Senate Passes Cardholder Protection Bill

Riding a wave of anti-bank, pro-consumer sentiment, the U.S. Senate today voted 90 to 5 to pass unprecedented credit-card industry reforms that would help millions of cardholders now struggling to pay their debts.

Surprise interest-rate hikes, shifting due dates and times for monthly payments, marketing credit cards to minors and college students, and excessive fees would be outlawed under the Credit Card Accountability, Responsibility and Disclosure Act of 2009 (S. 414), or Credit CARD Act. The bill passed with strong support from President Barack Obama, who held a town-hall meeting on credit cards in New Mexico last Thursday, and who summoned card-company executives to the White House in April, where he sternly warned that "anytime, any-reason rate hikes and late-fee traps" had to end.

"It is the first time ever that we've dealt with reforms in the credit card industry. It's a major step forward," said Sen. Christopher Dodd, the Connecticut lawmaker who sponsored the bill with Sen. Richard Shelby, the ranking Republican on the Senate Banking Committee.

The Senate bill provides more consumer protections than the version of a credit-card reform bill passed April 30 by the U.S. House of Representatives. The newer bill rewards cardholders for good behavior by decreasing their APRs if they've paid their bills on time for six months, and bans retroactive interest-rate increases, except when the cardholder is more than 60 days late with a card payment. The card issuer must review the cardholder's account six months after increasing the interest rate and, if the review warrants, return the APR to the previous, lower level. The Senate bill also allows fines up to $5,000 for individuals affiliated with a card issuer who violate the act.

The House bill -- the Credit Cardholders' Bill of Rights -- sailed through in a 357-70 bipartisan vote. It allows retroactive interest-rate hikes if an account-holder is more than 30 days late with a card payment. Both the House and the Senate bills allow interest-rate hikes when promotional, or "teaser," rates expire, when the account has a variable interest rate, and when the card user reneges on terms of a workout plan for debt repayment. Both bills also prohibit interest-rate hikes during the first year of a new account.

Other provisions of the Senate bill include: