[Infowarrior] - Senate Panel Approves Bill Limiting Credit-Card Rates

[Richard Forno]

Senate Panel Approves Bill Limiting Credit-Card Rates (Update1)
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http://www.bloomberg.com/apps/news?pid=20601087&sid=aEj6rf6ZYif8&refer=home

By Jeff Plungis

March 31 (Bloomberg) -- A Senate panel approved new restrictions on  
credit-card interest rates that are broader than those adopted by the  
Federal Reserve in December, brushing aside objections from  
Republicans and the banking industry.

Senate Banking Committee Chairman Christopher Dodd said the measure  
was needed to protect consumers from having their interest rates  
raised on previous balances, unless certain conditions are met. The  
legislation would prevent credit-card companies from unilateral  
changes to the terms of an agreement.

The bill, known as the “credit card bill of rights,” also would  
require the signature of a parent for a borrower under age 21, unless  
there’s proof of independent income or completion of a financial  
education course. Universities that forge marketing deals with card  
companies would be subject to the rule.

“The list of troubling credit-card practices is as lengthy as it is  
disturbing,” said Dodd, a Connecticut Democrat. The measure passed on  
a 12-11 vote, with all the panel’s Republicans opposing it. The bill  
now goes to the full Senate. The House Financial Services Committee  
has scheduled a vote on its version of the legislation tomorrow.

Dodd repeated criticism he voiced at a February hearing, saying banks  
were using lax rules to “gouge” consumers. Lenders are hiking rates  
even on customers who pay their bills on time, he said today.

Credit Access

Senator Richard Shelby of Alabama, the panel’s senior Republican, said  
lawmakers hadn’t fully examined the bill. The committee rejected an  
amendment offered by Senator Jim Bunning, a Kentucky Republican,  
asking regulators to certify that the legislation wouldn’t restrict  
consumers’ access to credit.

The legislation also would require card companies to disclose how long  
it would take to pay off a balance when making a minimum monthly  
payment and require statements to be mailed at least 21 days before  
the payment due date, up from 14 days.

It would also prohibit banks from charging interest on fees, such as  
those imposed for late payments or exceeding credit limits.

The Senate bill is more sweeping than rules enacted in December by the  
Federal Reserve and other banking regulators, say consumer advocates.  
Those measures, which take effect in July 2010, would limit rate  
increases on existing balances. Lawmakers say legislation is needed to  
make permanent changes in the industry.

First Step

“What the Fed did is a good first step,” said Travis Plunkett,  
legislative director of the Consumer Federation of America. “This  
proposal is going to do more to protect consumers from unjustified  
fees and rate increases.”

Banks are making it harder to get loans as they try to stem mounting  
losses and writedowns. Credit card charge-offs, which are loans banks  
aren’t expecting to be repaid, were 7.1 percent on average in January  
compared with 4.6 percent a year earlier, according to data compiled  
by Bloomberg.

Consumers are falling behind on credit-card payments as U.S.  
unemployment reached 8.1 percent in February, the highest level in  
more than a quarter century.

The American Bankers Association, which represents credit card issuers  
such as Bank of America Corp. and Citigroup Inc., sent a letter to  
Dodd and Shelby yesterday saying that the legislation would exacerbate  
problems in the U.S. economy “by imposing serious restraints on card  
lenders’ ability to serve consumers.”

“There is certainly a heightened concern over the impact of business  
practices,” said Ken Clatyon, the ABA’s senior vice president of card  
policy, in an interview. “The regulators have already taken very  
dramatic action to address concerns in the marketplace.”

Legislation is “a blunt instrument,” Clayton said. “It may be more  
negative than positive.”

To contact the reporter on this story: Jeff Plungis in Washington at jplungis at bloomberg.net 
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Last Updated: March 31, 2009 12:39 EDT