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Credit Card Restrictions Close to Enactment

The Senate voted on Tuesday to prohibit credit card companies from arbitrarily raising a person's interest rate and charging many of the exorbitant fees that have become customary, and crippling, to cash-strapped consumers. Video by AP

Consumer advocates and legislators pointed out that the legislation still allows issuers to raise interest rates for future purchases as long as they give 45 days' notice. It also does not set any interest rate caps, allowing issuers to charge new customers any rate they want.

"This ominous we're-going-back-in-time threat doesn't make a whole lot of sense," said Travis B. Plunkett, legislative affairs director at the Consumer Federation of America.

Bruised by a rise in delinquencies and a record percentage of debts they have had to write off, some of the biggest players in the card industry, including Bank of America, Capital One and Chase, have already been increasing interest rates and cutting credit limits even on customers who pay on time.

Credit card issuers have come under fire for such any-time, for-any-reason interest rate increases at a time when consumers are buckling under the weight of debt. Outraged consumers have complained of mistreatment from the same companies that have been receiving federal bailout money.

The Senate bill, written by Banking Committee Chairman Christopher J. Dodd (D-Conn.), would also restrict the ability of college students to get credit cards and require card companies to make contracts easier to understand and available online.

The House bill, authored by Rep. Carolyn B. Maloney (D-N.Y.), largely mirrors regulations passed by the Federal Reserve in December that would ban many so-called unfair and deceptive practices. Both the House and the Fed's efforts are considered weaker than the Senate bill. Analysts and industry insiders said the fact that the Senate bill received so many votes is a good indication that it will make it to Obama.

The Federal Reserve's new rules do not go into effect until July 2010. The House and Senate bills seek to accelerate that timeline. The Senate bill would be enacted nine months after signing and the House bill 12 months after.

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