Will the Credit Cardholders’ Bill of Rights Bring Credit Relief?
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H.R. 627, more commonly dubbed as the Credit Cardholders’ Bill of Rights, was passed by the House of Representatives by an overwhelming 357-70 vote on April 30th. The bill, yet to be voted on by the Senate, promises reform in the credit card industry by providing protection for credit cardholders.
The Credit Card Crisis
Why is credit card legislation needed? In 2008, credit card issuers levied $19 billion in penalty fees on families with credit cards and this year, card companies will break all records for late fees, over-limit charges, and other penalties, pulling in more than $20.5 billion. According to House Speaker Nancy Pelosi’s blog, “Credit-card debt in the U.S. has reached a record high of nearly $1 trillion — and almost half of American families currently carry a balance, and for those families the average balance was $7,300. One-fifth of those carrying credit-card debt pay an interest rate above 20 percent.”
Something needed to be done to help the average consumer, that much is clear, but what would H.R. 627 mean for us cardholders? Before jumping into the specifics, let’s cover what first has to take place for this bill to provide any protection, as it has a long journey ahead of it.
The Credit Cardholders’ Bill of Rights Journey to Action
- First, Senate Bill 414 must pass a Senate vote. Passage of 414 is not the guarantee that H.R. 627 was, as it offers added reform, and we can all guess how persuasive the credit card industry lobby must be.
- Next, Senate Bill 414 must be merged by H.R. 627, so that the two can live in complete harmony.
- Finally, it must be signed by President Obama – this should not be a tough sale.
If the legislation is still alive after all is said and done, the majority of the bill won’t take effect until July, 2010.
Barring major overhauls, how would the average cardholder benefit from the legislation?
A Summary of the Credit Cardholders’ Bill of Rights
To read the entire bill, you can find it on Representative Maloney’s site in its entirety. You may also check out the one page summary. Here are a few highlights from the summary, along with breakdowns on how it could impact you:
Ending unfair or arbitrary interest rate increases
- 45 days notice before rate increase – in other words, you must be allowed sufficient time to prepare for and potentially prevent rate hikes.
- No more ‘any time, any reason’ rate changes.
Letting consumers set hard credit limits to stop excessive over-limit fees
- No over-limit fees on those with limits – no charges for going over your fixed limit – you simply can’t charge any more.
- Cardholders can set limits – if you want to lower your limit to a fixed amount so that you don’t spend too much, you could potentially do so.
Ending penalties for cardholders who pay on time
- No interest charged during a grace period – this is so that you aren’t double-billed. Additionally, you would not get assessed a fee on interest if you pay your bill on time.
Requiring fair allocation of consumer payments
- No more forcing to pay off lower interest rates first, you should now get to at least pay off a fair allocation if you have cards with varying rates.
Protecting cardholders from due date gimmicks
- Statements must be mailed 25 days before due date (up from 14) – giving you more time to get your payment in and avoid penalty.
Preventing companies from using misleading terms and damaging consumers’ credit ratings
- “Fixed” and “Prime” rate must be used according to set definitions.
Shielding vulnerable consumers from high-fee subprime credit cards
- Fees for subprime cards, with fixed fees over a year exceeding 25 percent of the credit limit, must be paid up front before the card is issued. This is because these cards target those who are the most vulnerable.
What will the Credit Cardholder’s Bill of Rights Mean to you?
It’s clear that H.R. 627 is a step in the right direction for consumer protection. But it’s just a slice of a much larger pie.
- How do you stand to gain relief as a result of this legislation?
- Where do you see further room for reform?
- If you actively choose to not use credit cards, do you think that card users should be granted this relief?
Fore more of GE Miller’s writing, visit the personal finance blog 20somethingfinance.com.
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8 Comments so far
leave a comment“No over-limit fees on those with limits – no charges for going over your fixed limit – you simply can’t charge any more.”
For some reason I could see people complaining when this happens tho them lolol…
I don’t think this will affect me at all.
I don’t really care if they deserve such relief heh…
While some of these protections may be necessary, others not so necessary,it remains questionable and the bottom line is that this all goes back to Individual Consumer Accountability and Responsibility.
Consumers should learn to be responsible for charges they incur on Credit Cards. There are no laws that require Individuals to use Credit Cards, therefore doing so means the User Agrees to the Terms & Conditions of the Cardholder Agreement. If you charge a good or service to a credit card, then you agree to pay on time within the guidelines of the terms or you face the consequence(s) as outline therein.
Why should Banks be required to alter their terms or agreements due to irresponsible actions of the Cardholder? They shouldn’t! If a US Taxpayer does not pay their annual tax obligation to the the Federal Government, the Government has no problem assessing penalties and late fees to the Taxpayer. How is this any different? It’s not! The government doesn’t care if an individual doesn’t have the money to pay, why should the private sector, in this case, Banks, be any different?
What it all really comes down to is yet another way for the government to get its dirty hands in the private sector yet again trying to control and manipulate Americans through passage of Regulations that appear favorable to the Consumer while another motive is at hand.
It’s true that if you are a responsible user of credit cards, then this bill won’t make much of a difference for you. For those who are irresponsible or who have been irresponsible in the past and are now paying the price, though, it could be a big benefit. Of course those people carrying credit card debt have no one to blame for themselves for the situation they find themselves in, but you have to admit that the banks take advantage of the situation for these people and make it even worse. Imagine the difference in paying of $10,000 in credit card debt if the interest rate was once 6% then suddenly without notice it went to %18 or higher?
The situation is already bad enough without it being made worse by unfair practices of applying payments to lower-interest debt first and raising interest rates.
It’s comical that this is so much news and concern for the federal government, when they’re using some of the same tactics themselves. Two years ago, I made an innocent mistake on my taxes, and now I am paying – to the tune of 72% APR. To make it worse, I didn’t have the money up front to pay the full bill, so I was put on a payment plan – $200/month while the interest, fees, and penalties are nearly $500/month. I’ve been struggling to throw every penny I can at the debt, and will finally pay it off later this month, but I can assure you I’ve paid for those taxes more than twice already!
This bill won’t come as much use to me as i’ve been quite responsible with my credit cards.
The only part that i could see working in my favor is the:
” Ending penalties for cardholders who pay on time * No interest charged during a grace period – this is so that you aren’t double-billed. Additionally, you would not get assessed a fee on interest if you pay your bill on time.” Portion.
Nothing is more frustrating then paying off your entire credit card bill only to get ANOTHER bill for interest the next month! What a slap in the face that is!
Hopefully it will end the practice of randomly upping the interest rates. I’ve been a responsible cardholder, made one small mistake on one card (late by two days) and received notices from two others companies that their interest rates are going up. The only choice at present, unless able to pay them both off, is to accept the higher rate and forget about it. I don’t think it is right that a company raises rates when you have never made a late payment on their card.
In re: Natalie, why is it Unfair? Clearly Consumers are not Required to use Credit Cards. Again, if a Consumer cant be responsible with the credit card, they pay the price. Its Unfair to regulate a Bank when the terms are Clearly outlined in the terms – you pay late, you incur a fee, or risk a higher interest rate. Its common sense that the general public of this country has been talking about for years, whether or not someone is intelligent enough to read the terms is pure ignorance on their own part, and further, with all of the talk for years, you cant tell me they have not heard reference in the media to this stuff. Bottom line is IF THE PERSON DOESNT LIKE THE TERMS THE BANK SETS – YOU DONT USE THE CARD – ITS AS SIMPLE AS THAT! This whole idea that a Bank or Financial Institution should be Micro Managed by the Govt simply because Consumers/Card Users dont want to read the terms of the card is pure laziness, left winged liberal agenda nonsense which states that its ok to use a credit card regardless of the terms because the govt is going to step in and tell the bank that their terms dont mean jack! This is out of control and No I do not work for a Bank. Bottom line – its about Personal Responsibility and if one cant handle it – THEY DESERVE THE FEES IMPOSED UPON THEM AS A LESSON! You dont see the govt being understanding if a person does not pay taxes on time (unless you are a member of the obama admin of course, then no rules apply) so why should people think that the govt should control how banks set fees as terms in a contractual agreement that a Consumer is not even required to use! NONSENSE! GET RESPONSIBLE PEOPLE AND QUIT TRYING TO PASS ON IT!
I am doubtful this bill will actually help those people who are in credit card debt. As a matter of fact, many people have already reported that credit card companies went up on their rates. I had one card for 15 years at 6.99 and it went up earlier this year to 9.99. Now, I just got a letter in the mail yesterday that says it is going up to 29.99. I have not been late or missed any payments. This is happening all over the country. While the credit cad company certainly has the right to change the terms at will, they are not working with Americans who want to pay their debt but are struggling to do so because of high interest rates. The credit card companies had plenty of time to make a move on helping American consumers to get out of debt, but it appears that they chose not to do so. As a result, personal bankruptcies have exceeded a level that many would have thought unimaginable.
One more thing…the only difference between responsible credit card users and many of those who are deemed irresponsible is a job…some of those who are paying late or not paying at all were responsible but lost their jobs and ended up living off of credit cards. Not everyone who uses their cards is irresponsible and it is unfair for them to be labeled as such. There before the grace of God go I or you.