Key Senators Reach Compromise on Credit Card Legislation
Tuesday, May 12, 2009
The top senators on the Senate Banking Committee have reached a compromise on a bill that would protect consumers from abusive credit card industry practices, increasing the likelihood that the Senate will pass it as early as this week.
Debate on the bill, co-sponsored by Banking Committee Chairman Sen. Christopher J. Dodd (D-Conn.), began on the Senate floor yesterday afternoon. The compromise reached between Dodd and Sen. Richard C. Shelby (R-Ala.) over the weekend increases the chances of credit card legislation reaching President Obama this year.
Obama is pushing for swift passage, saying in his Saturday radio address that he wants a bill ready for his signature by Memorial Day. Jen Psaki, deputy White House press secretary, said the president will hold a town hall meeting in Albuquerque Thursday during which he will discuss his commitment to credit card reform.
The House has passed a credit card reform measure that mirrors new rules passed by the Federal Reserve in December. The Dodd bill offers stronger consumer protections than the House bill and the Federal Reserve rules. The Fed's regulations won't go into effect until July 2010. The Senate bill's protections would be enacted nine months after being signed into law.
Dodd had sought to ban all interest rate increases on existing balances. Under the compromise bill, card issuers would be allowed to retroactively bump up rates for any borrower whose payments are 60 days past due. However, if the borrower pays on time for six months, the card issuer would have to restore the original rate. The bill also prohibits card issuers from increasing rates during the first year a credit card account is opened and requires them to get customers' permission to set up accounts so that transactions over the limit can be processed. Another provision would require card issuers to post credit card agreements online.
"It's a meaningful compromise that will significantly improve the credit card marketplace and stop abusive practices," said Travis B. Plunkett, legislative director of the Consumer Federation of America.
The banking industry has warned that such changes would force banks to restrict lending or raise rates and fees because it would be more expensive to do business.
"ABA is very concerned about the direction this legislation is headed and we are concerned over the impact it will have on the ability of consumers, students and small businesses to get credit cards," said Ken Clayton, senior vice president of card policy at the American Bankers Association. "As we have said repeatedly, it is vitally important for policymakers to get the right balance of better consumer protection while not jeopardizing access to credit and the credit markets. We are very worried that the Senate bill fails to achieve this balance, to the detriment of American consumers."
If the bill passes this week, the House and Senate will have to reconcile the differences between their bills. Either the House would have to approve the Dodd bill or the House and the Senate would have to agree on a version of a bill that each would vote to send to the president.
"While I expect some battles in the coming days from credit card companies and their allies in an effort to diminish these strict new rules, I stand ready to fight against any attempt to weaken the strong consumer protections in this bill," Dodd said.
Staff writer Michael D. Shear contributed to this report.