Senate passes tougher rules for credit card firms
WASHINGTON (Reuters) - The U.S. Senate on Tuesday voted 90-5 to approve a bill to curb sudden credit card interest rate increases and hidden fees, with President Barack Obama expected to sign it into law by the end of the month.
Credit card issuers' shares fell after passage of the bill, the first of several banking and market regulation reforms expected from the Obama administration as it deals with the worst financial crisis in generations and a deep recession.
The credit card "consumer bill of rights," as supporters describe it, must go to the U.S. House of Representatives for a vote before reaching the president. The House approved it in a very similar form last month by a 357-70 vote.
House Democratic Leader Steny Hoyer told reporters on Tuesday: "We expect to pass (the bill) by sometime tomorrow, the earlier the better ... My expectation is that we will send that bill directly to the president from the House."
Analysts said the profits of major card issuers such as Citigroup, Bank of America, JPMorgan Chase and Capital One would be hurt by the bill.
The KBW Banks index of 24 leading bank stocks closed down 3.43 percent on Tuesday following the Senate vote, with broader market indexes modestly lower on the day.
Shares in American Express ended down 5.1 percent to $24.79; CapitalOne, down 4.5 percent to $24.90 and MasterCard, off 3.9 percent at $166.73.
Enactment of the bill into law would mark the crest of a political backlash against card companies after years of interest rate and fee increases and aggressive marketing strategies that have angered consumers, analysts said.
It would also mark an opening-round win for Obama as he undertakes a major overhaul of the rules governing the banking industry and financial markets to better protect consumers and investors, and to prevent another credit crisis like the one now ravaging the world's largest economy.
Treasury Secretary Timothy Geithner said credit card reform is a key part of the administration's efforts to fix the economy and the financial system. In a statement, he called the bill "an important step forward in consumer protection."
But American Bankers Association President Edward Yingling said the bill "will undermine the availability of credit" by restricting lenders' ability to price for risk.
CONSUMERS UP TO THEIR NECKS
The measure would sharply limit credit card issuers' ability to raise interest rates on existing balances.
It would require a 45-day notice of most rate increases; limit rate increases on new and promotional-rate accounts; prohibit certain kinds of fees; and bar extension of credit to consumers under age 18, with narrow exceptions.
In addition, the bill would require more disclosure of the terms of card agreements; require periodic review of a cardholders' interest rate and open the possibility of lowering the rate if warranted, and direct the Federal Reserve and other regulators to write more detailed rules.
American consumers owed more than $945 billion in credit card debt in March. That level has fallen in recent months as households have cut back during the recession, but credit-card indebtedness is still about 25 percent higher than a decade ago, reflecting an explosion in consumers' access to and use of plastic money.
An estimated 78 percent of U.S. families have a card and average debt among families carrying a balance was $7,300 in 2007.
Obama on Thursday urged Congress to complete a final bill so he can sign it into law by the end of May.
"I'm certain ... we will be able to get this to the president's desk this week as he has asked," said Democratic Representative Carolyn Maloney, an author of the bill.
"Today is a victory for all credit cardholders ... We are banning practices that have been labeled as unfair and deceptive by the Federal Reserve," she said.
GUN AMENDMENT ADDED
In an odd twist, the Senate bill passed with an amendment on gun rights tacked on by Republican Senator Tom Coburn.
The amendment would bar the Interior Department from prohibiting individuals from legally carrying firearms inside national parks and wildlife refuges.
The House is expected to approve the credit card bill with the gun amendment included, but to allow lawmakers to go on record as voting against the amendment, said a senior House aide.
The credit card bill largely codifies regulations adopted last year by the Fed. On their own, those rules take effect in July 2010, but this legislation would speed things up.
Much of the Senate bill would take effect nine months after enactment while some portions would take effect sooner.
The bill does not cap interest rates, as some lawmakers wanted, nor does it bar issuing cards to college students, although that is restricted.
Senator Bernie Sanders, an independent, speaking on the Senate floor before the vote, said: "While the legislation we're passing today is important ... it does not go far enough."
He said the bill fails to address usury issues. "We have got to finally tell banks and credit card companies that it is simply not acceptable for them to be charging consumers 25, 30, 35 percent interest rates," Sanders said.
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