Vision Credit Education, Inc.

The Obama administration and the democrat-controlled Congress have made it clear that increased regulation of credit card issuers is on the table. While some changes are already scheduled to be implemented July 1, 2010, there may be more substantial changes that occur prior to then. Here is what is being discussed.

Credit Cardholders’ Bill of Rights Act of 2008

Rep. Carolyn Maloney (D-NY) has been pushing her proposed legislation for years. Known as the Credit Cardholders’ Bill of Rights, H.R. 5244 would provide new protections against arbitrary interest rate increases and other practices that can be detrimental to cardholders. According to Rep. Maloney, this act would provide the following protections:

1. Cardholders Deserve Protections against Arbitrary Interest Rate Increases.

• Requires card companies give cardholders 45 days notice of any interest rate increases.
• Gives cardholders the right to cancel their card and pay off their existing balance at the existing interest rate and repayment schedule if they get hit with an interest rate hike; gives cardholders 3 billing cycles after the rate increase to say no to these new terms.
• Prevents card companies from retroactively increasing interest rates on the existing balance of a cardholder in good standing for reasons unrelated to the cardholder’s behavior with that card (the so-called “universal default” rate increase).
• Prohibits card companies from arbitrarily changing the terms of their contract with a cardholder, banning the so-called practice of “any-time, any-reason repricing.”

2. Cardholders Who Pay on Time Should Not Be Penalized.

• Prohibits card companies from charging interest on debt that is paid on time during a grace period. This prevents the so-called “double-cycle billing” practice.
• Prohibits card companies from slapping fees on the remaining interest-only balance of a cardholder who has paid his/her bill on time.

3. Cardholders Should Be Protected from Due Date Gimmicks.

• Gives cardholders time to pay their bills by requiring card companies to mail billing statements 25 calendar days before the due date (14 days is the current minimum).
• Requires that payments made before 5 p.m. EST on the due date are considered timely.
• Directs card companies to provide on every statement, a phone and internet address that a cardholder can access for payoff balances.
• Prohibits card companies from charging late fees when a cardholder presents proof of mailing his/her bill within 7 days of the due date.

4. Cardholders Should Be Protected from Misleading Terms.

• Prevents card companies from using terms such as “fixed rate” and “prime rate” in a misleading or deceptive manner by establishing single, set definitions of those terms.
• Gives cardholders who get pre-approved for a card the right to reject that card up until the moment they activate it without having their credit adversely impacted.

5. Cardholders Deserve the Right to Set Limits on Their Credit.

• Requires card companies to offer consumers the option of having a fixed credit limit that cannot be exceeded.
• Prevents card companies from charging over-the-limit fees on a cardholder with a fixed credit limit.

6. Card Companies Should Fairly Credit and Allocate Payments.

• Directs card companies to fairly allocate payments on balances at different interest rates. Many card companies currently require cardholders to pay off a lower interest rate balance first.

7. Card Companies Should Not Impose Excessive Fees on Cardholders.

• Limits the amount of “over-the-limit” fees card companies are allowed to charge to 3. Some card companies currently charge limitless fees for going over credit limits.

8. Vulnerable Consumers Should Be Protected From Fee-Heavy Subprime Credit Cards.

• Requires that all fees for subprime cards, whose total fixed fees over a year exceed 25 percent of the credit limit, be paid up front before the card is issued. These cards are generally targeted to vulnerable consumers.

9. Congress Should Provide Better Oversight of the Credit Card Industry.

• Improves existing data collection on industry profits, as well as card fees and rates; requires this information to be presented to Congress every year.

Stop Unfair Practices in Credit Cards Act of 2007

Sen. Carl Levin (D, MI) proposed an amendment to the Truth in Lending Act in regards to how open-ended credit contracts are governed. His version (S. 1395) would restrict card issuers in the following ways:

1. Limit Penalty Rate Increases

• Penalty rate increases would be limited to 7 percentage points above the existing interest rate.
• Penalty rate increases would only apply to new purchases. The existing balance would still be repaid at the same interest rate. Also, interest would not accrue on fees, of which additional restrictions might apply. Card issuer compliance would be managed through an annual audit of operations.

2. Modify How Payments are Applied

• Any payment would be applied toward the highest interest balance first.
• Payment must be applied in manner to minimize finance charges.

Credit Card Reform Act of 2008

Sen. Robert Menéndez (D-NJ) proposed an amendment to the Fair Credit Reporting Act that would modify when a credit bureau must supply a credit report to those aged 18-20 in response to charges not initiated by the consumer. Further changes would amend the Truth in Lending Act, which could provide the following changes:

1. Restrictions of Credit Card Term Modifications

• Card issuers would only be able to adjust terms of an existing credit card agreement following the expiration of the existing contract or at the renewal date.
• Card issuers would first have to publish all contract changes prior to initiating such changes.

2. Reporting and Review Requirements

• Card issuers would be limited to report negative information only when the cardholder has clearly been late on their payment, including electronic or mailed payment options.
• Card issuers would have to confirm the ability of the cardholder to pay prior to extending credit or to increasing their credit limit.

The Credit Card Accountability, Responsibility and Disclosure Act

Sen. Chris Dodd (D-CT) has also been very active in proposing legislative changes that would further restrict the ability of credit card issuers to change terms of existing card agreements. His C.A.R.D. Act is aimed at reducing practices that often lead to financial ruin for families who are unable to manage their existing debt agreements. His legislation intends to:

Increase Credit Card Regulation and Supervision

• Bank regulators would ensure compliance of credit card products with existing regulations.
• Banks might have to reveal more information about their fees and profits in addition to their rates.
• Provides expanded authority to federal regulators to enforce compliance.

Ban Rate Increases that Occur “Any Time for Any Reason” 

• Universal default practices would be illegal.
• Terms would not be allowed to be modified during an existing card agreement. Issuers would have to wait until the expiration or renewal date before they could change the terms.
• Cardholders would be able to repay their accounts under existing terms if they close (inactivate) the account.
• Interest rate increases would only apply to newer debt incurred after the changes.

Mandate Fairness in Application of Cardholder Payments

• Card payments would have to be applied first to higher interest balances.
• Early morning deadlines for on-time payments would be disallowed.
• Double-cycle billing would be eliminated.
• Card issuers would be restricted from charging late fees resulting from delays in crediting the user’s payment.
• Card issuers would have to provide 21 days from the date the statement is mailed until the due date. This is up from the previous 14-day requirement.
• Payments received at local branches would have to be credited as of that same day.

Protection from Exorbitant Rates and Fees

• No interest would be charged on late fees or over-the-limit fees as well as other transaction fees.
• Card issuers would not be allowed to charge a fee associated with the payment of the account, whether the payment is made electronically, by mail or over the phone.
• Card issuers would be restricted in how they may apply late or over-the-limit fees. Multiple fees would be disallowed, and fees resulting from charges not initiated by the user would be outlawed.
• Card users would have the option of a fixed credit limit.
• Card issuers that impose a penalty rate would have to restore the previous rate if no further violations were committed by the cardholder over a subsequent 6 month period of time from the initial infraction.

Enhanced Disclosure of Term Changes

• Card issuers would have to provide 45-days advance notice of any changes to terms.
• Users would have to receive disclosures of changes to the terms upon renewal.
• Card issuers would have to supply repayment estimates to users that disclose approximate repayment term based on the cardholder making only minimum payments, plus the total cost of the credit in a dollar figure. This is similar to what lenders must provide for installment loans under the Truth in Lending Act.
• Billing statements would have to fully disclose due dates and late payment penalties.

Protections for Young Adults

• Card issuers that solicit anyone under age 21 would have to receive documentation indicating either a cosigner, proof that the applicant can independently repay the debt or proof that the applicant has completed a certified financial literacy course.
• Credit bureaus would be unable to supply credit reports for prescreening purposes on anyone under age 21 unless that person is aged 18-20 and has chosen to receive those solicitations.

Updates to Proposed Legislation

Congress has made credit card regulation a priority, especially among financial institutions that have received federal bailout money. Some lawmakers and consumer advocates consider the recent changes in terms among some credit card issuers to undermine the efforts to help households climb out of the recession.

On Thursday, April 23, 2009 President Obama met privately with the CEOs of the nation’s largest credit card issuers to discuss proposed limitations on their activities. Card issuers felt that the existing regulation “is probably enough.” It is widely believed that Obama disagreed, and further restrictions are likely to be implemented.

Cardholders that are facing financial hardship should understand that government intervention is not going to save them from their predicament. Instead, they should seek help from credit counseling organizations that are organized to help them restore their finances.