U.S. Senate passes tougher rules for credit card firms

By Kevin Drawbaugh

WASHINGTON (Reuters) - The U.S. Senate on Tuesday voted 90-5 to approve a bill to curb sudden credit card interest rate increases and hidden fees, with President Barack Obama expected to sign it into law by the end of the month.

The first of several financial regulation reforms expected from the Obama administration, the bill must go to the House of Representatives again before reaching the president. The House approved it in similar form last month by a 357-70 vote.

"We expect the credit card bill to come over here (this week)," House Democratic Leader Steny Hoyer said on Tuesday. "We expect it to probably be in a fashion that we can pass it."

Analysts said the bill would hurt the profits of major card issuers such as Citigroup, Bank of America, JPMorgan Chase and Capital One, but that its impact was already largely factored into their share prices.

The KBW Banks index of 24 leading bank stocks was down 1.7 percent in midafternoon after the Senate vote while broad U.S. stock indexes were modestly higher.

Enactment of the bill would mark the crest of a backlash against the credit card industry after years of rate and fee hikes and aggressive marketing that angered consumers, analysts said.

It would also represent the first major financial regulatory reform completed by Obama as he tackles a rewrite of the rules of banking and financial markets to better protect consumers and investors and prevent another credit crisis.

Obama on Thursday urged Congress to complete a final bill so he can sign it into law by the end of May.

"I'm certain ... we will be able to get this to the president's desk this week as he has asked," said Democratic Representative Carolyn Maloney, an author of the bill.

"Today is a victory for all credit cardholders ... We are banning practices that have been labelled as unfair and deceptive by the Federal Reserve," she said.


The bill would sharply limit card issuers' ability to raise interest rates on existing balances.

It would require a 45-day notice of most rate increases; limit rate increases on new and promotional-rate accounts; prohibit certain kinds of fees; and bar extension of credit to consumers under age 18, with narrow exceptions.

In addition, the bill would require more disclosure of the terms of card agreements; require periodic review of a cardholders' interest rate and open the possibility of lowering the rate if warranted; and direct the Federal Reserve and other regulators to write more detailed rules.

Edward Yingling, president of the American Bankers Association, a lobbying group, said the credit card bill has some "tough but workable" parts. "It also unfortunately ... will undermine the availability of credit," he said.

He said the bill will restrict the ability to price credit for risk, resulting in less credit available.

But supporters argued the bill was needed to safeguard consumers.

"This bill bans unfair rate increases, makes companies play by reasonable rules and magnifies the fine print so consumers aren't blindsided by their monthly bills," Democratic Senator Richard Durbin said.

It largely codifies new regulations already adopted last year by the Fed. On their own, those rules take effect in July 2010. But the legislation would speed things up.

Much of the Senate bill would take effect nine months after enactment. Some portions would take effect sooner.

The bill does not cap interest rates, as some lawmakers wanted. Nor does it bar issuing cards to college students, although that is restricted.

(Reporting by Kevin Drawbaugh, Donna Smith and John Poirier; Editing by Kenneth Barry)

Article Published: 19/05/2009