Update on Credit Cards Bill - face a new set of rules

President Obama is demanding of Congress to approve a bill that stops credit-card companies from taking advantage of consumers by the end of May. "Americans know that they have a responsibility to live within their means and pay what they owe," Obama said in his weekly radio and Internet address yesterday. "But they also have a right to not get ripped off by the sudden rate hikes, unfair penalties, and hidden fees that have become all too common."

Legislation known as the Credit Card Holders' Bill of Rights has passed the House of Representatives and awaits action in the Senate, possibly this week. "You shouldn't have to fear that any new credit card is going to come with strings attached, nor should you need a magnifying glass and a reference book to read a credit-card application. And the abuses in our credit-card industry have only multiplied in the midst of this recession, when Americans can least afford to bear an extra burden," the president said.

The House proposed rules on credit cards that prohibit double-cycle billing and retroactive rate increases, requires at lest 45 days notice for any substantial changes for consumers, prohibit unexpected account cancelations by the bank and require grace period to be at least 21 days. Also, rules prevent companies from giving credit cards to anyone under 18, require that companies publish their forms in plain-spoken language and require the availability of customer-friendly comparison shopping on credit card offers.

Obama wants to sign the legislation by Memorial Day. "There is no time for delay. We need a durable and successful flow of credit in our economy, but we can't tolerate profits that depend upon misleading working families. Those days are over," he said.

However, the banking industry is fighting back. Credit-card executives argue that the new restrictions could backfire on consumers, making it harder for banks to offer credit or put credit out of reach for many borrowers. They also argue that the new rules on credit cards are without any substance and simply play on the public anger over corporate excesses and the conduct of companies receiving billions of dollars in taxpayer money. Credit cards often serve as a vital source of liquidity, both for individuals and small businesses. This bill would shrink banks’ ability to lend, resulting in less credit available to vast numbers of Americans at the wrong time.

This bill is scheduled to take effect July 2010. Banks such as Bank of America Corp, JPMorgan Chase & Co, Citigroup and Capital One Financial Corp face a new set of rules aimed at reining in abusive credit card practices.