Obama Ushers In “Fair and Transparent” Credit Card Regulations

By: Geoff Springbaum

In a sweeping move that aims to provide hundreds of thousands of Americans help with credit card debt, President Obama signed into law last month legislation that will put a stop to credit card companies imposing sudden rate hikes and exorbitant fees and penalties on cardholders.

In the days before the Senate was set to vote on the proposed credit card regulations, Obama, in his weekly radio message, called on Congress to approve the bill, speaking of an urgent need for new credit card legislation to provide financially tapped consumers with some credit debt relief (http://www.thinkdebtrelief.com/) and to help with “clearing away the wreckage of this recession.”

Obama’s radio address followed an earlier report by Fitch Ratings that revealed a record number of consumers were 60 days or more behind on their credit card payments in April (“Fitch: Card Delinquencies Rise; Show Signs of Slowing,” CreditCards.com, May 7, 2009).

“Americans know that they have a responsibility to live within their means and pay what they owe,” the president said. “But they also have a right to not get ripped off by the sudden rate hikes, unfair penalties, and hidden fees that have become all too common to our credit card industry.”

New Credit Card Regulations Offer Debt Relief to Cardholders

The House of Representatives, on April 30, passed its version of a credit card reform bill, dubbed the Credit Cardholders’ Bill of Rights. Among other things, the Credit Cardholders’ Bill of Rights obligates credit card issuers to maintain any introductory “teaser” rates for at least six months and bans retroactive interest-rate increases on a cardholder’s existing credit card balances.

The Senate version of the bill, the Credit Card Accountability, Responsibility, and Disclosure Act (http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=111_cong_bills&docid=f:h627enr.txt.pdf) , which passed by a vote of 90–5 on May 19, was merged with the House’s Credit Cardholders’ Bill of Rights and signed into law by President Obama on May 22. In addition to the measures proposed by the House, the Senate’s Credit CARD Act offers other consumer protections and debt relief (http://www.thinkdebtrelief.com/debt-relief/) provisions:

 A consumer’s payments must be applied to highest interest-rate balances first.

 If a late payment causes a cardholder’s interest rate to go up, the cardholder will be able to reclaim the lower rate after six months of consecutive on-time payments.

 Cardholders must consent to have the ability to charge more than their credit limit. If a cardholder doesn’t opt in to allow over-limit spending on her or his credit card, the card issuer may not allow the cardholder to charge more than her or his credit limit and then slap that cardholder with an over-limit penalty fee.

Help With Credit Card Debt in Interest-Rate Controls

Perhaps most notably, credit card companies will now have to provide consumers with 45 days’ notice before raising interest rates or significantly increasing fees — a provision of both the House and Senate versions of the legislation and a particular hot-button issue for consumers and consumer advocates in the past year as credit card rates have skyrocketed, an outgrowth of the attempts by struggling banks to recoup losses from growing numbers of defaulting cardholders.

According to estimates from the Center for Responsible Lending, about 10 million cardholders in the last six months saw their interest rates jump for no apparent reason, with some consumers seeing increases of 10 percentage points or more.

Under the new law, interest-rate increases are prohibited altogether in the first year that a consumer holds a credit card.

Congress also responded to one of Obama’s persistent criticisms that credit card terms and agreements are too abstruse and impenetrable for consumers to easily understand.

“You shouldn’t have to fear that any new credit card is going to come with strings attached, nor should you need a magnifying glass and a reference book to read a credit card application,” Obama said in his radio address. “It is past time for rules that are fair and transparent.”

The Credit CARD Act dictates that cardholder agreements must be written in “plain English” and posted online, and gives guidelines for the kind of language and even the font size that credit card companies may use in explaining their business terms to customers.

The Push for Credit Card Industry Reforms

Although the Federal Reserve had already approved many of these same credit card measures in December in a move to curb abusive credit card practices, the Fed’s rules aren’t scheduled to go into effect until July 2010. Spurred by an ever-expanding number of cardholders defaulting on their credit cards and turning to debt relief options (http://www.thinkdebtrelief.com/debt-relief-options/) like credit card debt settlement (http://www.thinkdebtrelief.com/debt-relief/) and bankruptcy, consumer groups had been urging the president to continue to push for a credit card reform law that could help struggling cardholders sooner.

And with the new legislation, consumer advocates have gotten their wish: The Credit CARD Act will become effective in February of 2010.

“There is no time for delay,” Obama himself said. “We need a durable and successful flow of credit in our economy, but we can’t tolerate profits that depend on misleading working families. Those days are over.”

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