Congress votes for major new credit card rules
Posted May 20, 2009 2:27 p.m. EDT
Updated May 20, 2009 7:36 p.m. EDT
WASHINGTON — Congress on Wednesday sent President Barack Obama a bill with sweeping new rules for the credit card industry that will affect just about every American. The House voted 361-64 for the bill on Wednesday. The Senate had already approved the measure by a 90-5 vote on Tuesday.
The new restrictions will protect debt-ridden consumers from many of the surprise charges common in the industry, like over-the-limit fees and a charge to pay the bill by phone. People under 21 also will find it difficult to get a card.
“It will level the playing field and restore balance to credit card contracts,” said Rep. Carolyn Maloney, D-New York.
As banks scramble to make up for the lost revenue, cardholders who pay off their balance in full each month could see annual fees become the norm and lucrative rewards programs canceled.
"Many Americans depend on credit cards to get by in this economy, and today they have won a giant victory that ensures they are protected from practices that would drive them further into debt, while also making our economy stronger," said Sen. Christopher Dodd, D-Conn., chairman of the Banking Committee.
White House spokesman Robert Gibbs said Obama looked forward to signing the bill as quickly as possible.
"Obviously this has been something that the president has championed, that the president believes is important to protect consumers," Gibbs told reporters Wednesday. "This is important for people that are represented in this town but don't have a lobbyist. These are important reforms to protect consumers and to bring some commonsense rationality to our financial system."
Some of the changes, including a requirement that cardholders receive 45-days' notice before their rates are raised, are already on track to take effect in July 2010 under new regulations by the Federal Reserve. But the legislation would put these changes into law and go further in restricting when and how banks charge people and who could get a card.
For example, the bill would require people under 21 to prove first that they can repay the money or that a parent or guardian is willing to pay off their debt if they default.
And consumers who see their interest rate skyrocket because they have been late on a payment would get a chance at their older, lower rate if they pay their bill on time each month for six months.
The banking industry opposed the measure and said it could restrict credit at a time when Americans need it most.
The practice of charging higher rates and fees to cardholders with risky credit was devised as a means to protect lenders against the risk of default while keeping costs low for consumers who paid their bills on time, said Edward Yingling, president and CEO of the American Bankers Association, which opposes the legislation.
Yingling says the new rules will limit the card companies' ability to price according to risk. The result, he says, will be that every card holder will have to pay a higher interest rate to cover the cost when other customers default. Lenders also will be more reluctant to issue cards in general, he adds.
"Less credit will be available generally, which means some consumers and small businesses will not be able to obtain credit cards at all, particularly younger people and startup small businesses," Yingling said.
Dodd, who championed the bill, said this argument is absurd and "a little like Chicken Little."
Included in the bill is an unrelated measure by Sen. Tom Coburn, R-Okla., that would allow people to bring loaded guns into national parks and wildlife refuges.
The House approved that provision separately on Wednesday by a 279-147 vote.