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Congress turns from bank bailouts to helping consumers

Targets include credit card companies, payday loans with exorbitant interest rates, and predatory mortgage lenders.

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At the urging of the president, the House amended the bill to mandate the disclosure on each credit card bill of the long-term costs of paying only the minimum balance. Another provision requires credit card issuers to apply payments over the minimum balance to the debt with the highest interest rate first. Both were accepted by voice vote.

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But most of the provisions of the new law will not take effect until July 2010 or a year after the law is enacted. Comparable Federal Reserve rules will not take effect until July 2010.

Freeze on interest rates called for

Some lawmakers and consumer groups want to move up the timeline. In the Senate. Banking Committee chairman Christopher Dodd (D) of Connecticut and Sen. Charles Schumer (D) of New York are asking the Federal Reserve to impose an emergency freeze on interest rates of existing credit card balances effective immediately.

“It’s not fair that credit card companies can change interest rates at will. This traps consumers in debt. It’s almost like they encourage people to go over their credit limit, then charge them a fee for it. It’s the magic of compound interest in reverse,” says Kathleen Day, a spokeswoman for the Center for Responsible Lending, a watchdog group on predatory lending.

It’s a balancing act for the federal government, because many of the troubled banks now receiving federal assistance are also those that face cuts to profits, as new consumer protections take hold.

The American Bankers Association cautions that new consumer protections could disrupt economic recovery efforts by further stressing already troubled financial institutions.

“As policymakers are aware, it is vitally important to maintain access to credit at this difficult economic time,” said Edward Yingling, ABA president and CEO, in a statement after the House vote on credit card reform.

“This is especially true for credit cards, which serve as a driver of economic activity and are relied on by consumers and small businesses as a way to bridge short-term financial gaps,” he said. There is “more work” to be done to achieve a balance between “enhancing consumer protection and ensuring that credit remains available to consumers and small business at a reasonable cost,” he said.

Congress aims at mortgage fraud

Next week, the House takes up the Fraud Enforcement and Recovery Act, passed by the Senate last week. The act amends the federal criminal fraud statute to specifically include “mortgage lending business” and it expands the scope of money laundering crimes to cover all the proceeds of illegal activity, such as gross receipts, not just the profits.

The bill also authorizes $245 million a year to hire federal investigators and prosecutors to fight financial fraud.

“Mortgage fraud has reached near epidemic levels in this country. Reports of mortgage fraud are up 682 percent over the past five years, and more than 2,800 percent in the past decade,” said Sen. Patrick Leahy (D) of Vermont, chair of the Senate Judiciary Committee, who sponsored the bill. “And massive, new corporate frauds, like the $65 billion Ponzi scheme perpetrated by Bernard Madoff, are being uncovered as the economy has turned worse, exposing many investors to massive losses.”