Senate OKs bill to rein in credit card practices Options

[dauss]

http://finance.yahoo.com/news/Senate-OKs-b...7858.html?.v=27

WASHINGTON (AP) -- The Senate voted overwhelmingly on Tuesday to rein in credit card rate increases and excessive fees, hoping to give voters some breathing room amid a recession that has left hundreds of thousands of Americans jobless or facing foreclosure.

The House was on track to pass the measure as early as Wednesday, paving the way for President Barack Obama to see the bill on his desk by week's end.

"This is a victory for every American consumer who has ever suffered at the hands of a credit card company," said Sen. Christopher Dodd, D-Conn., chairman of the Banking Committee. The bill passed the Senate 90-5.

If enacted into law as expected, the bill woul give the credit card industry nine months to change the way it does business: Lenders would have to post their credit card agreements on the Internet and let customers pay their bills online or by phone without an added fee. They'd also have to give consumers a chance to spare themselves from over-the-limit fees and provide 45 days notice and an explanation before interest rates are increased.

Some of these changes are already on track to take effect in July 2010, under new rules being imposed by the Federal Reserve. But the Senate bill would put these changes into law and go further in restricting the types of bank fees and who can get a card.

For example, the Senate bill requires those under 21 who seek a credit card 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.

Bankers warned the measure would restrict credit at a time when Americans need it most. They defended their existing interest rates and fees on grounds that their business -- lending money to consumers with no collateral and little more than a promise to pay it back -- is very risky.

"What has been a short-term revolving unsecured loan will now become a medium-term unsecured loan, which is significantly more risky," said Edward Yingling, president and CEO of the American Bankers Association.

"It is a fundamental rule of lending that an increase in risk means that less credit will be available and that the credit that is available will often have a higher interest rate," Yingling added.

Voting against the Senate measure were GOP Sens. Lamar Alexander of Tennessee, Robert Bennett of Utah, Jon Kyl of Arizona and John Thune of South Dakota, as well as Democratic Sen. Tim Johnson of South Dakota.

But other senators didn't want to face voters in the 2010 election without proof that they are listening to constituents crushed by foreclosure rates and joblessness. Recent reports show that the number of foreclosures jumped 32 percent in April compared with the same month last year, while the jobless rate that month rose to 8.9 percent.

The legislation would not cap interest rates as some lawmakers had hoped. It also wouldn't prevent lenders from finding new ways to drain customers' bank accounts or keep consumers from spending money they don't have.

But it would give spenders more flexibility and outlaw many of the surprise costs associated with credit cards at a time when money is tight in most households. For example, under the bill, a cardholder would have to opt to be allowed to go over a credit limit. If customers don't agree and the bank authorizes a charge that would push them over their limit, the lender couldn't levy an over-limit fee.

Another boon for consumers is limiting a practice known as "universal default," when a lender sharply increases a cardholder's interest rate on an existing balance because the customer is late paying that bill or other, unrelated bills. Under the new legislation, a customer would have to be more than 60 days behind on a payment before seeing a rate increase on an existing balance.

Even then, the credit card company would be required to restore the previous, lower rate after six months if the cardholder pays the minimum balance on time.

House Democratic leaders said they planned to move quickly. Last month, the House approved, by 357-70, a similar credit card bill by Rep. Carolyn Maloney, D-N.Y.

Complicating the issue somewhat was a measure added to the Senate bill that would allow people to carry loaded guns in national parks and wildlife refuges. That provision, sponsored by Sen. Tom Coburn, R-Okla., passed, 67-29.

House Democratic Leader Steny Hoyer of Maryland told reporters on Tuesday that the House might vote separately on the gun proposal so as not to bog down the credit card overhaul.

If the two bills are passedNo doubt that you guys have seen this, credit card reform. Aimed at stopping abusive policies that credit card companies force onto their customers. Good for those who have credit card debt and are getting hammered with so much interest that they cannot pay their balances down. However, with the high unemployment and more people defaulting on their credit card, the credit card companies are losing revenue. AXP had offered money to certain to close their accounts after they paid their balance in full to get rid of some of the riskier customers. A lot of other credit companies have taken a large chunk of credit card limits and reigning in how much debt a customer can ring up. separately as expected, they would be rejoined before being sent to the president as a single bill, said Hoyer.

No doubt that you guys have seen this, credit card reform. Aimed at stopping abusive policies that credit card companies force onto their customers. Good for those who have credit card debt and are getting hammered with so much interest that they cannot pay their balances down. However, with the high unemployment and more people defaulting on their credit card, the credit card companies are losing revenue. AXP had offered money to certain to close their accounts after they paid their balance in full to get rid of some of the riskier customers. A lot of other credit companies have taken a large chunk of credit card limits and reigning in how much debt a customer can ring up. This is beneficial.

The flip side of this is for someone like me. It is unknown what will happen in 9 months when the new laws are in place, but a majority of the profits that credit card companies are those who carry balances and pay interest. I've never paid interested. I've always paid my balance in full and on time. I haven't had my credit limit cut yet on my credit cards, but I'm considered one of those "deadbeats" from the credit card company's perspective. I have gotten a free ride using their services, getting cash back, and no annual fee. Those who have good credit may see cash back rewards disappear, annual fees coming back, and the firms also might impose interest charges on purchases immediately, eliminating the grace period. That would really suck for me. The credit card companies will have to revamp their business model and find out new ways to stay profitable when their main source of income has more protection.

There could also be another benefit to this as well. Implementation could be a problem, but I think it will be overcome. Most businesses take credit cards, and the merchants have to pay a percentage back to the credit card companies for their service. There are strict agreements that prevent merchants from charging different prices on products if you pay with cash. You may have seen at a few mom and pop stores that will add $x.xx on top of whatever you are charging to a credit card or requiring a minimum charge just to offset these costs, but with this new legislation, merchants could very well discount purchases whatever percent if you pay with cash, and pay the full amount if you decided to use your credit card.

[Spectatrix]

I don't think that this bill rewards those who don't understand money management. I think it protects against some of the egregious abuses perpetuated by some card issuers in recent years. Sudden interest rate increases or limit decreases are not reasonable practices. While they certainly have a right to change those quantities, consumers deserve some notice and explanation, even if it's only 30 days. Maybe not all of the provisions in this bill are necessary, but many of them are.

That said, I'm gonna be pissed if they start penalizing their good borrowers to make up for it. If they do, I predict they'll see a large drop-off in card-holders, leaving most of their business in the hands of riskier borrowers. I might not mind a small annual fee, if my cash-back rewards outpace it, but I'll drop my AmEx like a hot potato if they eliminate the grace period. No way in hell am I paying interest when I pay off my card every month.

Oh and Dauss, on the merchant fees... it's actually perfectly legal under the credit card contracts for merchants to offer a discount for cash. It's not legal for them to charge extra for credit card payments (and I know, it's basically the same thing) or require a minimum purchase amount. Interestingly, they also can't refuse your payment if you decline to show ID.