Senate Passes Credit Card Bill of Rights: The Good and the Bad News

Posted May 20th, 2009 by Carrie Davis

You may have already heard that the Senate passed some sweeping credit card legislation yesterday. A similar bill may also go to vote in the House today, and once the differences between the two versions are reconciled, this Credit Card Bill of Rights could become law as early as next week.

So what does the new legislation mean for you? Here's a summary of the good news and the bad news for consumers.

The Good News

Creditors can't charge penalty fees until you're 60 days late in making a payment.
Lower interest rates for cardholders who have paid on time for 6 consecutive months.
Creditors must give 45 days of notice before upping an interest rate.
Creditors must send out your monthly bill a full 21 days before the due date.
Creditors must apply your payment toward the highest interest fees. For example, if you've taken out a cash advance, made a balance transfer, and made a new purchase on your card, your payment must be applied towards whichever of those has the highest interest rate.
No one under the age of 21 will be able to apply for credit without a parent as the primary cardholder, unless they can provide proof of independent income. (This clause could be good or bad news, depending on your viewpoint).

Note that all of the above points refer to the Senate bill; The House bill isn't quite as far-reaching or stringent on credit card companies. It remains to be seen how much the legislation will change as the two versions are reconciled.

The Bad News

An interest rate cap is not part of either bill.
Once passed, the law won't go into effect for at least 9 months, giving credit card companies plenty of time to run rampant and raise interest rates.
Many argue that credit card companies will look for loopholes in the new law and find new ways to put the screws to consumers. Examples include charging us interest starting the same day we make the transaction, cutting rewards programs, or charging annual fees.
Increased government regulation of a private-sector industry usually just mucks things up more than it helps.

What do you think? Are you eager for the new rules, or think the government should just stay out of it?

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Comments

The most important detail was

Submitted on May 20th, 2009 by Lewis Siegel (not verified)

The most important detail was lacking in the bill. The consumer should be forced to pay a much higher percentage each month of the bill owed. When people only have to pay miniscule amounts each month, they are lured into running up huge debts. For example, if one is forced to pay 25% of the bill each month and can't afford it, the Credit Card company can cancel further use of the card. That way no one would be allowed to get into severe debt.

That's a really good point

Submitted on May 20th, 2009 by Carrie Davis

That's a really good point Lewis. The legislation is not comprehensive enough to keep Americans from taking on more debt than they can afford to pay back. A counter argument, though, would be that it's not the responsibility of the government or the credit card companies to protect us from ourselves. It's ultimately up to the consumers to use credit responsibly (or not at all).

The bad news is that it wont

Submitted on May 21st, 2009 by Visitor (not verified)

The bad news is that it wont go into effect for 9 months and when govt steps in...things do get mucked up!

Unfortunately, if these companies practiced fairness and transparency, this would have never become an issue hence, never addressed by the governement!

These masters of deceit need to be realed in and gutted. The best way is for the consumer to discipline their spending....less is really more!

It's true, the credit card

Submitted on May 21st, 2009 by Carrie Davis

It's true, the credit card companies will use those 9 months as an opportunity to bring in as much profit as they can. We should all check the fine print on our credit card statements to be aware of rate increases or other new fees.

And consumer discipline is the key! No credit card debt means no more worrying about how badly credit card companies can gouge us.

Does this apply to store

Submitted on June 19th, 2009 by Joseph Bouchey (not verified)

Does this apply to store credit cards as well?
ie. Homedepot, Sears etc.

That's a great question

Submitted on June 22nd, 2009 by Carrie Davis

That's a great question Joseph. Yes, these new rules apply to any creditor who extends credit cards to consumers. Retail credit cards are included under the new CARD Act.

I appreciate this breakdown

Submitted on July 1st, 2009 by Linda P. (not verified)

I appreciate this breakdown Carrie! While President Obama's efforts to end predatory practices by credit card companies are heartening, we as users still need to be on our toes. One of the easiest ways to avoid debt is to pay the monthly bill in full to avoid unnecessary charges.

February 2010 is not that far away; I think it would be a good idea for everyone who has a credit card to sit down and just go through what is going to change about credit card usage. Multiple websites, including BillShrink.com, have done a comprehensive job of explaining what exact changes will occur. Here's their comparative breakdown: http://www.billshrink.com/credit-cards/bill-of-rights/

Carrie, are you planning to have any follow-up pieces on the Bill as and when it gets implemented early next year?