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Credit-card bill: What it does, what it doesn't do

Supporters and critics agree that it greatly empowers consumers and changes the credit-card industry.

By Staff writer / May 19, 2009



Washington

In a rare rebuff to financial interests, the Senate voted 90 to 5 to impose new terms and limits on the credit-card industry.

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It is a comprehensive measure that “fundamentally changes the entire business model of credit cards,” says the American Bankers Association, which opposed the bill. They say it will raise costs to consumers and limit access to credit.

Consumers groups also say the legislation will significantly change the relationship between Americans and their credit-card companies. But that, they say, is all to the good.

For months, members of Congress have been deluged with calls from constituents angry at surprise fees and rate increases – especially from those financial institutions also accepting taxpayer bailouts.

“You could no find a more popular piece of legislation than that that just passed the Senate,” said Senate majority leader Harry Reid, after Tuesday’s midday vote.

Lawmakers expect the bill to pass the House and be signed by President Obama by Memorial Day. The Senate bill will take effect nine months after the law is enacted.

Among the things it does:

-Hidden fees. It bans arbitrary interest-rate increases and hidden fees, such as charges for paying off a credit-card bill over the telephone.

-Full disclosure. It requires clear disclosure of the terms of credit-card agreements and any changes made to them.

-Universal default. It bans the practice of “universal default,” which allows companies to dramatically raise interest rates on a credit card if the consumer is more than 30 days late on any other payment.

-Freeze on rate increases. It prohibits companies from increasing rates on a cardholder in the first year and requires promotional rates to last at least six months. Rate increases must be periodically reviewed and decreased if the cardholder pays the minimum balance on time for six months.

-Delays in payment. It prohibits companies from assessing late fees if the card issuer has delayed crediting the payment.

-Same-day payments at local banks. It stipulates that payments made at local branches must be credited the same day.

-Credit-limit fees. It bans credit-card companies from charging fees when users exceed their credit limits, unless the cardholder has specifically agreed to allow over-limit transactions. In this case, all penalty fees must be reasonable and proportional to the overcharge – that is, no huge rate increases for a purchase that barely tipped the credit limit. If the cardholder has not agreed to allow over-limit transactions, they would simply be rejected.

-Early-morning deadlines. It prohibits issuers from setting early-morning deadline for credit-card payments.

-Statements and notifications. It stipulates that credit-card statements must be mailed 21 days before the bill is due. Previously, the requirement was 14 days. Consumers must now be given 45 days notice of any fee, rate, or penalty increases.