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Credit Card Regulations Easily Clear Senate Vote

The Senate passed the bill in a 90-5 vote. President Barack
Obama is 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 before the House again before
reaching the president’s desk. The House recently approved it in a similar form
by a 357-70 vote.

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

The bill is expected to impact 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, analysts
told Reuters.

Following the Senate vote, the KBW Banks index of 24 leading
bank stocks was down 1.7 percent in mid-afternoon trading 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 and often confused consumers, analysts said.

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

During a town hall meeting in Albuquerque, N.M., last week
President Obama praised the move to regulate the industry but also offered a
warning to consumers on attitudes toward credit.

“This is not free money. It’s debt. And you shouldn’t
take on more than you can handle,” the president said.” We expect
consumers to make sound choices and live within their means and pay what they
owe in a timely manner.”

If enacted into law as expected, the credit card industry
would have nine months to change its business practices: 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. The measure bars interest rate
increases unless a borrower’s payment is more than 60 days past due. After
that, if the customer pays on time for the next six months, the original
interest rate has to be reinstated.

Companies will 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, according to news agencies.

Some 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 earlier 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 bill would also sharply limit card issuers’ ability to
raise interest rates on existing balances. It does not cap interest rates, as
some lawmakers had hoped. It also does not forbid issuing cards to college
students, although that is restricted.

Edward Yingling, president of the American Bankers Association,
a lobbying group, told the AP 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.

Total U.S. credit
card indebtedness has fallen lately. In March it stood at $945.9 billion. But
that level was still up almost 25 percent from a decade ago, reflecting
Americans’ love affair in recent years with plastic money. Seventy-eight
percent of U.S. families have a card and the average debt among families with a
balance was $7,300 in 2007.

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