by James Oliphant
Heeding a call from President Obama and riding a wave of populist anger, the Senate today overwhelmingly passed a sweeping bill that promises to transform the relationship between consumers and their credit-card companies.
The bill, which was approved by 90-5 vote, slaps the industry with an unprecedented set of restrictions, and would, among other things, rein in interest rate increases, require advance notice of rate increases, prevent high "over limit" fees, and prohibit lenders from raising rates when a cardholder is late on a separate debt -- a practice known as "universal default."
The House passed a similar bill earlier this month. The two will now be reconciled, with the goal of sending the final version to Obama for his signature by the end of the week.
For much of the debate over the bill, banks and credit-card lenders--which historically have wielded enormous clout in Washington--found themselves easy targets, the objects of blistering attacks from senators who accused them of engaging in exploitative and misleading tactics.
"It was abusive," said Sen. Christopher Dodd (D-Conn.), a co-sponsor of the bill, said after the vote. "It needed to stop. It needed to change."
During debate on the bill, Sen. Claire McCaskill, a Democrat from Missouri, said her office has received "thousands of emails" during the last six months complaining about industry practices.
"I'm not sure there's any piece of legislation that is more important to the people at home than this credit card bill," McCaskill said on the Senate floor late last week during final debate on the bill. "We need to heel these companies that are taking advantage of an unlevel playing field."
"Any company that wants to help consumers live within their means has nothing to fear from this legislation," added Sen. Tom Udall, Democrat from New Mexico. "But if you are planning to mislead consumers this bill will stop you."
Last week, President Obama carried a similar message to a "town hall" style event outside of Albuquerque, NM.
"You should not have to worry that when you sign up for a credit card you're signing away all your rights,'' the president said at high school gymnasium in Rio Rancho.
"We're lured in by ads and mailings that hook us with the promise of low rates while keeping the right to raise those rates at any time for any reason -- even on old purchases; even when you make a late payment on a different card.''
The Senate bill, sponsored by Dodd and Sen. Richard Shelby (R-Ala.), is viewed as more aggressive than the House version. Most strikingly, it would prevent lenders from raising interest rates on any account that is less than 60 days past due. The House version allows a rate increase after 30 days.
The Senate measure is also stronger than a set of regulations on credit card practices developed by the Federal Reserve. Those take effect in July 2010.
It would also regulate retail gift cards, preventing companies from charging excessive and hidden fees if the card isn't used in a short period time. The bill would require such cards to be viable for five years. The House bill does not speak to gift cards.
The industry, in fact, has been loud in its opposition to the bill overall, saying the regulations will tighten credit available to consumers. "The Senate greatly restricts the ability of banks to tailor credit terms to each card holder," said Scott Talbott, a lobbyist for the Financial Services Roundtable. "This will result in a restriction of credit."
According to the White House, total credit card debt has reached $963 billion, a 25% jump over the past 10 years. The average amount of credit card debt among families holding a balance was $7,300 in 2007.
Penalty fees comprise a fair chunk of industry revenues. Credit card issuers collect $15 billion each year in penalty fees --- 10 percent of total revenues.
The industry also has warned that it will be forced to recoup its lost revenue by raising annual fees and doing away with perks such as airline miles and "cash-back" rewards for its more credit-worthy customers.
"The restrictions on pricing imposed by the credit card bills will result in changes elsewhere--including a return of annual fees and a termination rewards programs," Talbott said. "Those who manage their credit well will be subsidizing those who don't."
But consumer advocates were ecstatic. "It has taken 10 years to get to this point," said Pamela Banks, senior policy counsel with Consumers Union. "I think consumers can breathe a sigh of relief."
Comments
This should pick up the economy.
Posted by: Greg | May 19, 2009 2:36 PM
Is this the bill that slipped in that loaded weapons can be carried in national parks? I had email from the National Parks groups asking us to write our senators about it. What does credit have to do with loaded guns in our parks?! Could someone post if this is true or not?
Posted by: Mark | May 19, 2009 2:37 PM
That outcry from the credit industry is nonsense...they act as if they are making razor-thin profit margins, when in fact they clear billions of dollars in profit every year.
Posted by: bluesky | May 19, 2009 2:39 PM
Bluesky, you're mixing two concepts. "Profit margin" is the percent of sales that is profit. "Profit" is the dollar figure. It's possible to make a lot of money with a"razor-thin profit margin" if you do a lot of business, which the credit card companies do. For example, that's a grocery store's business model; they make about one per cent on sales, but do a lot of volume. Another example is the oil industry; they make a lot of money, but their profit is only about eight cents on the dollar of sales, much of it on appreciation of assets held for a long time.
Posted by: DaveB | May 19, 2009 3:02 PM
Billions of dollars in profits? Than why have several of them stopped further lending and others have declared bankruptcy. Default rates on credit card debt is really high so while they make a lot they lose a lot too. I have never had an increase because I make my payments on time and keep spending in limits. Everyone should do that and these types of bills wouldn't be needed.
Posted by: chris | May 19, 2009 3:30 PM
Congress is once again a day late and a dollar short . The credit card companies have already changed their agreements with holders and tied interest rates to the prime rate plus some obscene percentage number (some as high as 29.99% plus the prime) so your rate can change monthly depending on what the FED does. The consumer doesn't stand a chance .
Posted by: Leonid Radzvilar | May 19, 2009 3:36 PM
Over the past 10 years massive consolidation of the credit card industry has left 5 companies with 80% of the credit card biz.
They are taking advantage of reduced competition now.
I suggest finding a credit union or local bank for your credit card needs.
Posted by: former Republican | May 19, 2009 3:42 PM
Chris - That's a novel thought; personal responsibility. But you forget that it's easier to blame the Credit Card Co. and create legislation that sounds good than it is to spend within your means.
Posted by: Drew | May 19, 2009 3:47 PM
A little too little and a little too late. They waited so the credit card companies could already increase their rates - and the rates are not uniform. My rate was raised from 9% to 24% by Chase when they took over Wa-Mu - a credit card I've had in good standing for more than 10 years. Said I could ASK for a small decrease if I paid on time and over the minimum for 6 months. I'd already been doing that for 10 years! My credit score is in the mid-700's. I was downscored because I sold my house and do not have a large debt I pay on a monthly basis. The world is upside down now.
Posted by: rebecca | May 19, 2009 3:51 PM
I gurantee if this is signed into law as it stands that the consumer will not benefit from this at all.
Eihter credit will tightem further, companies will get out of this business, and/or they will begin to charge annual fees for the card, charging interest on all purchases immediately or the easier thing to do raise the rates on every card holder even the ones who are no risk.
Every time the government gets involved in business they mess it it up.
Posted by: MinisterR | May 19, 2009 4:22 PM
Chris:
You can pay on time, and be within limits, and still have them raise rates. I have been with AMEX (blue) since '01, supposedly with a locked in rate. Well 3 months ago, I noticed that my rate increased by 2%, without warning. When I called to see why, they said it was an across the board increase that was done due to the economic situation. So, without warning they increased my rate, due to no fault of my own. THIS is why this bill is needed, to prevent underhanded practices like this one.
Posted by: Rob | May 19, 2009 4:26 PM
"It was abusive," said Sen. Christopher Dodd (D-Conn.), a co-sponsor of the bill, said after the vote. "It needed to stop. It needed to change."
Reading that this came from Dodd (D-Countrywide), I understand that if anyone knows how to abuse a system it is a friend of Angelo.
Posted by: uncleFuzzy | May 19, 2009 5:56 PM
Long time coming for this law...
Posted by: Maximillion | May 19, 2009 5:56 PM
chris, I've heard your little comment a lot and it's wrong. Dead wrong. These credit card companies raise your rates all the time for no reason other than to make more money for themselves. I make all my payments on time and have given these companies no excuse for raising rates but they continue to do so. In light of this "Useless" bill I just recieved notice that they are going to raise my rates again. For what? I don't have bad credit and make all my payments on time. The problem with all this is it all took way too long like every other legal matter in this country. The damage is already done and this bill promises to fix about nothing. The only way to slap these megalowmaniacs back is to claim bankruptcy. Everyone should. Then what would they do? They threaten that this bill would make credit cards not worth having anyway because of high rates and high annual fees. Years ago the mob was put in prison for this kind of extortion. It shouldn't be any different here. I'd also like to see the controlled media report the real truth about what is happening and what has happened here. The american public needs to get out of the little box they have been living in for too long.
Posted by: Roger | May 19, 2009 6:10 PM
“This should pick up the economy.”
.
Posted by: Greg | May 19, 2009 2:36 PM
.
Of course you are joking. Right? I will be the first to agree that most of the restrictions planned by Congress are long overdue. But don’t expect the credit card companies to either like them or keep from wiggling out from under them.
.
Credit card companies will now be increasingly selective in determining whom to extend the privilege of credit. That will lessen the amount of available credit, not increase it. That’s because they will want healthier targets for their predations. If they can’t spread the risk of default of less creditworthy card users through higher interest rates, they will do it by finding more pretexts to add charges. They will also increase the number of traps and pits into which a card user can fall, and give them a glorious amount of advanced warning. They know that, despite all the advanced warning, credit card users will make mistakes anyway.
.
I still think the whole business is evil. It’s simply time for people to wean themselves off credit cards altogether and to get businesses to cooperate in that effort.
Posted by: John W. | May 19, 2009 6:13 PM
"Is this the bill that slipped in that loaded weapons can be carried in national parks?"
Yes
"I had email from the National Parks groups asking us to write our senators about it. "
Didn't do a lot of good. It passed 67-29, a huge margin.
"What does credit have to do with loaded guns in our parks?!"
Good point. Maybe they should remove the credit portions from this pro-gun bill.
"Could someone post if this is true or not?"
Yes, it is totally true. Most news sources are expecting the House to pass it as is and the president to sign it by Friday.
Posted by: Gun Nut 1970 | May 19, 2009 6:20 PM
Rest assured the credit card companies will find a way to fill the profit void.
They have 9 months to scheme on that.
And, yes, this bill includes the provision to allow concealed weapons in national parks.
That makes this bill doubly useless.
Posted by: james | May 19, 2009 6:23 PM
Exactly, Chris. It looks as if this bill will protect those who use credit irresponsibly (pay late, carry a balance, use the credit card as a source of funds, etc.) and punish those who have their finances in order (use the card as a convenience, pay on time, never charge anything that you don't know how you'll pay for, etc.) The latter will get annual fees and have their rewards programs curtailed; the former won't have late fees and won't be charged interest reflecting their level of risk to the credit card company. Myself, I don't care what interest rate my credit cards charge, because I can't recall the last time that I paid credit card interest, but I do try to avoid paying an annual fee. We'll have to see how this shakes out.
I think that the net effect of this will make it harder to get credit. Credit card companies will look harder at their riskier customers, and will be less likely to extend them credit, or to allow them high credit lines. Which may not be a bad thing, because easy credit was one of the things that got us into this mess in the first place.
Posted by: DaveB | May 19, 2009 6:37 PM
And now for the unintended consequences - the good customers will pay for the deadbeats. Just like the federal gov't - the top earners pay the freight.
http://hotair.com/archives/2009/05/19/good-news-responsible-credit-card-users-to-subsidize-deadbeats-now/
Posted by: Terry | May 19, 2009 7:39 PM
It needs to be vetoed or fixed in the House.
The Grand Olde Donner Party added an amendment that will make it legal for anyone, including criminals to carry loaded guns in the National Parks.
I guess we are all supposed to arm up whenever we go camping.
It never occurred to the GODP to increase funding for enforcement rangers in the parks.
Posted by: C.Morris | May 19, 2009 8:47 PM
"The Grand Olde Donner Party added an amendment that will make it legal for anyone, including criminals to carry loaded guns in the National Parks."
Not true, the bill respects state's rights and applies state laws. All states and the federal government have laws forbidding criminals from possessing guns. All states, except two require a permit to carry which requires a background check. So a felon in possession of a gun will still be illegal. Anyone with a gun without that permit will still be illegal. I personally know an assistant U.S. attorney and the feds are handing out 10 year sentences these days for felons in possession of a gun. That will stay in place. You are simply wrong on your fearmongering.
Posted by: Gun Nut 1970 | May 20, 2009 12:02 PM