Lawmakers Want to Push Credit Card Reform Up to Dec. 1

BarneyFrankU.S. Rep. Barney Frank is putting out a warning to credit card issuers: don’t abuse the grace period between now and the February 2010 take-effect date of reform laws that will restrict how and when issuers can raise rates or modify consumer policies.
Frank, who chairs the House Financial Services Committee, is leading the charge among a group of U.S. lawmakers to push up the enactment date of the reform legislation to Dec. 1 from Feb. 22, 2010.  The batch of new laws is officially known as the Credit Card  Accountability, Responsibility, and Disclosure (CARD) Act of 2009.
In a hearing on Oct. 8, Frank that lenders have abused the “grace period” of several months by using the time to hike rates ahead of the reform.
“This is not the type of protection that should wait, and we should move forward,” Frank said.
Ken Clayton, senior vice president of the American Bankers Association, who is also general counsel of the ABA Card Policy Council, testified that the bill’s expedited schedule would create huge logistical problems for the credit card industry, and the new date could result in major disruptions for consumers, small businesses and the economy.
“To do this right requires and investment of hundreds of millions of dollars, thousands upon thousands of manpower hours, and perhaps most importantly, sufficient time,” Clayton said.
The hearing was not just about the pending credit card reform, signed into law by Obama in May. Frank also is supporting a measure that will provide relief to merchants that pay hefty fees to banks in exchange for accepting credit cards from their customers. The “interchange fees” was the primary focus of the hearing. Vermont Democratic Rep. Peter Welch is pushing legislation that would regulate those fees.
In another legislative move that would impact credit card issuers, Frank and President Barack Obama are backing the creation of a new federal regulator to monitor closely the policies and practices tied to such products as credit cards and mortgages.
The financial industry has launched a multimillion-dollar effort to try to defeat this legislation creating a new consumer financial protection agency.
The ABA has said that it is “concerned about the bill’s impact on preemption of state and local laws; the vast, unchecked power of the new agency; and the regulatory burden that would be placed on traditional banks that never made a single subprime loan.”
 The reform laws –  for now slated for February 2010 implementation –  will increase options for consumers by limiting the actions that banks and other credit issuers can take regarding the raising of  interest rates, the charging of penalty fees and the modifying of  cardholder policies.
The lawmakers seeking to speed up implementation cite the actions of  some card companies ahead of the new laws, including the raising of  interest rates, the lowering of credit limits and the cancellation of  under-used accounts, even for card users with good credit.
However, some of the largest banks have begun to make moves easing  policies toward card customers. Chase, Bank of America and Wells  Fargo recently announced that they will now allow customers to opt out of overdraft coverage, and cut or eliminate such fees on debit card usage.
Chase and Bank of America are also launching new cards with simpler terms and greater flexibility. These products are designed to help the consumer manage debt loads during these difficult economic times.
Here is a brief overview of the credit card reform that lawmakers hope to implement Dec. 1:
Bans Unfair Rate Increases:
Financial institutions will no longer raise rates unfairly, and consumers will have confidence that the interest rates on their existing balances will not be hiked.
Bans Retroactive Rate Increases:
Bans rate increases on existing balances due to “any time, any reason” or “universal default” and severely restricts retroactive rate increases due to late payment.
First Year Protection:
Contract terms must be clearly spelled out and stable for the entirety of the first year.  Firms may continue to offer promotional rates with new accounts or during the life of an account, but these rates must be clearly disclosed and last at least 6 months.
Prevents Unfair Fee Traps:
Institutions will have to give card holders a reasonable time to pay the monthly bill – at least 21 calendar days from time of mailing.  The act also ends late fee traps such as weekend deadlines, due dates that change each month, and deadlines that fall in the middle of the day.
Enforces Fair Interest Calculation:
Credit card companies will be required to apply excess payments to the highest interest balance first, as consumers expect them to do.  The act also ends the confusing and unfair practice by which issuers use the balance in a previous month to calculate interest charges on the current month, so called “double-cycle” billing.

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