May 21, 2009
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News: House Approves Senate CC Bill
Look out credit card companies, here it comes. The House overwhelmingly voted for final approval of new legislation that is meant to curtail deceptive and unfair practices by lenders. The final approval was received by a 367-61 vote to ensure President Obama will have the new bill on his desk by Memorial Day. The House who had passed their version of the bill on April 30th decided to accept the Senate’s stronger version which was authored by Banking Committee Chairman Senator Chris Dodd (D-CT). The bill is aimed at banning credit card companies from using deceptive and unfair practices. The passage is a milestone in the history of financial regulation that is sure to have lenders and consumers alike restructure how they manage their credit cards. A highly volatile subject had been the practice by lenders raising interest rates on consumers who pay their monthly bill as little as one day late. The new bill will prohibit lenders from raising interest rates until the consumer is at least 60 days delinquent. The bill also stipulates that lenders must apply payments over the minimum due to the highest interest rate balance first.
The new bill is expected to change the structure of the credit card industry and how the cards are managed and produced. The original concept was introduced by two business men in 1949 searching for a simplified way of payment at multiple businesses using the same card. At that time, consumers had separate charge accounts for each individual business. The new credit card was introduced shortly thereafter under the name Diners Club which could be used at a select number of restaurants in New York. The modern day card can be used for most anything the consumer desires and has virtually replaced all other forms of payment.
The original card was designed with one concept in mind and levied the same interest rate on all accounts. As some consumers became habitually delinquent in paying their bill and defaults increased, lenders began modifying interest rates for these high risk users. Lenders soon began to realize large profits from late fees and increased interest rates. Unfortunately, it didn’t stop there. The new legislation which will be implemented six months after receiving President Obama’s signature is predicted to render a complete metamorphosis of the credit card business in the 21st century.