Credit Card Reform One Step Closer to Reality

The Senate has overwhelmingly passed its version of credit card reform, The Credit Card Accountability, Responsibility, and Disclosure Act (“The Credit CARD Act”). The vote was 90 to 5.

“We applaud the bill that passed the Senate today. Consumers are one step closer to credit card reform,” said Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook. “But several steps still have to take place for this reform to become a reality.”

The Senate bill is different than the House’s Credit Cardholders’ Bill of Rights which passed 357-70 on April 30. The next step will be to merge the Senate and House bills together in a Conference Committee. Members from each house will form a Conference Committee to work out the differences. That compromised bill will then be sent to both houses for a vote. Once that bill is approved by each house, it is sent to the President for his signature. President Obama has already declared that he wants to sign a credit card reform bill. The new rules could take effect nine months after legislation becomes law.

“There is no doubt that this legislation will change the industry. Some of the changes are very needed and will benefit cardholders. However, these changes are going to cost the banks billions of dollars and they will try to find ways to make up this shortfall,” says Hardekopf. “You may see issuers assess an annual fee on more credit cards, raise the introductory interest rates, and lower the value of rewards from credit cards.”

Here are some features of The Credit CARD Act:

• Makes it much more difficult for issuers to change rates, a dramatic shift from the existing environment where issuers can raise rates “at any time, for any reason”. Prohibits issuers from increasing the interest rate during an account’s first year. After that first year, an issuer can increase the interest rate if the cardholder is 60 days late in making a payment. If they do increase the rate, legislation requires them to review the account every six months and lower the rate if the situation warrants it. This allows consumers to regain their older, lower interest rate if they pay their bills on time.

• Tightens regulations for marketing credit cards to younger consumers. Requires a parent or guardian co-sign for anyone under 21-years old, unless they can provide proof that they can repay the credit card loan.

• Requires issuers to use payments to pay off the portion of the balance with the highest interest rate first. Currently, issuers can apply the payment to the balance with the lowest interest rate.

• Bans double-cycle billing.

• Requires issuers to disclose how much interest will be paid as well as how much time it will take to pay off the balance if only the minimum monthly payment is made on an account.

• Bans over-the-limit fees unless a cardholder agrees to allow issuers to complete transactions that breach the credit limit.

• Prohibits issuers from charging fees to customers who pay their bills online or by phone.

• Bans gift card issuers from charging dormancy fees on cards redeemed too late. Also requires gift cards to be valid for five years.

• Requires issuers to mail their bills 21 days before the balance is due.

• Requires issuers to give customers 45 days notice (rather than 15 days) before increasing rates.

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About the Author: Bill Hardekopf

Bill Hardekopf is the CEO of LowCards.com a free, independent website that simplifies the confusion of shopping for credit cards and helps consumers easily compare cards in a variety of categories.

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