The following timeline and details will be updated as the Credit Cardholders’ Bill of Rights, now merged with and known as the Credit Card Accountability, Responsibility and Disclosure (CARD) Act, progresses through Congress and as the bill makes its way to the President to be signed into law. Visit this article often for the latest information and to read the current versions of the bills as they are amended, voted upon, and revised.
Credit Cardholders’ Bill of Rights Reverse Timeline
May 22, 2009: President Obama signs the Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009, (which has been merged with the Cardholders’ Bill of Rights), H.R.627, and the new regulations will begin to take effect starting in February 2010. May 20, 2009: The House of Representatives agrees to the Senate’s version of H.R.627 and sends the bill to the President to sign. May 19, 2009: The Senate passes H.R.627 with a vote of 90 to 5. May 12, 2009: The bipartisan Senate Banking Committee has agreed on the Credit CARD Act of 2009 (S.414). May 11, 2009: The Senate proposed an amendment to the Credit CARD Act (H.R.627) as passed by the House of Representatives. April 30, 2009: The House passes H.R.627 with a bipartisan vote of 357 to 70. February 11, 2009: S.414 is introduced in the Senate January 22, 2009: H.R.627 is introduced in the House. January 14, 2009: The Credit Cardholders’ Bill of Rights (S.235) is introduced in the Senate.
Credit Cardholders’ Bill of Rights Details
On April 30, 2009, the House of Representatives passed a bill commonly called the Credit Cardholders’ Bill of Rights Act of 2009. This bill goes a long way to end some deceprive practices used by credit card companies to lure and trap consumers into expensive debt. While many of the problems resulting from these practices can be avoided by using credit wisely or not at all and adjusting your expectations to assume that the companies only care about their bottom line, not their customers, not all the blame can be placed on the consumer.
Thus, the government is stepping in with this effort to protect credit card users from practices such as abrupt rate increases, retroactive rate increases, and double-cycle billing, a situation in which customers are charged interest even after the last monthly bill to include charges for spending is fully paid off.
Here are some interesting points included in the House version of the bill.
Credit card issuers will be required to maintain low introductory rates for at least six months.
Issuers must warn consumers if they are spending close to their credit limit, allowing them to avoid a penalty.
Issuers cannot charge customers a fee for paying their bill over the phone or online.
The changes to credit card regulations will begin taking effect in February 2010. When President Obama signed the bill into a law on May 22, 2009, he reminded the public about the importance of personal responsibility:
So we’re not going to give people a free pass; we expect consumers to live within their means and pay what they owe. But we also expect financial institutions to act with the same sense of responsibility that the American people aspire to in their own lives.
Senate Banking Committee Chairman Christopher Dodd and Senator Chuck Schumer, saying credit-card providers are “aggressively” raising interest rates, asked the Federal Reserve to immediately limit interest rate increases on existing balances.
We’ve previously reported on the recent aggressive tactics of credit card companies:
So you can be sure we’ll keep a close eye on this latest request of the Federal Reserve. Does it comply with the spirit of the “free market?” Absolutely not. Will it save many Americans from tipping over into bankruptcy or homelessness? We might just find out.
As Smithee mentioned earlier this week, the Congress and the White House are both working to introduce legislation to help consumers and curb deceptive techniques practiced by credit card lenders. Yesterday, a committee of representatives interested in financial issues put forth a bill to the rest of the House, the Credit Cardholders’ Bill of Rights Act of 2009. This bill, if signed into law, would increase transparency and eliminate certain interest rate increases.
For this bill to become a law, the Senate would have to approve a similar bill. The two bills, one from the House and one from the Senate, would need to be reconciled by a committee who would reach a compromise.
The bill currently in the House calls for a number of interesting changes to the rules for credit card companies:
1. If the company decides to increase a consumer’s interest rate, the new interest rate would not apply to existing balances, only new activity. The consumer will have an opportunity to refuse the interest rate hike. The account would then be closed to new purchases and the consumer will have at least five years to pay off the existing balance at the old rate. In addition, the minimum payment cannot be more than doubled as a percentage of the balance. Assuming a credit card company would try to circumvent these changes by charging an additional fee, the bill would prevent the company from doing so.
2. The above limitation that prevents the new interest rate being applied to the prior balance disappears if the rate increase was due to an index linked to the interest rate, due to an expiration of a promotional rate, or due to a late customer payment.
3. Credit card companies would need to provide the consumer a notice at least 45 days in advance if they intend to increase the interest rate.
4. Double cycle billing often results in being charged new interest a month after your pay off your balance in full. This occurs because in most credit card agreements, the interest charged is based on the average daily balance over the past two billing periods. Under the terms of this bill, double cycle billing would be prohibited.
5. Every statement would include an amount and instructions for paying off the bill in full.
6. If a consumer can prove that he or she sent a payment seven days or more before the due date, the payment would be considered on time even if the credit card company received the payment after the due date.
7. Currently, if a borrower has two balances at different interest rates such as purchases and a cash advance, the credit card companies apply payments made to the lowest interest rate balance first. This maximizes the interest charged to the consumer. This bill would require creditors to apply the payment in one of two methods, both more favorable to the consumer.
8. In some cases, credit cards allow purchases that exceed the credit limit are allowed to be processed, and the company assesses an additional fee for exceeding the limit. Card companies see this as a service to customers, to ensure important payments will be approved. This bill would give consumers the choice to opt out of this benefit, requiring the credit card company to decline the purchase.
All the above applies only to the House of Representatives version of the bill and only in its current form. It will take time and many changes before the President is presented with a finalized bill to be signed into law.
In December 2008 we reported a prediction that credit card issuers would be reducing available credit by about 45%, and recently the company behind the FICO score released a report of credit lines being reduced from April to October 2008, right before that prediction was made.
From the study, we find that lenders reduced credit for 16% of consumers, and 31% of those affected had a late payment, collections account or public record (e.g. bankruptcy, foreclosure, garnishment or tax lien). Disturbingly, the median FICO score of those affected was 770, a very good score. So, while a smallish minority of Americans were affected, they were the best customers of the bunch: good scores with few red flags.
The better news is that the average credit line was reduced only 5%, so all other things being equal, the FICO score of someone in this group shouldn’t have been negatively affected. We’ll have to wait and see, of course, what happens to FICO scores after October 2008.
Then there’s the issue that banks aren’t lending what they are supposed to be. From Reuters:
Credit card issuers have received over $120 billion in taxpayer funds since October, money the government has asked them to use to expand lending.
But with U.S. credit card defaults at record highs, lenders are trying to protect themselves by tightening credit limits and closing accounts, actions that have infuriated lawmakers, consumers, and even triggered a New York state attorney general inquiry.
Bailouts Not Working?
Put too simply: taxpayers loaned billions and billions of dollars to banks who had stopped lending money to those same taxpayers, in order to get them lending again. Overall, this doesn’t seem to be working when we see headlines like “Bank Lending Keeps Dropping” and “U.S. Banks Line Up to Repay TARP Money“.
Commercial and industrial lending were down in February, but I was glad to see that Home Loan Refinancing was up 42% from January to February. Home equity lines of credit were also being processed at levels typical for the season.
Earlier this year, JP Morgan Chase surprised customers with a new fee and an increased minimum required monthly payment. For cardholders who carried large balances month to month, Chase began charging a $10 monthly fee and increasing the minimum payment from 2% to 5% of the balance. The change was announced last November for about 300,000 customers and took effect in January. (See our previous coverage and visitor comments.)
Andrew Cuomo, the New York Attorney General received so many complaints about the surprise move, he required the company to refund the income collected from these fees, totaling $4.4 million, back to customers. Even though the order came from the Attorney General’s office, the official statement from Chase cites customers’ concerns as the reasons for the policy reversal.
The idea that credit card companies can change the terms of their agreements with customers at any time and that customers do not have the same power short of canceling the card provides a strong argument for never carrying a balance from one month to the next, charging only what you can pay off with income before the payment is due. Realizing that we don’t live in a perfect world, this isn’t always possible. But watch for notices in the mail from your credit card company which sometimes these notices arrive in unlabeled envelopes. They can contain information pertaining to changes in your agreement which, if you pay attention, you may decide are not worth continuing your relationship with the company.
The Federal Trade Commission wants consumers to know that the only website offering the three federally mandated free credit reports each year — one from each credit reporting bureau — is AnnualCreditReport.com. While they don’t name the “other” website specifically, this campaign is a direct response to freecreditreport.com, a service from the reporting bureau Experian that requires users to sign up for a credit monitoring service in order to receive a “free” credit report.
Experian reportedly makes it difficult for customers to cancel this monitoring service during its trial period. The impostor website previously used more misleading language to convince visitors that they were visiting the federally-mandated website for receiving free credit reports, but in the last few years, they’ve improved some of their marketing copy. But they haven’t improved service for customers who wish only to receive a free credit report. They have released a series of catchy commercials, and the FTC is now fighting back with their own public service announcements.
Is it ironic that Citi, a bank on the brink of disaster, is now marketing a credit card that “rewards” card holders for good financial behavior? This new credit card marketed toward Generation Y and teenagers, Citi Forward (and Citi Forward for College Students), offers benefits such as 100 points for paying on time and staying within your credit limit each month, 5 points for each $1 spent in “responsible” categories such as books, movies, music, and restaurants, 1 point per $1 for all other purchases, and 5,000 bonus points for signing up for paperless statements.
The most attractive feature is a quarterly reduction of APR by 0.25 percentage points after 3 months of making a purchase and staying within your credit limit and paying on time. This reduction is limited to eight in total and will only be applied if you continue to make purchases using the card.
Why is Citi taking this approach? The company surveyed 1,000 consumers and found:
76% of [survey respondents] said they would rather learn by being rewarded for the right things they do, rather than learning from their mistakes.
I seem to remember a college professor explaining that positive reinforcement is more effective over punishment when your goal is to change someone’s behavior. But don’t get the wrong idea, Citi card holders will certainly be punished if they make a mistake. The default interest rate — immediately charged if the card holder misses a payment — is 29.99%.
The points rewarded must be redeemed through Citi’s ThankYou network, which does not have a one-to-one relationship between points and cents, as the previous credit cards offering cash back rewards had. You would need to accumulate 16,000 points to qualify for a $100 cash reward. If you want a better “exchange rate,” you need to spend or donate your points.
It’s clear that the “responsible” categories for which Citi would like to “reward” its customers are not those that encourage good behavior. If Citi wanted to encourage financial responsibility, they would be promoting the use of libraries rather than purchasing books and buying groceries and cooking implements rather than dining at restaurants. I happen to be a fan of movies and music, but these are two categories where strapped consumers may wish to cut back spending in this recessionary economy. Furthermore, Citi claims that rewarding customers for choosing paperless statements is based on the idea that saving the environment is good, but I think even the targeted teenagers understand that it costs Citi a significant sum to send paper statements in the mail.
The 0.25 percentage point reduction in APR is a good start, but if Citi wanted to encourage true financial competence, they would reward customers for paying bills in full each month.
Thank you to all the taxpayers who are footing the bill for this. As Citibank continues to receive money from the government of the United States, funded by investors in Treasury bills and citizens of the future who will be paying more to the government to support the interest payments on that debt, Citibank continues to reward me. Rather than making new loans to businesses or individuals in needs, Citi simply raises credit card limits.
The concept is somewhat sound; raise credit limits and people will spend more, helping Citi with interest fees and helping the economy through more consumer activity. But if they’re raising the limit for people like me, there is no effect other than using bailout money to prop up their balance sheet.
I have never spent anywhere close to my credit limit in any one month. Yet, they targeted me as a candidate for an increase. I won’t decline the increase; a higher limit results in a lower utilization ratio, which will most likely lead to a higher credit score.
Here is their personal announcement to me:
YOUR ACCOUNT: CREDIT LINE INCREASE
Congratulations on Your Recent Credit Line Increase.
Dear (Flexo),
Because you are one of our loyal customers, we wanted to give your Citi® Card even more value. So reward yourself with the spending power and flexibility that comes with a higher line of credit.
You’ve earned it. Now enjoy it.
Use your new line of credit to transfer balances: You may qualify for a great rate on a balance transfer. To see what offers may be available to you, visit balancetransfer.citicards.com.
Wow, I feel so special. I earned it!
Clearly, Citi is hoping I will transfer a balance from another card, taking advantage of a 3.99% APR and 3% balance transfer fee. Even if I had a balance to transfer, I would pass. This credit limit increase would have been better spent by Citigroup elsewhere.
Email this article
Print this article
