‘Credit Cardholders Bill of Rights’ Clears Senate; House Vote and Obama’s Signature Could Come By End of Week

Tough new federal rules for credit card companies, which limit such tactics as sudden interest rate hikes and excessive hidden fees, were overwhelmingly approved by the U.S. Senate today and could be signed into law within days.

The so-called “Credit Cardholders Bill of Rights” would dramatically change how U.S. credit card companies must operate. Under the proposed law, banks and credit card companies would face a slew of new regulations and rules.

For example, lenders would have to give card holders a chance to avoid over-the-limit fees and at least 45 days’ notice of an upcoming increase in interest rates. They’d also have to allow customers to pay their bills over the phone or online for free and post credit card agreements on company websites for users to review.

Senators passed the bill by a vote of 90-5. The House is expected to vote on its draft of the same law this week and possibly send a single new proposed law to the White House by this weekend.

“This is a victory for every American consumer who has ever suffered at the hands of a credit card company,” said Sen. Christopher Dodd (D-Conn.), the chairman of the Senate Banking Committee.

New Restrictions on Younger Cardholders

Some of the regulations already are set to go into effect in July 2010 as part of new rules announced by the Federal Reserve. The new legislation, however, would make the changes part of federal law and further restrict credit card company policies.

Under the Senate bill, people under age 21 who apply for a credit card would have to first prove that they can repay the money they charge or show that a parent or legal guardian would do so if they fail. Many college-aged consumers have found themselves deep in debt with damaged credit scores as the result of out-of-control credit card spending and sudden interest rate hikes.

Some students have fallen prey to predatory lending by some card companies, which set up shop on college campuses at the beginning of each school year offering low-interest credit cards to students. Many times, those tantalizing initial offers are only teaser rates that quickly escalate to higher rates which students were not told about.

Also part of the new proposed law, consumers would have more options to repay overdue balances and sudden, unexpected rate hikes would be outlawed in most cases.

Universal Default Targeted

One controversial credit card company policy, called “universal default,” would be limited under the new rules. Universal default occurs when a lender imposes a steep increase on a card’s interest rate for the current balance because the user is late paying other, unrelated bills. Many consumers who are paying their credit card bills but fall behind on student loans or utility bills, for example, are shocked to see their credit card interest rate shoot up under universal default.

The proposed rule changes mean card holders would have to be at least 60 days behind on a credit card payment in order to trigger an interest rate hike on the existing balance. If the cardholder paid the new, higher rate for six months, the card company would have to restore the previous, lower rate.

Personal Responsibility Comes Next

While the proposed changes to how credit card companies handle our accounts are a welcome sign that will no doubt help millions of Americans get out from under the weight of skyrocketing debt, at some point, we as consumers must look in the mirror and change our easy-spending ways. Credit card companies may be guilty of preying on young cardholders and imposing tough rate hikes and other shady practices, but at the end of the day, the card holder is responsible for his or her own purchases.

Only by exercising good financial judgment and wisdom in how we spent our hard-earned cash can we make fundamental change in our personal fiscal health. Real credit card reform starts at home.

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