Senate Committee Approves Limits on Credit Card Companies

Legislation to limit increases in credit card interest rates and provide other consumer protections has been narrowly approved by a Senate committee, over the objections of financial industry groups and to the applause of consumer organizations.

By a vote of 12-11, the U.S. Senate Banking Committee voted to approve S. 414, the Credit Card responsibility and Disclosure Act ("The Credit CARD Act") and send it to the floor of the Senate. Among its provisions, the bill would limit the ability of credit card companies to raise interest rates, limit fees and penalties, boost consumer disclosures and place new restrictions on credit card solicitations to persons less than 21 years old.

Would go beyond new Fed rules

The bill goes further than a set of cardholder protections issued by the Federal Reserve in December. Those rules, which require that cardholders receive advance notice of interest rate hikes and prevent issuers from changing terms based on unrelated activities, do not take effect until July 2010. The new legislation would take effect within nine months of being signed into law.

Industry groups, including the American Bankers Association, U.S. Chamber of Commerce, the Financial Services Roundtable and the National Association of Manufacturers, objected to the bill, saying it would limit the availability of credit and raising prices, causing further harm to the economy. Supporters, including the Consumer Federation of America and Consumers Union, said the bill is needed to protect consumers against misleading and predatory credit card practices .

Modifications likely

The bill was approved on a near-party line vote, with Sen. Tim Johnson (D- S.D.) joining the panel's 10 Republicans in opposing the measure. Given the narrow support, committee Chairman Chris Dodd (D-Conn.) said he would seek to modify the bill before it reaches the Senate floor to win it greater support among both Democrats and Republicans.

"My intent is to work things out and move forward. This was going to be difficult--I knew that," Sen. Dodd told reporters after the vote. "This is the first step in a process."

With the economy worsening, credit-card companies have drawn fire in Congress for increasing fees to consumers at the same time they are receiving billions in dollars of government assistance. A Senate subcommittee has been conducting an ongoing investigation to assess complaints of unfair lending practices by credit card companies.