Financial Services Committee Approves Maloney-Frank bill to Speed Up Credit Card Reforms

The Financial Services Committee unanimously passed H.R. 3639, the Expedited CARD Reform for Consumers Act of 2009, which would move up the effective date for credit card reforms from February 22 to December 1. The bill, sponsored by Rep. Carolyn Maloney (D-NY) and Financial Services Committee Chairman Barney Frank (D-MA), changes the date by which banks and credit card issuers would have to comply with the remaining provisions of the Credit CARD Act, new consumer-friendly legislation signed by President Obama earlier this year. The bill now moves to the House floor for consideration.

Rep. Carol Maloney

Rep. Carolyn Maloney (D-NY) said: “This marks a step forward in bringing consumers badly-needed relief,” Maloney said. “Just in time for the holidays, Congress can lock in a ban on interest rate hikes on existing balances and the tricks that have kept far too many consumers trapped in a never-ending cycle of debt: tricks like double-cycle billing, due-date gamesmanship, and applying payments to lowest rates first.”

“The card companies brought this on themselves, by using the time between when the bill was signed by President Obama and when it goes into effect to ‘get in under the wire’ with a last gasp of unfair practices,” Maloney said. “Today’s action shows Congress can act with speed when necessary to provide consumers the protection they need.”

In reporting the bill out, the committee voted to keep the original effective date of February 22, 2010 for prepaid gift cards (which are now all printed and on the way to retailers for the holiday season), and for small credit card issuers with under 2 million cardholder accounts. The six largest card issuers control over 80% of the credit card market.

Credit Cardholders Bill of Rights Legislation Summary

The U.S. House of Representatives passed legislation recently curtailing unfair practices of the credit card industry.  Sponsored by House Financial Services Committee Chairman Rep. Barney Frank (D-MA) and Rep. Carolyn Maloney (R-NY), “The Credit Card Holders’ Bill of Rights” passed on a 357-70 vote on April 30.  The legislation is now in the U.S. Senate.  Enclosed below is a summary of the new consumer protections it would provide if passed and enacted in its current form.

Ends Unfair, Arbitrary Interest Rate Increases.

Rep. Barney Frank

• Prevents card companies from unfairly increasing interest rates on existing card balances –retroactive increases are permitted only if a cardholder is more than 30 days late, if a preagreed promotional rate expires, if the rate adjusts as part of a variable rate, or if the cardholder fails to comply with a workout agreement.
• Requires card companies to give 45 days notice of all interest rate increases or significant contract changes (e.g. fees) so consumers can pay off their balances and shop for a better deal.

Lets Consumers Set Hard Credit Limits, Stops Excessive “Over-the-Limit” Fees.

• Requires companies to let consumers set their own fixed credit limit.
• Prevents companies from charging “over-the-limit” fees when a cardholder has set a limit, or when a preauthorized credit “hold” pushes a consumer over their limit.
• Limits (to 3) the number of over-the-limit fees companies can charge for the same transaction – some issuers now charge virtually unlimited fees for a single limit violation.

Ends Unfair Penalties for Cardholders Who Pay on Time.

• Ends unfair “double cycle” billing – card companies couldn’t charge interest on debt consumers have already paid on time.
• If a cardholder pays on time and in full, the bill prevents card companies from piling additional fees on balances consisting solely of left-over interest. .
• Prohibits card companies from charging a fee for payments received over the phone or via the Internet.

Requires Fair Allocation of Consumer Payments.

• Many companies credit payments to a cardholder’s lowest interest rate balances first, making it impossible for the consumer to pay off high-rate debt. The bill bans this practice, requiring payments made in excess of the minimum to be allocated proportionally or to the balance with the highest interest rate.

Protects Cardholders from Due Date Gimmicks.

• Among other measures, requires card companies to mail billing statements 21 calendar days before the due date (up from the current 14 days), and to credit as “on time” payments made before 5 p.m. local time on the due date.
• Extends due date to next business day for mailed payments when the due date falls on a day a card company does not accept or receive mail (i.e. Sundays and holidays).

Prevents Companies from Using Misleading Terms and Damaging Consumers’ Credit Ratings.

• Establishes standard definitions of terms like “fixed rate” and “prime rate” so companies can’t mislead or deceive consumers in marketing and advertising.
• Gives consumers who are pre-approved for a card the right to reject that card prior to activation without negatively affecting their credit scores.

Protects Vulnerable Consumers From High-Fee Subprime Credit Cards.

• Prohibits issuers of subprime cards (where total yearly fixed fees exceed 25 percent of the credit limit) from charging those fees to the card itself. These cards are generally targeted to low-income consumers with weak credit histories.

Bars Issuing Credit Cards to Vulnerable Minors

• Prohibits card companies from knowingly issuing cards to individuals under 18 who are not emancipated minors.