Credit Card Reform: What Might Have Been

You’d think in a year when major banks received billions in taxpayer aid and face billions more in defaults on credit card debt, tackling anti-consumer practices by credit card issuers would be a slam dunk in Congress. There’s certainly been lots of buzz about changes coming to the credit card industry, served up by feisty Democrats eager to show American consumers that they're looking out for the little guy. The House approved Rep. Carolyn Maloney’s Credit Card Holder’s Bill of Rights in late April and this week, the Senate is wrangling over Sen. Christopher Dodd’s Credit Card Accountability, Responsibility, and Disclosure Act. It’s strong sounding legislation but the powerful banking lobby is hard at work on Capitol Hill trying to water down the toughest provisions. Unfortunately for consumers, the bank lobbyists are having some success.

Here are just a few provisions that have been dropped or not made it out of committee:

• Speedy reform. Maloney’s original bill included a provision that would require card issuers to implement changes within 90 days of the bill becoming law. Maloney’s bill is very similar to new regulations that the Federal Reserve approved in December , including banning card issuers from raising rates on existing balances unless your payment is late and giving consumers more time to make payment before fees kick in. All that's good but the Fed’s new rules don’t kick in till July 2010. And ever since the Fed regulations were made public in December, credit card users have been slammed with rate hikes and higher fees, which consumer advocates say is a purposeful move by banks to soak consumers before the new rules kick in. Now the only part of Maloney’s bill that will go into effect within 90 days of signing is a provision that would give consumers 45 days notice that their rate is being increased.

• An end to universal default and multiple overdraft fees. According a report in the Huffington Post, an earlier version of Dodd’s bill explicitly prohibited universal default (that's when a card company raises a user’s rate when they are late paying another creditor) and limited the number of overdraft fees that hit a cardholder when a cardholder goes over their limit. The latest version contains neither of those provisions.

• A cap on rates. Sen. Bernie Sanders, a Vermont Independent, proposed a provision that would cap credit card interest rates at 15%. Noting that one-third of credit card holder’s pay interest rates higher than 20% and up to 41%, Sanders said this would end “loan sharking” by banks and consumer advocates said the provision would put real teeth in the bill. That effort was defeated last week.

President Obama asked Congress to deliver a credit card reform bill that he can sign by Memorial Day, one that would provide “strong and reliable protections for consumers.” Sure some reform is better than no reform. But let’s hope the legislation that lands on President Obama's desk is still worth signing. Tell us: What do you think would be the most effective change to credit card practices?

- Donna Rosato