Senate Passes Consumers' Credit Card "Bill of Rights"

The Senate voted overwhelmingly in favor of a consumers' credit card "bill of rights" today. The measure, designed to curb fees, limit contract changes, and increase transparency in credit card agreements, passed by a vote of 90-5.

From Bloomberg:

The Senate credit-card legislation would require lenders to apply payments to balances with the highest interest rates first. It would prohibit increasing a consumer’s rate on existing balances based on late payments to another lender, a practice known as “universal default.”

Many senators said they had been flooded by complaints from constituents with clean payment histories whose rates were increased or borrowing limits were slashed.

“This has been an assault on the American consumer that is growing by the hour,” said Banking Committee Chairman Christopher Dodd, a Connecticut Democrat.

President Obama has long pressed for Credit Card reform, and Senator Dodd has made passed of the Bill of Rights a priority. This morning, the Huffington Post ran an op-ed from Senator Dodd in which he made the case for reform:

Americans know they have a responsibility to live within their means and to pay what they owe. But they also have a right not to be deceived, misled, or ripped off by unfair and arbitrary credit card industry practices that have become commonplace. That's especially important when one considers how credit card use has expanded in the US.

...Consumers should not have to live in fear that a clause buried in the fine print of their credit card contract might someday be their financial undoing.

Even the federal financial regulators finally recognized the threat posed to consumers and our economy alike, finalizing rules that would curb some of these unfair and deceptive practices.

But with our economy in deep recession and layoffs mounting, the time has come for broad reform -- to insist on consumer protections that are strong and reliable, rules that are transparent and fair, and statements that are clear and informative.

...[This] legislation prevents unfair increases in interest rates and changes in the terms of credit card contracts -- prohibiting the kind of unjustifiable rate increases on existing balances that the Pew Charitable Trusts found were allowed by 93 percent of cards surveyed, while preventing the kind of "gotcha" tactics that say if you pay late once, you're penalized forever.

The bill puts an end to exorbitant and unnecessary fees that drive families further into debt--requiring that any penalties be proportional to the violation and prohibiting issuers from charging fees when customers make a payment by phone or unknowingly exceed their credit limit.

The Credit CARD Act protects the rights of financially responsible credit card users -- so that if the credit card company delayed crediting your payment or charged you for debt paid on time, you aren't charged for their mistake.

This legislation also requires far better disclosure of card terms and conditions. Cardholders should not need a microscope to read what a statement says and a law degree to understand what it means.

...When given fair terms, credit cards can be a valuable financial tool for millions of Americans. But that's far from the case today. And with our economy in trouble, Americans do not deserve -- and cannot afford -- to be pushed down the economic ladder by credit card companies any longer.

Over and over we've heard that consumers should act responsibly when it comes to credit cards. I agree -- but it's time we held credit card companies to the same standard.

The House passed similar legislation last month, and President Obama hopes to be able to sign a bill into law before Memorial Day. 

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