Senate Passes Credit Card Overhaul Bill
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Banks and financial institutions can often send off unfriendly regulations with the help of friendly lawmakers and powerful lobbyists. When it comes to credit cards, it looks like they've hit a wall. Congress is poised to pass a sweeping overhaul of the credit card industry as early as today. The bill would limit penalty fees and require advance notice for interest rate hikes. President Obama wants to sign it by Memorial Day. NPR's Audie Cornish reports.
AUDIE CORNISH: It's easy to see how the credit card measure gained momentum on Capitol Hill. Lawmakers have been swamped with consumer complaints for months. At the same time they've spent a lot of money rescuing the very companies that issue credit cards. Vermont Senator Bernie Sanders, an independent, summed it up.
BERNIE SANDERS: What adds insult to injury is that this is taking place at a time when we have put hundred of billions of dollars to bail out these financial institutions. At a time when they're getting zero interest loans from the Fed, their response to the American people is, thanks, chump, now we're going to raise your interest rates from seven percent to 30 percent.
CORNISH: Under the Senate bill passed yesterday, banks would have to wait 60 days before changing the rate on a late paying customer, and they'd be required to reinstate the old rate once the cardholder made payments on time for six months. Bank lobbyists like Scott Talbott fought hard against that last requirement.
SCOTT TALBOTT: Credit cards are unsecured loans. There's no collateral backing them up like a home or a car. And so when your risk profile changes their credit terms change.
CORNISH: Talbott works with the Financial Services Roundtable.
TALBOTT: To an extent you limit that adjustment, the ability to be flexible, and you're going to limit the availability of credit or increase the price.
CORNISH: Banks say that means consumers can expect more cards with higher annual fees and fewer cards with low competitive rates. But Senate Banking Committee Chairman Christopher Dodd of Connecticut says he's not too worried because credit card companies still have to compete with each other.
CHRISTOPHER DODD: Companies that go out and decide they're going to show the consumer by adding penalties, fees, and interest rate hikes I think do so at their own economic peril. I think there will be others out there who will take advantage of this, will offer cards and instruments that are going to be very appealing to consumers, and I welcome that.
CORNISH: The Senate bill does not ban penalty fees completely and it does not place a cap on interest rates. Republican Senator Richard Shelby, who helps craft the bill with Dodd, says that means banks haven't lost the tools they use to deal with cardholders who are credit risks.
RICHARD SHELBY: The Dodd-Shelby amendment before us allows card issuers to price risk. But requires that they consider both positive and negative changes in the consumer's risk profile when setting rates and terms. This means that consumers will pay more when their credit risk goes up and can have their rates reduced when it comes down.
CORNISH: Audie Cornish, NPR News, the Capitol.
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