WASHINGTON (Reuters) - Legislation to curb credit card fees and limit consumer penalties cleared a congressional panel on Wednesday, a day ahead of a meeting between industry executives and President Barack Obama at the White House.
The bill is an early test of political will for Democrats pushing for regulatory reform amid the economic crisis and would mean sweeping changes for card-issuing banks, many of which have received government bailout money.
Members of the House Financial Services Committee voted 48 to 19 for the Credit Cardholders’ Bill of Rights which in practice would codify into law restrictions on deceptive practices issued by the Federal Reserve in December.
The legislation would stop credit card issuers from imposing arbitrary interest rate increases and penalties, and halt certain billing practices.
Nine Republicans, or almost a third of that party’s members on the committee, voted in favor of the measure.
Committee chairman Barney Frank told reporters after the vote he was not surprised the measure attracted bipartisan support. “The mood in the country has changed,” he said.
Frank said Obama, who campaigned for credit card reforms, wants to make changes to the bill. Frank provided no details.
Later on Wednesday, White House spokesman Robert Gibbs told reporters that Obama wanted to make sure the legislation codified the Fed’s rules into law.
Executives from Bank of America Corp, American Express Co, Citigroup Inc, Wells Fargo & Co, JPMorgan Chase & Co, Capital One Financial Corp, Visa Inc and MasterCard Inc will be among 13 credit card executive due to meet Obama early on Thursday afternoon at the White House.
“We are working closely with Congress on legislation that will promote simplicity, require transparency, demand fairness, and ensure accountability — so that we can strengthen consumer protections against abusive and deceptive practices,” White House spokeswoman Jen Psaki said.
Banks say the legislation would hurt fee income at a time when they are trying to climb out of a financial hole created by the collapse of the housing boom.
The American Bankers Association trade group, which represents the biggest credit card issuers, said it is concerned the House bill could reduce the availability of consumer credit and make it more expensive.
Ed Mierzwinski, consumer program director at the U.S. Public Interest Research Group, said consumer groups supported making the Fed rules law, but wanted to go further.
“We hope the president will also support further reforms, such as the... Senate’s stronger ban on ‘no reason’ fee increases and its protection for college students from unfair credit card marketing,” Mierzwinski said.
“It’s a new era in Washington,” said Rep. Carolyn Maloney, a New York Democrat and chief sponsor of the House bill. “It’s taken three years of hard work, but I’m delighted that we’re on the brink of real protections for consumers.”
The bill would give companies at least one year or until July 2010, whichever comes first, to comply. However a provision would require them to implement sooner a 45-day period to notify cardholders of higher rates when they are late making payments.
Frank said he plans to introduce Obama’s proposals, possibly during a full House vote next week on the bill.
While the reform legislation appears to face clear sailing in the House, it remains unclear whether Democrats in the Senate can muster the 60 votes needed in that chamber to advance their version of credit card legislation amid stiff opposition from the banking industry.
In the Senate, Democrats hold 56 seats and two independents routinely side with Democrats. A win by Al Franken in the undetermined election in Minnesota could give Democrats 59 votes, one shy from the 60 needed to overcome a procedural hurdle that could block a vote on a legislative measure.
“I’m more confident than I’ve every been,” Frank said of chances the Senate will pass its own credit card bill.
U.S. banks that issue credit cards have received more than $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 protecting themselves by tightening credit limits and closing accounts, actions angering lawmakers and consumers, and triggered an inquiry by the New York state attorney general.
U.S. lawmakers also are unhappy that the same banks, such as Bank of America, Citi and Chase, with big credit card operations, charge high interest rates and fees while getting bailouts from taxpayers who are credit card users.
Maloney initially wanted to force credit card companies to adopt the stricter terms within 90 days of the bill becoming law, but a House subcommittee rejected that.
The July 2010 compliance date in the House bill is the same deadline set by the Federal Reserve last December to implement changes to curb what Fed Chairman Ben Bernanke called “unfair and deceptive” practices.
Banks, citing the need for time to develop software, train staff and work with vendors on new printing procedures, say they cannot implement these changes overnight.
“Banks are working aggressively to implement the rules by the date set by the regulators,” said Kenneth Clayton, senior vice president for credit card policy at the ABA.
Reporting by John Poirier; Additional reporting by Caren Bohan and Karey Wutkowski; Editing by Andre Grenon and Tim Dobbyn