Senate Approves Consumer Credit Card Protections

The U.S. Senate voted today to enact new restrictions on credit cards that would curb some common practices that have drawn the ire of consumers.

Among other things, the bill would prevent credit card companies from raising interest rates on existing balances unless the account was at least 60 days overdue. It would also require that any payment in excess of the minimum due be first applied to that portion of the balance that carries the highest interest rate.

The legislation, which passed on a vote of 90-5, now goes to the House, which passed similar legislation last month.

"This is a victory for every American consumer who has ever suffered at the hands of a credit card company," said Sen. Chris Dodd, D- Conn, chair of the Senate Banking Committee and sponsor of the bill. "(This) bill that the Senate passed today will insist on consumer protections that are strong and reliable, rules that are transparent and fair, and statements that are clear and informative.

Opponents say will make credit more costly

The bill was opposed by largely opposed by those in the banking industry, who said the bill would lead to tighter credit and make it more difficult for some consumers and small businesses to obtain credit credit cards at all.

"This bill fundamentally changes the entire business of credit cards by restricting the ability to price credit for risk," said American Bankers Association President Edward Yingling in a statement following passage of the bill. "What has been a short-term revolving unsecured loan will now become a medium-term unsecured loan, which is significantly more risky. It is a fundamental rule of lending that an increase in risk means that less credit will be available and that the credit that is available will often have a higher interest rate."

Limits increases on "teaser" rates

Among its other provisions, the bill would set a six-month minimum on promotional interest rates and prohibit ban issuers from raising rates on newly issued cards for one year. It would also require that consumers get 45 days advance notice of any changes in terms on their account and require that billing statements be sent to consumers at least 21 days in advance of the due date.

The bill would also prohibit charging fees for payments made by mail, phone and online, except for expedited service and require that all gift debit cards be good for at least five years. Credit card statements would also have to show how long it would take to pay off the existing balance by making minimum payments and the interest that would accrue in doing so.

Interest rate cap rejected

An amendment that would have capped credit card rates at a maximum 15 percent interest rate was rejected by the Senate last week.

The bill has strong support in the House, which could pass it as soon as Wednesday. President Obama has indicated he would like to sign the bill into law by Memorial Day weekend.