WASHINGTON --- Friday the House of Representatives passed legislation to rein in many common lending practices in the credit card industry that have been deemed unfair and deceptive. The Credit Cardholders' Bill of Rights Act of 2009, introduced by Congresswoman Carolyn B. Maloney (D-NY), Chair of the Joint Economic Committee, was passed by an overwhelming 357-70 bipartisan margin. Tamara Draut, Vice President of Policy and Programs at Demos, a non-partisan policy center that supports legislative measures to re-regulate the credit card industry and bolster the household economy, issued the following statement on the legislation:
"The House of Representatives has resoundingly declared an end to the era of abusive and anti-competitive freewheeling in the credit card market. With today's vote, our representatives in Congress have joined the chorus of the more than 50,000 consumers who wrote the Federal Reserve Board to urge for stronger protections, and President Obama, who personally warned major credit card issuers that ‘The days of any-time, any-reason rate hikes and late-fee traps have to end.'
"American households are in dire need of relief from worsening lending standards. As the financial sector continues to reap the consequences of the subprime debacle, banks are openly 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.
"Demos research shows that inequitable credit card underwriting practices have shifted the cost of credit to individuals least able to afford it, while at the same time generating some of the highest profits in the entire banking sector. 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."
The Credit Cardholders' Bill of Rights Act 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. The bill would:
- End arbitrary and unfair interest rate increases on existing balances;
- Prevent credit card companies from gaming consumer payments;
- Prohibit unfair and hidden interest rate charges on balances repaid during the grace period, and
- End unfair late fees for on-time payments.
Yesterday, Treasury Secretary Timothy Geithner met with Demos and other consumer advocacy and civil rights organizations to announce its goals for long-term credit card reform. Many of the Administration's proposals, such as requiring credit card companies to apply payments made by consumers to the highest interest rate debt they owe and prohibiting card issuers from charging fees for over-limit transactions unless cardholders provide explicit permission, were included in the final version of the House bill.
While the Federal Reserve and other agencies have finalized rules similar to the protections in the Maloney bill, today's action on the part of the House represents one of the final steps in codifying these proposals into law, ensuring that regulators will not weaken these protections in the future.
Similar legislation has been approved by the Senate Banking Committee and is expected to come up for a vote before the full Senate in the coming weeks.
Read the Opposing Views debate, Would a Credit Card Bill of Rights Help or Harm Consumers?