TOPICS > Economy

Senate Moves Closer to Reining in Credit Card Companies

May 14, 2009 at 6:20 PM EDT
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The Senate neared approval Thursday of a bill to rein in credit card companies, which could mean new rules will be in place by early next year. Ray Suarez reports.

JIM LEHRER: The Senate neared approval today of a bill to restrain credit card companies. It could mean new rules will be in place by early next year.

Ray Suarez has our lead story report.

RAY SUAREZ: It’s called the Credit Card Holders’ Bill of Rights, and Senate supporters said the aim is to stop arbitrary rate hikes and other abuses.

SEN. BYRON DORGAN, D-N.D.: This legislation says, “No more. You can’t do that.” It says, “If you’re going to go in this direction, way overboard, in many cases cheating customers, then we’re going to put the brakes on you.”

Some people probably say, “Well, of what business is it of the government’s?” Well, you know what? We have a responsibility, it seems to me, to stand up for consumers.

RAY SUAREZ: And senators on both sides stood up for the bill. Richard Shelby of Alabama, the ranking Republican on the Banking Committee, helped work out the compromise.

SEN. RICHARD SHELBY, R-Ala.: I think this is a milestone as far as protecting consumers, informing consumers, letting them know, and also gives some balance. As I’ve always said, you can’t take risk out of the marketplace. You’ve got to price risk when you make loans. And we have some of that in here.

But we have great reforms in here that I think that we can live with. But, you know, some people don’t want a bill on both sides or the others want something that’s probably not achievable or probably not good for the economy, not good for the American people.

Bill bars rate increases

RAY SUAREZ: The Senate bill says lenders must apply payments to balances with the highest interest rates first. The measure also bars rate increases unless a borrower's payment is more than 60 days past due. And after that, if the customer pays on time for the next six months, the original interest rate has to be reinstated.

The Senate version of the bill has stronger protections than those in the House version, passed last April, and stronger than the Federal Reserve rules, approved in December. Both the House and Senate bills would take effect nine months after the bill was passed, in advance of the Federal Reserve's July 2010 target date.

Congress was heavily lobbied on the issue. Industry groups warned the Senate bill will increase costs and end up restricting credit.

Nessa Feddis represents the American Bankers Association.

NESSA FEDDIS, American Bankers Association: The bills and rules restrict the ability of card companies to adjust to changing environments, to changing risks. Over time, the market changes. Over time, people change. And if they can't adjust to that risk -- and risk equals cost -- other people have to absorb it. In other words, people who manage their credit card well end up having to pay for people who don't, people who don't repay their loans.

Obama presses for legislation

RAY SUAREZ: On the other hand, Travis Plunkett of the Consumer Federation of America hailed the legislation as a victory for individuals over companies.

TRAVIS PLUNKETT, Consumer Federation of America: So there's plenty of room for creditors to change their pricing according to the risk of the consumer. What the legislation will do that's positive is give consumers some security that a deal is a deal, that when they're offered an interest rate, it is at least good on their existing balance. It won't suddenly and sharply increase because of some arbitrary reason.

RAY SUAREZ: And President Obama weighed in today at a town hall meeting in Albuquerque, New Mexico. He again pressed lawmakers to finish the bill so he can sign it by Memorial Day, and he called for new attitudes on both sides of credit card transactions.

U.S. PRESIDENT BARACK OBAMA: This is not free money. It's debt. And you shouldn't take on more than you can handle. We expect consumers to make sound choices and live within their means and pay what they owe in a timely manner.

Banks are a business, too, and so they have a right to insist that timely payments are made. But what we also expect is that our institutions act with the same sense of responsibility that the American people aspire to in their own lives.

We expect to pay what's fair, not just what fattens growing profits for some credit card company. You know, this is America, and we don't begrudge a company's success when that success is based on honest dealings with consumers.

RAY SUAREZ: With credit cards in nearly 80 percent of U.S. households, the House and Senate are expected to heed the president and reconcile their competing bills in short order.