Credit card overhaul bill headed to Obama

By TODD SPANGLER

WASHINGTON – Credit card reform legislation is headed to the president for his signature.

A day after the Senate passed a measure that prohibits companies from raising interest rates on existing balances unless payment is 60 days late, requires 45 days’ advanced notice for rate hikes and protects consumers from many hidden fees, the House approved the legislation 361-64 today.

President Barack Obama had asked for credit card legislation by Memorial Day.

“This bill stands up for struggling American families that are getting hit by unfair and abusive credit card practices,” said Rep. Sander Levin, a Royal Oak Democrat who cosponsored the bill. “Individuals have the right to be able to understand their credit card accounts, avoid unfair and hidden penalties, control their debt and manage their debt.”

Included in the legislation was a measure sponsored by Rep. Gary Peters, a Bloomfield Township Democrat, which requires that payments be applied first to the portion of a credit card bill which carries the highest interest rate. At present, card companies are allowed to force a consumer to pay off other parts of his or her bill before allocating it to the principal with the highest interest rate.

“In my 22 years working in the financial sector, the most basic advice I would have for any family was to pay off their debt with the highest interest rates first,” said Rep. Peters, a former investment adviser. “But credit card companies were forcing people to do just the opposite. My amendment simply says that a consumer has the right to pay off the principal with the highest interest first.”

After the Senate approved the bill Tuesday, Edward Yingling, president and CEO of the American Bankers Association, said it could “undermine the availability of credit” by restricting individual institutions’ ability to price credit against risk.

“It is a fundamental rule of lending that an increase in risk means that less credit will be available and that the credit that is available will often have a higher interest rate,” he said.

Here are some of the aspects of the legislation going to Obama for his signature, to be effective in February 2010:

• Credit card companies won’t be able to increase your interest rate on existing balances unless you are 60 days past due on your premium.

• If you pay more than the minimum due, the additional payment will be first applied to the part of the balance with the highest interest rate.

• Card companies cannot raise your interest rate for the first year after the account is opened and any promotional rate must last at least six months.

• Your statement must be mailed to you at least 21 days before the payment is due.

• You will have at least a 45-day notice of any rate hike, along with the opportunity to reject such a change for existing balances.

• The company cannot charge you a fee for paying your credit card by phone, unless it’s an expedited payment that requires talking to a service representative.

• You cannot be charged an over-the-limit fee unless you have signed up to allow transactions that would put you over your limit.

• Consumers under age 21 would only be able to get a credit card with a co-signer or proof they can repay the credit extended to them.

• Your bill must tell you how long it would take to pay off your balance and how much interest you would pay over that time if you only make the minimum payment, as well as what penalties you will face for a late payment.