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"CREDIT CARD BILL OF RIGHTS" LEGISLATION INTRODUCED

Representative Carolyn B. Maloney (D-NY), the House Financial Institutions and Consumer Credit Subcommittee Chairwoman, recently introduced the Credit Cardholders' Bill of Rights Act of 2008 (H.R. 5244). Rep. Moloney describes the bill as "comprehensive credit card reform legislation aimed at leveling the playing field between credit card companies and consumers" by abolishing "major industry abuses that unfairly hurt consumers while fostering fair competition and free market values." The stated purpose of the bill is to amend the Truth in Lending Act to "establish fair and transparent practices relating to the extension of credit under an open end consumer credit plan."

The proposed provisions largely reflect the principles set forth in Rep. Maloney's "Gold Standard" credit card principles (available at maloney.house.gov/media-center/press-releases/credit-cardholders-bill-rights-balanced-reform) and address a wide range of topics, including (i) contractual terms (notably universal default and double-cycle billing), (ii) disclosures (particularly periodic statement disclosures and change-in-terms notices), (iii) over-the-limit fees and (iv) subprime "fee harvester" cards.

Key provisions of the Act would:

  • Eliminate universal default and double-cycle billing;
  • Prohibit "any-time any-reason" changes in terms, require 45 days' advance notice of rate increases, permit cardholders to opt-out of APR increases and require additional change-in-terms disclosures;
  • Impose new limitations on account balances attributable only to accrued interest;
  • Prohibit issuers from furnishing account information to credit reporting agencies until the cardholder activates or uses a new account;
  • Define "fixed rate" and "prime rate";
  • Require pro rata payment allocations between or among outstanding balances subject to two or more different annual percentage rates;
  • Require timely (not less than 25 calendar days before the due date) provision of periodic statements;
  • Require disclosure of payoff balance amounts, payoff procedures and due dates to avoid a late fee on periodic statements;
  • Establish that payments received by 5:00 p.m. EST on the due date are deemed timely;
  • Allow cardholders to opt-out of creditor authorization of over-the-limit transactions if fees are imposed, require notice of opt-out rights and restrict the frequency with which issuers may impose over-the-limit fees; and
  • Restrict initial issuance and credit reporting of subprime ''fee harvester'' cards (i.e., cards that would require the payment of fees other than late or over-the-limit fees in the first year in excess of 25% of the credit limit) until the creditor receives payment in full of all such fees, which may not be made from credit made available by the card.

The bill, which has been referred to the House Financial Services Committee, has a long list of co-sponsors (including House Financial Services Committee Chairman Barney Frank (D-MA)). Amendments would become effective one year after enactment. The Federal Reserve Board would be required to prescribe implementing regulations within six months after enactment.

If enacted as introduced, the Act would abolish or alter certain long-established credit card business practices.

  • Judy Scheiderer