates retroactively on outstanding balances in some situations. The legislation was approved by a healthy 39-27 majority despite spirited lobbying against it by the banking industry.
The legislation is nearly identical to a set of new rules proposed in May by banking regulators, including the Federal Reserve. Those rules are still under review, with the public comment period ending Monday. The regulations face several additional hurdles, including a public hearing, though the Fed could wrap up the process by the end of this year.
If passed, the House bill might offer quicker relief to consumers , as some of its provisions would take effect immediately.
But the legislation faces an uphill climb on Capitol Hill. There's only about a three-week window for new business when the House reconvenes in September. Should the credit card bill find its way to the top of the House legislative agenda, and win approval, a similar bill sponsored by Sen. Christopher Dodd, D-Conn., would have to be passed and then aligned with the House bill. Finally, the legislation would either have to be signed into law by President Bush in the waning days of his administration -- highly unlikely -- or his veto overridden by Congress, also unlikely.
'Will help level the playing field'
Still, passage of the bill was heralded as a major victory for consumers by the bill's sponsor, Rep. Carolyn Maloney, D-N.Y. Her office said it was the first legislation with consumer credit card protections ever approved by a congressional committee.
"This landmark legislation will help level the playing field between card holders and card companies, and give consumers the tools they need to responsibly manage their own credit," she said in a statement. "The substantive reforms in this bill are needed now more than ever. ... If unfair credit card industry practices continue to go unchecked -- just as subprime mortgages were -- it will have far-reaching and detrimental effects on families and the economy."
The American Bankers Association, which opposed the legislation, urged House members to let the bill die, saying regulators should be allowed to continue their review process.
"By incorporating into statute the ‘initial’ proposal on credit cards put forth by regulators ... the committee has denied itself the benefit of valuable public input and agency expertise on the potential consequences of such proposals,” the ABA said in a statement. “A deliberative agency rule-making process would provide this benefit and would avoid bad policy results that harm consumers."
But Maloney said that legislating credit card rights is the only way to ensure that consumers are protected.
"Legislation is the only lasting solution to this problem," she said. "The Fed’s work doesn’t diminish Congress’ responsibility to act in the best interest of our constituents and pass meaningful reforms that bear the force of law." She also said that the Fed’s new rules could be watered down by the time they are finalized.
Lauren Zeichner Bowne, a lawyer for Consumer Reports and advocate of the Fed's rule change, said the credit card legislation serves as an important backup and encourages regulators to stick with their rule-making process.
"It encourages the Fed not to back down and make the rules any less strict,” she said. “That's why we're pushing both." There's also a risk that regulators might go through several rounds of revisions, each requiring lengthy public comment periods, which could bog down the rules changes, she said.
Key provisions in the Fed rules and the legislation are:
• Credit card companies are required to give cardholders 45 days notice of any interest rate increases.
• Retroactive rate increases are prohibited, unless the card holder is more than 30 days late.
• Billing statements must be sent 25 calendar days before the due date under the legislation; the new Fed rule varies slightly, requiring 21 days.
The banking industry argues that any restrictions on the way it prices credit will increase costs for all consumers, including those who always pay their bills on time.
“Things that appear attractive on the surface often come with too high a price tag," the ABA’s statement said. "If lenders are limited in their ability to adjust interest for customers whose risk levels may have changed, they will have to account for the increased risk by raising prices for everyone. That’s unfair."
Consumers have taken an active interest in the debate. The Fed has received 15,600 comments on its proposed rules, and another 27,000 comments that appear to be form letters.
Credit card protections have also played a minor role in the presidential campaign. Sen. Barack Obama has proposed his own Credit Card Bill of Rights that would offer additional protections to consumers, including elimination of interest charges on fees. He has also proposed a five-star rating system for credit cards that would direct the Federal Trade Commission to evaluate credit cards and rate them on their consumer -friendliness. The McCain campaign has issued no specific credit card rules.