Senate Passes Credit Card Bill

May 19th, 2009 | By Rob | Category: Credit Cards, Government

The Senate adopted new legislation aimed at curtailing the practices of the credit card industry today by a vote of 90-5. The Senate and House will now look to reconcile the differences between the Senate’s credit card bill and the Credit Cardholders’ Bill of Rights, which was passed by the House of Representatives earlier this year. This is expected to occur fairly quickly, as I have seen projections that President Obama may be able to sign the final bill by his Memorial Day deadline.

The headlines in the newspaper and margin of victory in the Senate suggest that the tide has swung against the credit card lobby … but has it really?

The key provision of the credit card bill passed by the Senate eliminates surprise interest rate increases on existing credit card balances. The interest rate on preexisting credit card debt may only be increased, under the legislation, if the cardholder is 60 days past due. However, if the cardholder then makes six consecutive on time monthly payments, the credit card company must restore the original interest rate. The legislation also codifies portions of the Federal Reserve regulations on credit card practices which were scheduled to be implemented in July 2010, as the House bill does.

Travis Plunkett of the Consumer Federation of America called the bill “landmark legislation” in an article on the Washington Post website today. The legislation is a giant step forward in the regulation of the constantly shifting terms and conditions of the credit card industry. But I’m not sure that I would go nearly as far as Mr. Plunkett has, however. News stories that I read this morning indicated that credit card companies will increasingly charge annual fees and eliminate grace periods for the imposition of interest charges in response to the government’s efforts to crack down on financial institutions’ credit card practices. Although these stories indicate that the bank’s best customers will be required to pick up the tab for the bill’s protection of troubled borrowers, I have no doubt that they will find methods to squeeze additional profits from the average American who carries a monthly balance on the credit cards. The bill jst isn’t all that comprehensive.

The bill could have been much more restrictive on the practices of the credit card companies. The Senate amendment to cap interest rate charges on credit cards was defeated by a vote of 60 Senators last week. And to my knowledge, the bill offers no protection for those carrying debt from the interest rate increases which they are likely to face on their existing balances between now and the implementation of the new credit card law. Although we won’t know when the new legislation will go into effect until the differences between the House and Senate bills are worked out, credit card companies will likely have another 9 to 12 months before the majority of the rules go into effect.

It reminds of a deal between a reluctant parent and a willing child, where the parent gives the child enough to satisfy the child but not nearly as much as the child would like. Congress has given the American public “landmark legislation” with provisions that improve the balance between creditors and debtors, but it is still unclear whether the legislation will put credit cardholders on an equal footing with their lenders. Or even … gasp … tilt the balance of power in favor of consumers.

Important? Yes. Landmark? That remains to be seen.