The Senate Weighs in on the Credit Card Holders Bill of Rights

The United States Senate is now doing their part in imposing restrictions on what credit card issuers can and cannot do with their customers. Sen. Chris Dodd (D – Connecticut ), chairman of the Senate Banking Committee, hopes that the legislation will pass this week. Pres. Obama, who supports the legislation, has already stated that he would like it on his desk by Memorial Day.

At the heart of the bill are restrictions against the credit card companies arbitrarily raising interest rates on account holders. It will also make it more difficult for cardholders under age 21 to get a credit card. Predictably, credit card issuers including banks and financial institutions are fighting the bill. Their argument is that it will make it harder for them to grant credit to responsible consumers.

The lobbyists for banks, the American Bankers Association, are warning Senators that at a time when Americans need credit the most they will not be able to get it. In a written statement they said that the bill would, “have a tremendous impact on the ability of consumers, small businesses, students and others to get credit at a time when our economy can least afford such constraints.”

Their argument seems to be getting little traction. In fact, Sen. Chuck Schumer of New York chastised the credit card industry for trying to exploit the recession. He stated that it was indefensible for credit card issuers to be charging such high interest rates at a time when interest rates are currently at record low levels. The bill is receiving bipartisan support. Both sides of the aisle are behind this legislation.

The real hot button issue at the core of this legislation is a concept that is known as “universal default”. Under universal default a credit card company will raise interest rates on the account holder’s past balances whenever the cardholder is late in paying that bill, or any others. The Senate bill would restrict raising interest rates unless the person is more than 60 days behind on paying their bill.

The lenders will not be banned from raising interest rates on future purchases if they believe the person is an increased credit risk. They would however, have to provide the cardholder with 45 days notice in a written explanation. They would also be obligated to review the terms of the account in six months time and then lower the rate again if the consumer has been paying responsibly durng that period of time.

The bill would also require that consumers under the age of 21 have a cosigner such as a parent or guardian, or proof that they have the financial means to pay for a credit card. There is also talk about a limit on how high of an interest rate lenders will be able to charge. Sen. Bernie Sanders of Vermont has stated that he will write an amendment to the bill that will cap interest rates at 15%.

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