House Passes Limits on Credit Card Companies

Legislation that would limit the ability of credit cards companies to raise interest rates and restrict other practices that have drawn the ire of consumers easily passed the U.S. House of Representatives on Thursday.

The Credit Cardholders Bill of Rights would establish a number of consumer protections, including a ban on so-called "double cycle" billing and retroactive interest rate hikes on previous balances. The measure would also prohibit the issuance of credit cards to persons younger than 18 and eliminate "pay-to-pay" fees, additional charges that are assessed for making payments by phone or Internet.

"Levels the playing field"

"This bill will help level the playing field between the credit card issuers and consumers," said Rep. Carolyn Maloney (D-NY), the bill's chief sponsor. "This bill will ban some of the most outrageous abuses." Opponents warned that the bill could cause lenders to tighten credit and lending, further exacerbating the current recession.

"Credit cards play a crucial role in the life of ordinary Americans," said Rep. Spencer Bachus, (R-AL), the ranking member of the House Financial Services Committee. "Any legislation affecting credit-card practices is going to have a profound effect. There are a great number of people whose rates will go up."

Fate in Senate Unclear

The measure was approved by the House on a 357-70 vote. A companion bill is expected to be taken up by the Senate next week, where Senate Majority Leader Harry Reid (D-NV) has said he's unsure if he has the 60 votes needed to avoid a filibuster.

The Senate bill could undergo a variety of changes before the final version comes up for a vote, which will determine how much support it will muster. Reid predicted that if the measure is blocked, it could come back to haunt those who vote against it.

"I feel kind of sorry for senators who don't support this legislation," Reid said. "I think it could really backfire if they didn't support it."

Similar to new Fed rules

The bill is similar in many respects to new credit card rules that were issued by the Federal Reserve in December. However, the legislation offers additional curbs on credit card practices and would take effect somewhat sooner than the federal rules, which are scheduled to take effect in July 2010. The Federal Reserve rules could also be easily altered in the future, whereas the legislation would be far more permanent.

In addition to the provisions listed above, the legislation would require that cardholders receive at least 45 days notice of any increase in interest rates. It would also require that, for cards carrying multiple balances with different interest rates, that any payments over the monthly minimum be first applied to those balances with the highest rates.

The bill would take effect one year after enactment, except for the notification of interest rate increases requirement, which would take effect in 90 days. The legislation is strongly supported by the Obama Administration.