May 19, 2009— -- Credit card consumers will soon see expanded protections, fewer fees and more clarity thanks to a so-called Credit Cardholders' Bill of Rights that is working its way through Congress. The Senate passed its version of legislation by a 90-5 vote this afternoon and the House has already approved its own version.
The two sides now need to reconcile a few differences and then send it on to President Obama who has said he wants to sign the act into law before Monday.
The legislation could add a bit of breathing room for many American families struggling to pay their bills. This legislation won't cap interest rates, as some had hoped, and the government can't force consumers to make prudent financial decisions. But this bill, within nine months, would require a new level of clarity for consumers where the rules of the credit card game would be at the very least clearly spelled out.
The main goals of the measure are to prevent unfair interest rate hikes, sudden changes in terms and eliminate exorbitant and unnecessary fees.
The banking industry has fought many provisions of the legislation, saying that it would restrict credit at a time when Americans need it most. The banks also said such fees and rates are necessary to protect them from consumers who have no collateral.
Last week, Obama held a town hall style meeting in New Mexico to personally stump for this bill.
"This is America and we don't begrudge a company's success when that success is based on honest dealings with consumers," Obama said. "We need reform to restore some sense of balance."
So what does this all mean for you?
Here is a guide to some of the legislation's key provisions:
Ends "Double Billing" Card issuers would be prohibited from imposing finance charges on balances repaid during the grace period. This billing process right now is hidden from consumers and difficult to understand.
Interest Rate Changes Cardholders would be given 45 days notice of interest rate and fee and finance charge increase, advance notice of any significant change in terms of the credit card account and require clear notice of right to cancel credit card when the annual percentage rate, or APR, is raised or significant terms are changed.
Ends "Universal Default Card issuers currently raise rates for consumer behavior unrelated to the credit card. This so called "universal default" provision comes from the banks' use "any-time/any-reason" fine-print clauses to impose arbitrary rate hikes and would be prohibited.
Rate HikesThe bill would prohibit rate, fee, or finance charge increases on existing balances other than for the expiration of an introductory rate; a change in variable rate, an increase due to the failure of the cardholder to comply with the terms of a workout agreement or a 60-day late payment by the cardholder.
Rate Cuts Credit card issuers would be required to periodically review customer's payment habits and decrease their interest rate if warranted by the review. Also, customers who fell behind on their payments can reverse part of a rate hike with six months of on-time payments.
New Card Rates Card issuers would be prohibited from increasing rates on a cardholder in the first year after a credit card account is opened and require promotional rates to last at least six months.
Overlimit Fees Banks would be prohibited from charging an overlimit fee unless the consumer has expressly elected to permit the issuer to complete overlimit transactions on the account.
Earlier Statements Statements would need to be mailed 21 days before the bill is due. The current requirement is 14 days.
Payment Fees Issuers would be prohibited from charging a fee to pay a credit card debt, whether by mail, telephone, electronic transfer, or otherwise, except for expedited service by a live service representative.
Minimum Payment ClarityCustomers would get detailed information about the total interest and amount of time it would take to pay off their balance if they only make the minimum monthly payments.
Limited Cards for Those Under 21 Anybody under the age of 21 trying to get a credit card would either need the approval of a parent of guardian or proof of an independent source of income. If a parent is jointly liable for the account, credit limits can't be increased without the parent's written approval.
Gift Card Changes While not quite credit cards, Congress also decided to add regulations for gift cards. The cards would not expire and have their value wiped out less than five years after purchases. Some related fees and charges would also be eliminated.