Credit Card Legislation to Reshape Customer Programs

May 20, 2009 02:30 PM
by Anne Szustek
The U.S. Senate and House of Representatives have voted in favor of a bill that would curb interest rate and user fee hikes on credit cards. How will this affect credit card holders?

Frequent Flyer Miles, Reward Points and Other Credit Card Benefits Likely to End

The Credit Card Accountability, Responsibility and Disclosure (CARD) Act passed the Senate in an near-unanimous vote with broad bipartisan support. The bill would put reins on how the $960 billion credit-card sector can levy fees and interest rate hikes.

The House of Representatives approved the bill Wednesday in a 367-61 vote. Should President Barack Obama sign it into law, as he is expected to do over the long Memorial Day weekend, some of the new rules would include five-year validity for gift cards, at least 45 days' notice to credit card holders before companies can change their terms of use; and no retroactive interest rate changes unless a balance is 60 days or more overdue. Credit card customers who start paying on time for six months must then see their interest rates drop back to their original level.

Treasury Secretary Tim Geithner supported the legislation; The Washington Post quotes him as saying that the CARD Act "will help create a more fair, transparent and simple consumer market."

Representatives of the credit card sector warned that the bill could place undue restrictions on an already suffering credit market and potentially lead to interest rate hikes for even the least risky consumers. Financial Services Roundtable Senior Vice President of Government Affairs Scott Talbott told the Post that credit availability may take a $2 billion hit.
In the months before the law would go into effect, credit card holders should consider cashing in their already awarded frequent-flier miles and points, Curtis Arnold, the head of, advises in The Wall Street Journal. Arnold also believes that interest rates on cards will continue to rise before the bill is enacted. In response, he suggests consumers pay down their balances and switch to using cards issued by credit unions and smaller banks, which may offer a better deal.

Qwidget is loading...

Background: Credit card interest rates rise; debtors seek help online

On March 31, the Senate Banking Committee voted 12-11 to greenlight the CARD Act. Unsurprisingly, consumer advocacy groups such as the Consumer Federation of America and Consumers Union came out in strong support of the proposed legislation. But some in the financial industry as well as some legislators expressed a concern that the proposed law would further constrict credit. Sen. Tim Johnson, D-S.D., said in a statement quoted last month by findingDulcinea that the CARD Act “goes too far in prohibiting lenders from adjusting prices to account for increased risk.”

The bill also has sections to increase the FDIC’s borrowing authority for banks from $30 billion to $100 billion and up the National Credit Union Administration’s lending limit to nonprofit credit unions from $100 million to $6 billion.

The Merchants Payment Coalition wants negotiation rights with credit card companies on charges levied on retailers; “interchange fees” have gone up 400 percent over the past several years and garnered credit card issuers some $42 billion in 2008.

The tightening credit card market has led to a rise in interest rates, further burdening card holders already fighting to pay down out-of-control balances. In March, it was reported that the number of credit card defaults in the United States was the highest in 20 years.

The strain of unpaid credit card accounts has led debt holders to find consolation and support in the relative anonymity of online message boards. Debt management organizations have seen increased membership, while postings on iVillage’s debt relief message boards rose 81 percent last summer, according to a June 2008 article in The Wall Street Journal mentioned by findingDulcinea.

Most Recent Beyond The Headlines