Economic Perspectives with Hopeton Hay on KAZI 88.7 FM in Austin, TX

Credit Cardholders Bill of Rights Legislation Summary

Posted by Hopeton on May 3, 2009

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

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.

One Response to “Credit Cardholders Bill of Rights Legislation Summary”

  1. It is about time that congress did something about credit card companies exploiting the American public. In Australian we have strict credit laws, and it has saved us from the worst effects of the latest credit crisis.

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