The Credit Cardholders’ Bill of Rights Act institutes a number of new consumer protections for people using credit cards. The bill limits the circumstances under which credit card companies can increase interest rates and requires creditors to notify consumers of an increase in their interest rate at least 45 days before the increase takes effect. The legislation prohibits applying finance charges to card balances accrued in previous billing cycles and to interest accrued during the preceding billing period if an outstanding balance has been fully repaid. The Act also regulates how credit card companies can apply payments to balances held at different interest rates and restricts card fees. The Credit Cardholders’ Bill of Rights clarifies certain terms commonly used by credit card companies and includes provisions to help consumers avoid incurring late fees even when they pay on time, such as requiring card issuers to mail a bill 25 days before it is due. Finally, the Act enhances the collection of information about credit card billing practices, restricts the use of consumer information by creditors, and prohibits the issuance of credit cards to people less than 18 years old, except when explicitly permitted by state law.
The Middle-Class Position:
Middle Class Supports. Many middle-class Americans rely on credit cards to meet daily expenses. Revolving debt – which mostly stems from credit cards – has increased 25% since 2003. 80% of U.S. households have at least one credit card and 55% of households carried an outstanding balance in 2004. At the same time, middle-class households are constantly bombarded with misleading credit card offers even when they cannot afford to take on additional debt. But since credit is increasingly necessary to fund a middle-class standard of living, credit card companies have been able to take advantage of their customers. Consumers have been slapped with excessive and obscure fees and interest charges that, if they are explained at all, are described in small text and confusing language. It is now common practice for credit card companies to apply finance charges twice in a billing cycle (double-cycle billing); to charge multiple over-the-limit fees; and to apply payments on balances with multiple interest rates to the balance with the lowest rate, all practices banned or restricted under this bill.The Credit Cardholders’ Bill of Right ends the most insidious practices employed by credit card companies, protecting consumers from practices that can keep them mired in credit card debt despite their best efforts to dig themselves out.
From the Experts:
“America’s entrepreneurs obviously are champions of the free market and it is rare that they call for increased governmental regulation, but it is equally rare that an industry be allowed to carve out such a lucrative, anti-market niche for itself. For far too long, the credit card industry has been allowed to engage in acts in direct violation of free market capitalism and fundamental fairness. Imagine if small business owners were allowed to change their service agreements with clients ‘at any time for any reason.’ It is high time that the credit card industry be held to the same standards as all small businesses.” – Kyle Kempf, Senior Director of Government Affairs, National Small Business Association (9/22/2008)
“The bill reins in unfair practices, through tough disclosures and simple, but significant requirements to treat consumers fairly. All markets function better with rules, and the Credit Cardholders’ Bill of Rights simply imposes some reasonable rules.” – Edmund Mierzwinski, Consumer Program Director, U.S. PIRG (4/17/2008)
Beyond this Bill:
The Credit Cardholders’ Bill of Rights, though an important milestone in consumer protections, exhibits the signs of the credit card industry’s influential opposition. This version of the bill prohibits universal default – the practice whereby a credit card company uses information unrelated to a consumer’s credit card as the basis for increasing the interest rate – only on existing balances. A stronger bill would simply ban universal default, preventing rate increases that are based on unrelated credit changes on future as well as outstanding balances. Additionally, a previous version of the legislation explicitly granted cardholders the right to cancel a credit card without penalty or fee if the interest rate had been raised. This provision has been weakened.
Finally, to make any credit cardholders’ bill of rights truly effective, legislation must ban binding mandatory arbitration clauses and end federal preemption of state laws designed to protect consumers from harmful credit card practices. Binding mandatory arbitration clauses are often tucked into credit card contracts and forfeit consumers’ rights to have their disputes heard by a jury. Dispute decisions overwhelmingly favor credit card companies, on whose repeat business arbitrators rely. Preemption undermines efforts by state legislatures and state attorneys general from passing and enforcing more stringent regulations than those enforced by the federal government. Future versions of the credit cardholders’ bill of rights should include provisions to ban or limit binding mandatory arbitration clauses and federal preemption of state laws.
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