Senate passes credit card overhaul bill

WASHINGTON -- The Senate voted on Tuesday to prohibit credit card companies from arbitrarily raising a person's interest rate and charging many of the exorbitant fees that have become customary -- and crippling -- to cash-strapped consumers.

The overwhelming bipartisan vote of 90-5 was lawmakers' way of telling Americans that they haven't been forgotten amid a recession that has left hundreds of thousands jobless or facing foreclosure.

With the House on track to endorse the measure by week's end, President Barack Obama could see a bill on his desk by the end of the week.

"Today is a victory for all credit cardholders," said Rep. Carolyn Maloney, D-N.Y., who had sponsored a similar measure that passed the House earlier this month.

If enacted into law as expected, the credit card industry would have nine months to change the way it does business: Lenders would have to post their credit card agreements on the Internet and let customers pay their bills online or by phone without an added fee. They'd also have to give consumers a chance to spare themselves from over-the-limit fees and provide 45 days notice and an explanation before interest rates are increased.

Some of these changes are already on track to take effect in July 2010, under new rules being imposed by the Federal Reserve. But the Senate bill would put the changes into law and go further in restricting the types of bank fees and who can get a card.

For example, the Senate bill requires those under 21 who seek a credit card to prove first that they can repay the money or that a parent or guardian is willing to pay off their debt if they default.

The legislation would not cap interest rates as some lawmakers had hoped. It also wouldn't prevent lenders from finding new ways to drain customers' bank accounts or keep consumers from spending money they don't have.

But it would give spenders more flexibility and outlaw many of the surprise costs associated with credit cards at a time when money is tight in most households. For example, under the bill, a cardholder would have to opt to be allowed to go over a credit limit. If customers don't agree and the bank authorizes a charge that would push them over their limit, the lender couldn't levy an over-limit fee.

Another boon for consumers is limiting a practice known as "universal default," when a lender sharply increases a cardholder's interest rate on an existing balance because the customer is late paying that bill or other, unrelated bills. Under the new legislation, a customer would have to be more than 60 days behind on a payment before seeing a rate increase on an existing balance.

Even then, the credit card company would be required to restore the previous, lower rate after six months if the cardholder pays the minimum balance on time.

House Democratic leaders said they hoped to vote on the Senate bill by week's end. Complicating the issue somewhat was an unrelated provision included in the Senate bill that would allow people to carry loaded guns in national parks and wildlife refuges.

Sen. Tom Coburn, R-Okla., proposed the gun measure as an amendment. It passed, 67-29.

House Democratic Leader Steny Hoyer, D-Md., told reporters on Tuesday that the House might vote separately on the gun proposal so as not to bog down the credit card overhaul.

If the two bills are passed separately, they would be rejoined before being sent to the president as a single bill, said Hoyer, D-Md.

The banking industry opposed the overall measure and said it could restrict credit at a time when Americans need it most. Banking officials defended their existing interest rates and fees on grounds that their business -- lending money to consumers with no collateral and little more than a promise to pay it back -- is very risky.

But members of Congress didn't want to face voters in the 2010 election without proof that they are listening to constituents crushed by foreclosure rates and joblessness. Recent reports show that the number of foreclosures jumped 32 percent in April compared with the same month last year.

Meanwhile, the jobless rate rose to 8.9 percent in April, and some economists predict it could rise into double digits.