Credit Card Reform Passes US Senate

On Tuesday May 19, 2009, the Senate overwhelmingly voted to curtail credit card rate increases and excessive fees, in an attempt to give consumers (i.e. voting constituents) some latitude amid the current recession. It appears all that is needed is to have the executive branch sign off on it.

If enacted into law, the players in the credit card industry - such as, but not limited to, Visa (V), MasterCard (MA), American Express (AXP) and Capital One (COF) - would have less than a year to make changes. These changes would include card lenders having to post their credit card agreements on the Internet, and permit all customers the ability pay their bills online or by phone without an added fee, rationalize over-the-limit fees and provide 45 days notice and an explanation before interest rates are increased.

Unfortunately for consumers, interest rates will not be capped as some had hoped, and would not prevent lenders from finding new ways to concocting new fee schemes, though lenders would not be able to levy an over-limit fee. Also in the consumers’ favor would be a limiting of the “universal default” practice (where the lender sharply increases a cardholder’s interest rate on an existing balance if the customer is late paying that bill or other unrelated bills). In addition, there would be more than a 60-day grace period for the customer to be behind on a payment before seeing a rate increase on an existing balance.

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