Total Bankruptcy

The Credit Cardholders’ Bill of Rights Act of 2008 is a big hit with many consumer advocates, who say it offers much-needed protection from predatory credit card practices; however, banks warn that passage of the bill might actually wind up hurting consumers.

“Less risky borrowers will have to absorb the costs posed by riskier borrowers if issuers can't price everyone based on the risk they pose,” said Ken Clayton, senior vice president of card policy at the American Bankers Association in a Bloomberg.com article.

The article further states that “the percentage of credit-card debts that were unpaid after at least 30 days rose 22 percent this June over a year earlier, averaging 4.03 percent,” citing reports filed by various credit card companies and banks.

Creditors threaten that if the bill passes, they’ll have to closely scrutinize credit card applicants and deny credit cards to “high-risk” people who have low credit scores.

Proponents of the bill—like the National Association of Consumer Advocates—say that credit card companies have had their way for too long and this bill provides consumers with long-awaited protection.

Provisions of the Act

The act was recently approved by a vote of 39 to 27 by the House Financial Services Committee and should be heading to the floor for House action. It’s intended to prevent sudden increases and fees from being easily tacked on to consumers’ credit card bills.

The bill includes the following provisions, among others:

• creditors can’t increase APR interest rates because of reasons such as a change in a consumer’s credit score—they may only increase the APR rate if the direct account becomes delinquent or when the contract expires;
• consumers have the right to cancel the card and pay off the balance at the current rate should a creditor increase the interest rate when the contract expires;
• consumers may reject any pre-approved credit card before they activate it and it will not affect their credit rating;
• creditors can’t charge over-limit fees if the consumer is on a fixed-credit limit;
• creditors must give at least 45 days notice to a consumer before increasing any rates;
• creditors can’t charge interest on any charges paid during grace periods and can’t add on fees on an interest-only balance as long as payments are made on time;
• creditors must use clear language in defining “fixed-rate” or “prime-rate” plans and provide easy ways for consumers to access information about their payoff balances; and
• creditors must divulge their profits and card fee and rate information to Congress.

Stay tuned to Total Bankruptcy for more information on this important piece of legislation as it develops.