House votes to move up tougher credit card rules

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By Sean Lengell

The House passed a bill Wednesday to move up tough new rules for credit card lenders, lashing out at an industry that has been raising interest rates and fees at a furious pace since the rules were passed in May.

But the proposed new deadline faces a tough challenge in the Senate, where lawmakers worry that it would place an unreasonable burden on lenders.

Congress' sweeping credit card reform legislation significantly limited the industry's powers by curbing the ability of lenders to increase credit card interest rates and impose fees and penalties on consumers.

Some lenders have been pushing through big rate increases ahead of the new laws - many of which take effect Feb. 22 - infuriating lawmakers who accused the companies of abusing their nine-month grace period.

"It is the single unfairest economic transaction I can think of that doesn't involve a pistol," said House Financial Services Committee Chairman Barney Frank, Massachusetts Democrat, who helped draft the measure. "This is hostage taking. This is raising money after the fact."

The House passed by a vote of 331-92 a bill by Mr. Frank to move up the effective date of the rules to Dec. 1. Rep. Stephanie Herseth Sandlin of South Dakota was the lone Democrat to vote against the measure, while 83 Republicans supported it.

The law generally bars lenders from increasing interest rates on existing credit card balances unless a customer is more than 60 days behind on a payment. The measure requires lenders to give consumers 45 days notice when they increase rates.

Banks also will be prohibited from issuing cards to people younger than 21 unless a parent co-signs the application or the cardholder can prove he has the means to pay back the loan.

Many House lawmakers wanted a shorter deadline when the bill initially passed the House in May. But Democrats who drafted the rules gave banks nine months to prepare for the changes to assuage concerns in the Senate that the restrictions were too severe.

Moving up the deadline will be tough sell in the Senate, where banking committee Chairman Christopher J. Dodd, Connecticut Democrat, has said he doesn't want to tinker with the original timeline.

Federal Reserve Chairman Ben S. Bernanke also has warned that moving up the date of the laws could hurt consumers by leading to "unintended consequences."

Rep. Spencer Bachus, the top Republican on the House Financial Services Committee, has argued that the effective date of the law shouldn't be changed, saying Congress should abide by Mr. Bernanke's view.

The Alabama lawmaker added that the new law is flawed and has already caused financial pain for small businesses that rely on credit cards as a key source of financing.

"The new credit card restrictions are exacerbating the economic crisis and the loss of jobs," Mr. Bachus said. "This original bill came at just the wrong time."

Credit card companies complain that moving up the effective date is unfair because they need more time to implement the changes.

"This is an enormous task, requiring the complete reworking of internal operations, risk management models, funding calculations, employee training and computer coding," said Kenneth J. Clayton, senior vice president and general counsel of credit card policy for the American Bankers Association.

"Accelerating the time frame for implementation of the [bill] will be extremely difficult, if not impossible, for card issuers."

Mr. Frank brushed aside the industry's concerns.

"They tell us, 'Oh my goodness, it's so hard to recalibrate' " their computers, Mr. Frank said. But "they've got software that works perfectly when they want to raise rates."

A study last week by Pew Charitable Trusts' Safe Credit Cards Project compared interest rates being charged last December with rates in July and found that the lowest interest rates offered on most bank cards jumped by more than 20 percent.