Credit Card Bill Becomes Law

The signature of President Barack Obama on a sweeping credit card reform bill marked the end of a long road. 

Credit card reform is not a new topic. Rep. Carolyn Maloney (D-N.Y.) put forward a similar bill several years ago that passed the House of Representatives.  This year, her Credit Cardholders Bill of Rights Act of 2009 was joined in the Senate by the CARD Act.

The bill shares a number of similarities to rules devised by the Federal Reserve, which had been scheduled to go into effect in the summer of 2010. The legislative bill would come into effect in about February 2010.

According to a summary prepared for the Senate Banking Committee, the economic downturn played a significant role in carrying forward the reform bill. The soft economy put the financial squeeze on households with credit cards, which is about 73 percent of American families. As the unemployment rate increased, as foreclosures rose, so did the number of complaints generated about the credit card industry and its practices.

As consumers suffered, so did banks. As other parts of their operations started to sink, the banks began looking for areas of their business that could bring in money. Credit cards provide a relatively high profit compared to the rest of their operations. When other assets turned sour, the banks relied more and more on squeezing revenue out of their profitable credit card operations. Credit cards also were a handy area to cut costs by limiting available credit.

Thus, the reforms come at a time where banks have been seeking to tighten credit and raise revenue, while American families feel the economic squeeze.

Supporters expect the reforms to give cardholders a more fair deal. They expect the rules to cut down on sudden changes in interest rates, the use of hidden fees, the ability to rope in youngsters who run up large bills, lengthening and standardizing the “grace period” for payments, and other changes.