By Don Miller
Associate Editor
Money Morning
A consumer “bill of rights” designed to stop credit card companies from imposing onerous interest rate hikes and hidden fees passed a procedural vote in the Senate yesterday (Tuesday), a move that will send it to a joint committee to reconcile differences with the bill that previously passed the House of Representatives. President Barack Obama has promised to sign the legislation into law by the end of May.
The legislation represents a victory for consumers who have long complained about credit card companies levying arbitrary interest rate increases and late charge fees, usually implemented by fine print included in monthly statements with little notice.
“We’ve spent a lot of time over the last number of months trying to help stabilize the financial system,” U.S. Sen. Christopher Dodd (D-CT.) told Bloomberg. “A lot of attention has been paid to banks. We haven’t spent enough time trying to help consumers.”
According to a summary compiled by Reuters, the legislation would require 45-day notice for an issuer to raise interest rates, limit rate increases on existing balances unless a consumer was 60 days late with a payment; restrict increases on so-called teaser rates on introductory cards; restrict certain hidden fees; and prohibit card offers to children under the age of 18, with few exceptions.
The bill would also require more plain-language explanations of card-agreement terms, mandate reviews of a consumer’s interest rate with the possibility of lowering it if warranted, and direct the Federal Reserve Board and other regulators to write more detailed rules.
Sen. Byron Dorgan (D-ND) chided card issuers on Monday, using as an example a marketing campaign for a pink, white and yellow “Hello Kitty” credit card geared towards children 10 to 14 years of age.
“I’d just love to know the person who thought this up and to say, ‘Are you nuts?’” Dorgan said. “What on earth are credit companies doing soliciting young kids to get a credit card?”
While it is hard to quantify the exact impact on major issuers such as Capital One Financial Corp. (NYSE: COF), Bank of America Corp (NYSE: BAC), JPMorgan Chase & Co (NYSE: JPM), and Citigroup Inc. (NYSE: C), the bill marks a significant pullback from past business practices.
And it may even be followed by tougher regulations in the future.
“This is a tough bill and will hurt the profitability of credit card lenders in our view. But the legislation could have been much worse” for card companies, Jaret Seiberg, financial services policy analyst at Concept Capital, told Reuters.
The Senate voted last week to kill a 15% rate cap sponsored by Sen. Bernie Sanders (I-VT.). Sanders said the cap was needed to keep banks from routinely charging 25% to 30% on charges.
“When banks are charging 30% interest rates, they’re not making credit available, they’re engaged in loan sharking,” Sanders told Bloomberg.
The Fed adopted new regulations last year that formed the basis for most of the provisions contained in the Senate version. Those rules would have been delayed until July 2010, but lawmakers were pushed to take action sooner by outraged consumers.
The Senate bill calls for phasing in parts of the new regulations with most of the components set to take effect nine months after the bill is signed.
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It’s only natural that the credit card bill gets passed (obviously, it’s not quite done yet). After all, which representative is going to say no? His/her opponent will have a field day in the next election when the time comes.
Now, it’s only natural that banks are taking issues with this. There is no reason for them to go quietly. People use their credit cards and it will be difficult for anyone to abandon their cards just because they take a different stance.
I actually love using credit cards to accrue cash back and it’s easier to track expenses. Something that cannot be easily done or as well done with a debit card or cash. I simply pay it off every month.
I also pay off the entire balance every month to avoid any fees whatsoever and absolutely refuse to carry any balance. There is just no point in doing so. If I cannot pay it off in full, then I wouldn’t spend the money at first place.
Online websites for research and finding good deals is another way I stretch my dollars farther. For example, I recently came across an interesting table that details the discounts on Amazon at: http://www.uberi.com
I imagine other people will find it useful too.