Credit Cardholders' Bill of Rights  

Is it a Paper Tiger

On April 30^th The House passed HR 627 which is an amendment to the Truth In Lending Act by an overwhelming vote of 357 to 70. This Bill is touted as the Credit Cardholders’ Bill of Rights and on the face of it, does provide cardholders with new protections against arbitrary rate increases and certain fees. With the substantial Yes vote it would appear that most of the Representatives wanted to come down firmly on the side of the consumers and against the banking industry. That makes good press back home doesn’t it.  

Here’s an outline of some of the key measures in the bill: 

• Requires that customers receive 45 days’ notice before interest rates are increased  
• Eliminates double-cycle billing and “retroactive” interest rate hikes on previous balances  
• Bans credit cards for anyone under 18 and puts limits on cards for college students  
• Eliminates fees for paying bills by phone or Internet  
• Allows cardholders to set personal credit limits that cannot be exceeded  
• Requires banks to apply payments to balances with higher interest rates first  
• Prohibits over the limit fees if the transaction created an over the limit situation due to a credit hold.  

On the face of it, the Bill addresses several of the most egregious banking practices specifically a ban on applying increased interest rates on existing balances and requiring that payments be applied to the highest interest rate account first.   

So are the banks happy with this arrangement?  That really is an interesting question.  Initially this Bill, if passed, was to become effective in 90 days.  That time frame was what the banks objected to the most.  They argued that there would be no way that they could come into compliance with that little time.  Does that mean they agreed with the provisions and just objected to the effective date? 

As it turns out, if this Bill passes the Senate and becomes law, it will not take effect until June 30, 2010 (with the exception that customers receive 45 day notice before rates are increased). 

Apparently we are to believe that it takes the banks longer to correct their billing software to accommodate the new Bill than it does for them to decide who is to get new rate increases and how much as they currently do.   

If the economy does not have a rapid return of employment, more and more Americans are going to turn to their credit cards for short term financing of living expenses.  The banks have a full year to impose new rates on cardholders, to include increasing the rates on existing balances.  This Bill looks good on paper, but there exists a strong possibility that it will have little effect protecting cardholders from outrageous rate unilateral rate increases for another 12 months. 

The only hope for this Bill is that the Senate version will require a more timely effective date and that does not seem likely.  If you feel strongly about this, email your Senators and ask them to reconsider the effective date or kill the bill entirely so a new Bill can be written. 

For an update on the bill go here.