House Passes Significant Credit Card Regulation In Bipartisan Vote

Roxana Araujo is a financial crimes investigator for Florida's Office of Financial Regulation. It's her job to sniff out unscrupulous lending practices and help ordinary families avoid being taken advantage of by financial institutions. So it must have been odd for her to find herself seated next to Treasury Secretary Tim Geithner, describing the confusion and frustration she felt trying to understand why the interest rates on two of her credit cards had been increased without warning. But many readers will be all-too-familiar with that feeling of helplessness in the face of rising interest rates despite having always paid the credit card bills on time, as had Ms. Araujo.

Sometimes, you don't have to be a financial regulatory professional to know you're getting screwed.

Pushback against egregiously unfair lending practices in the credit card market is mounting. And it looks like Washington is finally getting the message. On Thursday, the House of Representatives passed the Credit Cardholders' Bill of Rights by a landslide vote of 357-70. The bill, championed by Rep. Carolyn Maloney (D-NY), would enact basic standards that eliminate some of the most exploitative practices in the business. Card companies will no longer be able to retroactively raise the interest rate on existing balances--except under limited circumstances, such as a 30-day delinquency. (This will put an end to "any time, any reason" rate increases) When the credit card companies do increase an interest rate, they will be required to give customers 45 days' notice. In addition, interest may only be tallied on balances in the current billing cycle, statements will be mailed earlier in the billing cycle, payments will always be allocated to the portion of the balance with the highest interest rate, and hefty fees for over-limit transactions will be banned unless cardholders explicitly permit it ahead of time.

When the free-marketeers were in charge, deregulation was the reigning political philosophy. Rules were scarce and enforcement even scarcer. The last time Congress imposed new regulations on the credit card market was the 1988 "Schumer Box."

Things have changed. Last week, the big card companies were called on the carpet at the (White House, where the President announced, "The days of any-time, any-reason rate hikes and late-fee traps have to end." And Thursday in the House, over 100 Republicans voted with Democrats to swiftly usher in the end of the freewheeling era in the credit card market.

Well, not so fast. Unfortunately, there is a 12-month lag between enactment and implementation. Congress is essentially outlawing these practices as harmful to consumers and then allowing them to continue for a year. Indebted Americans cannot wait a year for fair treatment when every day brings more bad news for the family bottom line.

Demos, a non-partisan public policy research and advocacy organization for which I work, has conducted has demonstrated through research that in a market with almost no rules, low-income families and households of color pay disproportionately high costs for credit card borrowing, in the form of painfully high interest rates and excessive penalty fees. And when the economy slows and unemployment rises, more and more families are forced to rely on credit card debt to cover shortfalls in income. In short, the absence of basic regulation in the credit card market is making this recession deeper for those already on the bottom.

This is the message we took to the Treasury on Wednesday, when Secretary Geithner invited Demos and other stakeholders in the consumer advocacy and civil rights communities to meet Ms. Araujo and discuss principles for credit card reform. Besieged borrowers cannot hold on for another year. Still reaping 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. As lenders turn the screws on cardholders, delinquencies have reached an all time high.

Financial Services Committee Chairman Barney Frank warned during debate on the House bill that if banks appeared to be gouging customers in the run-up to the new rules, he would seek a quicker implementation in the final negotiations with the Senate, which may take up its version of the measure as soon as next week.

"I work as a financial crimes investigator and so I knew what to look for," Ms. Araujo told us on Wednesday. "A lot of other people do not." Let's hope Members of Congress can recognize abuse when they see it and act quickly to snuff it out.

Comments

[dctackett]

how about some serious legislatio­n?... they need to cap interest rates.

[wonketteRAWKS]

That won't take effect for how long????

[oafishcad]

Anything over 12% interest used to be usury, subject to criminal prosecution. Loan sharks charged less than credit cards do now, and can continue to do, this law notwithstanding.

[oafishcad]

Until usurious interest rates become a crime, the rest is smoke and mirrors. 29-30% interest is criminal. It is immoral and wrong. Usury used to be illegal (Until Reagan). That doesn't get fixed with this bill.

[lvdragonlady]

Wow - I am sure the world is going to end now.

[uvymopka]

Oh gooodddiiieeee. Now I can max out my cards and not pay.......­again!

[huffingt]

Bipartisan ? yea! because it takes 12 months to implement.
It is like Yes we did but not really -clev er & cun ni n g G o p

[huffingt]

Bipartisan ? yea! because it takes 12 months to implement.
It is like Yes we did but not really -clever & cun ni ng Gop

[westreal]

"Unfortunately, there is a 12-month lag between enactment and implementation. Congress is essentially outlawing these practices as harmful to consumers and then allowing them to continue for a year."

What good is passing a law you're not going to enforce for a year? PURE GRANDSTANDING!

[loki]

what is with the 12 month lag?? Is that to give time to the lawyers to find all the loopholes and rape us in meant time? How can congress push to pass laws over night, but when it comes to something that effects a nation, they think waiting 12 months is fine?

[carallen]

The twelve months gives banks/credit companies time to jack everyone's interest rate and force out those who pay in full and on time. Crooks!

[Givethemhellharry]

A joke about the Banker's heart

A man has a massive heart attack and is taken to the hospital. After the Cardiologist gets him stabilized, he gives him the bad news that he needs an immediate heart transplant and hearts are scarce.

The patient gives him permission to try to find a heart for him. The doctor comes back an hour later with an amazed look on his face and tells the patient that there is not just one heart available, but 3 to choose from. The patient asks what the choices are.

The doctor says the first one was from a 28 year old professional football player who died because he forgot to put on his helmet. The doctor exclaims what a strong heart that should be.

The patient asks about the second heart. The doctor replies it is from a 23 year stripper who died in an accident - imagine how that is going to help your sex life.

The patient asks about the 3rd heart. The doctor replies I really don't think you will want this one. It is from a 53 year old banker who was overweight and never exercised.

The doctor says I have to order the heat, which one do you want?

After thinking for a minute, the patient replies I want the Banker's heart.

The Doctor is aghast and asks why in H do you want the Banker's heart??

The patient answers - I want one that has never been used.

[Cynth]

:-)

[loki]

They need to bring back the interest cap. Wasnt it at 24% or 28% for years? I want to wait and see what loopholes they wrote into it before I get to excited. The devils are always in the details.

[shellshock30]

I think this bill is a great effort by congress. It may not be perfect but it's better than what you would've gotten under Bush or McCain....­which is nothing but a free market speech. To those complaining about this bill....to bad. What do you expect?...­should they forgive or suspend your debt until you decide to pay it?...They didn't come to you, you came to them and even if they came to you, nobody forced you to get those damn credit cards. So quit your whining and PAY YOUR DANG BILLS!!!

Listen folks, we have credit cards to but we pay more than the minimum monthly balance. If our rates go up then so what because we pay 3 times more than the $15 month minimum charge. Come on folks, at some point you have to sacrifice a few nights out to take care of your credit card bills.

Obama's doing what he can on his end, short of getting credit card companies to forgive YOUR debt but at some point we the people will have to meet him half way to appreciate the benefits.

[Spesabsquemetu]

Exactly HOW is this supposed to PROTECT consumers, Mr. Geithner?

Why are you even allowing these banks to increase rates on credit cards, if you are TRULY trying to GET CREDIT FLOWING?

Why are you not RESTRICTING what banks can charge, particularly when - they just got BILLIONS of OUR TAX PAYERS MONEY, and were given the go-ahead by our United States senators to literally DENY US THE RIGHT TO BE PROTECTED FROM FORECLOSURES.

What kind of a SCAM is this supposed to be?

So, 45 days comes due.
Will we have raises? Will our interest rates be lowered?
Will our health care costs go down? What will 45 days change - except that we will attempt to hunt for better rates, but will WE FIND ANY, SIR?

[thegrifter]

Yes!