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US House passes pro-consumer credit card bill
(Agencies)
Updated: 2009-05-01 13:21

WASHINGTON -- Riding a crest of populist anger, the House on Thursday approved a bill to restrict credit card practices and eliminate sudden increases in interest rates and late fees that have entangled millions of consumers.

The legislation, dubbed the Credit Card Holders' Bill of Rights, passed by a bipartisan vote of 357-70 following lobbying by President Barack Obama and members of his administration.

US House passes pro-consumer credit card bill
Officials make an announcement about their amendment to the Credit Cardholder's Bill of Rights bill that would cap interest rates on all credit cards at 18 percent, on Capitol Hill, Tuesday, April 28, 2009. [Agencies]

The measure would prohibit so-called double-cycle billing and retroactive rate hikes and would prevent companies from giving credit cards to anyone under 18.

If they become law, the new provisions won't take effect for a year, except for a requirement that customers get 45 days' notice before their interest rates are increased. That would take effect in 90 days.

Similar legislation is before the Senate, where it could be taken up as early as next week.

"This is a unique opportunity to end abusive practices that afflict millions of families across the nation, to contribute to our economic recovery, and to take a stand for American consumers," Sen. Christopher Dodd, chairman of the Senate Banking Committee and the bill's primary sponsor, said after the House vote. "Now it is the Senate's turn to act."

Consumer advocates and some Democrats have unsuccessfully sought for years to bring new rules to the industry.

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Supporters want to put a final congressional package under Obama's eager pen by the Memorial Day holiday. They acknowledged, though, that House passage of the measure was an opening salvo and a lengthy legislative slog lies ahead, in which industry interests could prevail in getting restrictions weakened.

"The administration supports Congress' efforts to ... provide additional strong and reliable protections for consumers that ban unfair and abusive practices," the White House said in a statement following the House vote. "The nation's credit card system must have more accountability, including more effective oversight and more effective enforcement of credit card issuers who violate the law."

Obama's engagement in the issue diverged sharply from his handling of a plan to spare hundreds of thousands of homeowners from foreclosure through bankruptcy, which met defeat in the Democratic-controlled Senate Thursday on a 45-51 vote. Obama had embraced the plan, but facing stiff opposition from the banking industry, he did little to pressure lawmakers who worried it would encourage bankruptcy filings and catapult interest rates higher.

Before approving the credit card bill, the House adopted a series of amendments, some of which were pushed by the White House, that amplified the restrictions on industry practices.

The House measure incorporates Federal Reserve regulations due to take effect in July 2010 but goes further by adding restrictions for credit cards for college students as well as other changes. Payments made by card holders that exceed the minimum monthly level would have to be applied first to the portion of the remaining balance with the highest interest rate, and then to any other balances in descending order.

Consumers would have to be notified 30 days before their accounts are closed.

Double-cycle billing eliminates the interest-free period for consumers who move from paying the full balance monthly to carrying a balance.

Opponents tried vainly on the House floor to temper a fast-moving bill with amendments that would have given credit card issuers some openings to raise rates within the proposed restraints.

"We shouldn't take credit opportunities away," said Rep. Jeb Hensarling, R-Texas. "I just want consumers to have choices. I want there to be a competitive marketplace."

Hensarling and other Republican opponents endorsed the bill's requirements for clearer disclosure in the fine print of credit card agreements. But they said the legislation overall could prompt lenders to restrict credit in an already tight market to compensate for the new requirements.

That's the leading argument made by banking industry executives against the legislation.

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