Personal Finance

What You Should Know About the New Credit Card Bill of Rights

| by Demos

WASHINGTON, DC -- Yesterday the House sent to the President's desk a bill that would rein in many of the most unfair and deceptive credit card industry practices. The Credit Cardholders' Bill of Rights Act of 2009, introduced in the Senate by Sen. Christopher Dodd (D-CT) and House by Carolyn Maloney (D-NY), was approved by an overwhelming 90-5 bipartisan margin in the Senate yesterday and today the reconciled version was approved by the House with a 361-64 vote. Tamara Draut, Vice President for Policy and Programs at Demos issued the following statement on the legislation:

"For the first time in 20 years, Congress has taken a stand on behalf of American households who are in dire need of relief from outrageous and predatory credit card practices. As the financial sector continues to reap the consequences of the mortgage meltdown, banks are brazenly increasing interest rates and fees on their credit card customers in order to cover losses in other areas. The only reason this is possible is because in the absence of almost any regulation, issuers have tilted the playing field heavily in their favor.

"These practices come at a time when families are already on the financial edge, having weathered a long-term economic shift towards stagnant wages, low savings rates and higher costs. By the time of the recent economic downturn hit, they had been turning to credit cards for years just to cover basic costs like gas, groceries and utilities, and to deal with emergencies, such as an unexpected medical expense.

"Demos research shows that, since the late 80s, credit card underwriting practices have shifted the cost of credit-their revenue stream-to individuals least able to afford it, while at the same time generating some of the highest profits in the entire banking sector, a record $18 billion in fees last year alone. Low-income families and households of color, primarily African Americans and Latinos, bear the brunt of the cost of credit card deregulation through excessive fees and high interest rates. The lack of common-sense protections has made this recession much deeper and more painful for these families.

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"Recognizing the severity of the deregulated credit card market, Congress has gone beyond the rule written by financial regulators in December to put in place a number of additional protections for American consumers.

"We are delighted that the The Credit Cardholders' Bill of Rights Act includes many of the key provisions offered in the Demos 2004 policy proposal, The Borrowers Security Act, as well as several others. This bill would level the playing field between borrower and lender by putting an end to some of the most arbitrary, abusive and unfair credit card lending practices that trap consumers-particularly disadvantaged and minority borrowers-in an unending cycle of costly debt. Among the measure's major provisions are:

--An end to arbitrary and unfair interest rate increases on existing balances, except in limited circumstances;

--Forty-five day advance notice of any rate increase or significant change in terms;

--A ban on "double-cycle" billing or charging interest charges on a portion of a balance that is paid by the due date;

--Application of payments in excess of the minimum amount to the credit card balance with the highest rate of interest;

--Disallowing over-limit fees unless the cardholder has affirmatively agreed to allow over-limit transactions; and

--Barring the extension of credit to consumers under age 21 who cannot demonstrate an independent means to repay the loan, unless the person has a cosigner who has such ability.

"Congress has fulfilled the President's request to have the credit card bill on his desk before the Memorial Day holiday. Demos applauds the Congressional leadership and the President for their efforts to start restoring balance and fairness to the credit card issuer-borrower relationship, and to provide America's families much needed relief from these unfair, unregulated practices."