May 7, 2009
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News: Compromise Reached in CC Reform
Senate Banking Committee Chairman Chris Dodd, (D-CT) announced today that a compromise has been reached between Republicans and Democrats on the controversial credit card reform legislation. The bill is now expected to pass quickly through the Senate and should be on President Obama’s desk for signing by the end of the week. A major obstacle pertaining to consumers who experienced massive interest rate increases because they had fallen behind in making their credit card payments was threatening the bill’s passage. Republicans maintained that lenders should have the right to take an individual’s delinquent payment habits into account when setting interest rates. Democrats on the other hand, say these consumers are already struggling to pay down debt and raising their interest rates makes it nearly impossible for them to bail themselves out. Originally, Senator Dodd stood firm in his demands on banning any retroactive credit card rate increases; however, it soon became apparent that without the support of Republicans, the bill would most likely not be approved by the Senate.
The compromise would allow credit card companies the right to raise the interest rates of these consumers; however, would mandate them to lower rates if the consumer paid their bill on time for six months. Furthermore, the new proposal would prohibit lenders from raising the interest rate until the cardholder became 60 days or more delinquent. Additionally, the bill mandates that the lender review the consumer’s terms every six months. Furthermore, the bill places added regulation on the Federal Reserve by mandating it report an update on credit cost and availability to Congress every two years. Proponents of the bill believe the compromise sends a strong message to credit card lenders that changing terms based on consumer risk factors is a give and take relationship.
The bill is likely to be a welcome relief for many credit card consumers who have been struggling to meet the responsibilities of a high cost of living and rising unemployment rates. Additionally, consumers who have continued to make their card payments on time have been outraged with lenders who have arbitrarily raised their interest rates. If the bill becomes law, it would become effective nine months after it receives President Obama’s signature.
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