Senate votes to rein in credit card interest hikes

In one of this year’s few bipartisan success stories on Capitol Hill, the Senate on Tuesday overwhelmingly passed a landmark bill that would impose an unprecedented set of restrictions on the credit card industry’s ability to raise interest rates and take other actions that have angered consumers.

The measure, approved on a 90-5 vote, would curtail retroactive interest rate increases, require advance notice of rate increases, restrict fees for making charges over one’s credit limit, and prohibit lenders from raising rates when a cardholder is late on a separate debt.

It would also make it more difficult for companies to solicit college-age students to obtain credit cards, prevent companies from charging a fee for paying a bill, and prohibit interest charges for debts paid on time.

Consumer advocates were ecstatic. “It has taken 10 years to get to this point,” said Pamela Banks, senior policy counsel with Consumers Union. “I think consumers can breathe a sigh of relief.”


The House, which passed a similar measure last month, is expected to approve the Senate version today. President Obama, who had called for such legislation, is expected to sign it.

In a contentious year on Capitol Hill, Democrats and Republicans found it easy to come together against banks and other credit card firms, which historically have wielded enormous clout in Washington.

In the wake of consumer outrage over the financial crisis and subsequent bailout of the banking industry, card companies found themselves the targets of blistering attacks from senators who accused them of engaging in exploitative and misleading tactics.

“Republicans and Democrats have heard the same stories from consumers,” said Sen. Lindsey Graham (R-S.C.), who voted for the bill.


“The credit card companies have crossed line after line,” Sen. Charles E. Schumer (D-N.Y.) said during the Senate’s debate on the measure.

The industry has said the bill, which it fought, would force card issuers to recoup lost revenue by raising annual fees and doing away with perks such as airline miles and “cash-back” rewards.

“Those who manage their credit well will be subsidizing those who don’t,” said Scott Talbott, a lobbyist for the Financial Services Roundtable, an industry trade group.

The industry also has said the legislation would tighten the amount of credit available to consumers via their cards.


Schumer predicted that the industry’s earnings would take a hit. “It won’t be as profitable as it was, but those profits were way out of line,” he said.

Senators, however, said they were responding to a groundswell of support for the legislation from their constituents.

Last week, Sen. Claire McCaskill (D-Mo.) said her office had received “thousands of e-mails” in the last six months complaining about credit card industry practices.

“I’m not sure there’s any piece of legislation that is more important to the people at home than this credit card bill,” McCaskill said late last week during final debate on the bill. She said the government needed to curb “these companies that are taking advantage of an unlevel playing field.”


Last week, President Obama carried a similar message to a town hall event outside of Albuquerque.

Sponsored by Sen. Christopher J. Dodd (D-Conn.) and Sen. Richard C. Shelby (R-Ala.), the Senate bill is viewed as more aggressive than the House version. Most strikingly, it would prevent lenders from raising interest rates on any account that is less than 60 days past due. The House version would allow a rate increase after only 30 days.

The Senate measure, which would go into effect one year after being signed into law, is also stronger than regulations on credit card practices adopted by the Federal Reserve set to take effect in July 2010.

In addition, the Senate version would regulate retail gift cards, preventing companies from charging excessive and hidden fees if the card is not used within a short period of time. The bill would require such cards to be viable for five years. The House bill does not address gift cards.


According to the White House, total credit card debt has reached $963 billion, a 25% jump over the last 10 years. The average amount of credit card debt among families holding a balance was $7,300 in 2007.

Credit card issuers collect $15 billion each year in penalty fees, which accounts for a tenth of total revenue.

For Schumer and Dodd, the bill represented a move against an industry from which they have benefited.

According to the nonpartisan Center for Responsive Politics, Schumer received more from Citigroup Inc., a leading credit card issuer, than from any other campaign contributor over the last five years, while Dodd received almost $1 million in campaign funds from commercial banks during that time.


As part of a compromise, the Senate legislation includes an amendment offered by Sen. Tom Coburn (R-Okla.) that would allow visitors to national parks and federal wildlife areas to carry handguns if permitted by state law.





Key items in

the Senate bill

Rates can’t be increased in an account’s first year.


Card companies must give advance notice of rate increases.

Rates can’t be increased because cardholder is late on a separate debt.

Lenders can’t raise interest rates on any account until it is 60 days overdue.