Credit card legislation faces Senate test

WASHINGTON -- Propelled through the House by antibusiness sentiment in tough economic times, legislation putting new reins on the credit card industry now goes to the Senate, where the bill's prospects appear promising.

The legislation, which has President Barack Obama's backing, would eliminate abrupt increases in interest rates and other practices decried by consumer advocates. It could be taken up in the Senate as early as next week.

Supporters want to get a final congressional package to Obama's desk by the Memorial Day holiday. They acknowledged, though, that House passage of the measure on Thursday was just an opening salvo and that industry interests could succeed in getting restrictions weakened during the legislative slog ahead.

Signaling an aggressive campaign, Edward Yingling, president and CEO of the American Bankers Association, said the group "strongly believes that any additional legislative efforts should strive to achieve the right balance between enhancing consumer protection and ensuring that credit remains available to consumers and small businesses at a reasonable cost."

"We continue to believe that more work needs to be done to achieve that balance," he said in a statement.

The House measure, called the Credit Card Holders' Bill of Rights, passed on a bipartisan vote of 357-70 following lobbying by Obama and members of his administration.

The bill would prohibit so-called double-cycle billing and retroactive rate hikes and would prevent companies from giving credit cards to anyone under 18.

If they become law, the new House provisions won't take effect for a year, except for a requirement that customers get 45 days' notice before their interest rates are increased. That would take effect in 90 days.

Consumer advocates and some Democrats have sought for years to bring new rules to the industry.

"This is a unique opportunity to end abusive practices that afflict millions of families across the nation, to contribute to our economic recovery and to take a stand for American consumers," Sen. Christopher Dodd, chairman of the Senate Banking Committee and the bill's primary sponsor, said after the House vote. "Now it is the Senate's turn to act."

The bill's boosters are tapping into public anger over corporate excesses and the conduct of banks and other companies receiving billions of dollars in taxpayer money.

Obama's engagement in the issue diverged sharply from his handling of a plan to spare hundreds of thousands of homeowners from foreclosure through bankruptcy, which met defeat in the Democratic-controlled Senate Thursday on a 51-45 vote. Obama had embraced the plan, but facing stiff opposition from the banking industry he did little to pressure lawmakers who worried it would encourage bankruptcy filings and catapult interest rates higher.

Obama met at the White House last week with executives of the credit card industry and made clear he wants to sign a bill into law. And a day before the House vote, Treasury Secretary Timothy Geithner convened a meeting with Rep. Carolyn Maloney, D-N.Y., the bill's chief sponsor, and representatives of consumer and civil rights groups.

The administration is pushing for stricter practices that could crimp banks' revenue at the same time the government is shoring up the financial institutions with hundreds of billions of dollars in bailout aid.

"The administration supports Congress' efforts to ... provide additional strong and reliable protections for consumers that ban unfair and abusive practices," the White House said in a statement following the House vote. "The nation's credit card system must have more accountability, including more effective oversight and more effective enforcement of credit card issuers who violate the law."

Before approving the credit card bill, the House adopted a series of amendments -- some of which were pressed by the White House -- that amplified the restrictions on industry practices.

The House measure incorporates Federal Reserve regulations due to take effect in July 2010 but goes further by adding restrictions for credit cards for college students as well as other changes.

Consumers would have to be notified 30 days before their accounts are closed.

Double-cycle billing eliminates the interest-free period for consumers who move from paying the full balance monthly to carrying a balance.

Opponents tried vainly on the House floor to temper a fast-moving bill with amendments that would have given credit card issuers some openings to raise rates within the proposed restraints.

"We shouldn't take credit opportunities away," said Rep. Jeb Hensarling, R-Texas. "I just want consumers to have choices. I want there to be a competitive marketplace."

Hensarling and other Republican opponents endorsed the bill's requirements for clearer disclosure in the fine print of credit card agreements. But they said the legislation overall could prompt lenders to restrict credit in an already tight market to compensate for the new requirements.