More scrutiny about credit cards by the government is now focused on hidden fees and bank overdraft charges. Two bills in Congress would expand disclosures and inform consumers before being charged higher interest rates or fees.

The Senate Action
The Credit Card Reform Act, S.2655,  sponsored by Sen. Robert Menendez (D), from New Jersey, would prohibit credit card issuers from making changes that abruptly affect credit terms. “Too many families feel like their credit card contracts are booby-trapped,” said Menendez. Penalty rate increases and the controversial practice of ‘universal default,’ in which a cardholder’s interest rate is increased based on unrelated activity on another loan, would be banned. One major difference from past legislation is the requirement to get ‘opt-in’ approval from consumers who are under the age of 21 before mailing solicitations that lure them into debt.

Action in the House
Legislation recently introduced in the House, H.R. 5244, the Credit Cardholders’ Bill of Rights, by New York Representative Carolyn Maloney (D), Chairwoman of the Financial Institutions and Consumer Credit Subcommittee and Massachusetts Representative Barney Frank (D), Chairman of the House Financial Services Committeee, addresses the manipulation of credit card statements mailed by card issuers that result in late payments. The legislation would require a 45 day notice on increases in interest rates and would also prohibit issuers from maximizing interest charges by applying payments to balances with the lowest interest rate first before applying it to the the higher rate balances.

Credit card companies point out that fees and variable interest rates allow them to provide credit to customers with shakier credit or those without a credit history. They also content that their practices also allow for lower interest rates for responsible customers. Edward L. Yingling, CEO of the American Bankers Association, fears the legislation “would have unintended consequences such as more expensive and less accessible credit.”

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