Highlights of the Proposed Credit Card Holders' Bill of Rights

Senator Robert Menendez (D-NJ) and Representative Carolyn Maloney (D-NY) have proposed sweeping legislation called “The Credit Cardholders' Bill of Rights” aimed at reforming credit card industry abuses and improving consumer protections.

Senator Menendez’ legislation is set forth in two bills, The Protection of Young Consumers Act and The Credit Card Reform Act. According to Senator Menendez’ website:

“The Protection of Young Consumers Act will protect people, especially college students and other young people, against skyrocketing consumer debt and the barrage of credit card solicitations that lead to it. The proposal will: 1) build on the current “opt-out” provision regarding pre-approved credit card offers by prohibiting credit card solicitations to consumers under 21 unless they proactively “opt-in” to receive such solicitations; and 2) establish a financial literacy and education program in elementary and secondary schools to help prepare young people to be financially responsible consumers.

The Credit Card Reform Act will also protect consumers against excessive fees and interest rates. It will: 1) prohibit “universal defaults” in which a credit card company imposes excessive increases in interest rates for events completely unrelated to the payment history on that account; 2) restrict excessive late fees; and 3) tighten regulations on credit card companies to ensure that they are not offering credit to high-risk cardholders without verifying their ability to pay.”

Representative Maloney’s Bill goes farther. It requires credit card issuers to provide 45 days notice of interest rate increases and allows them to cancel their accounts and pay the balances off at the prior interest rate for three billing cycles. It bans credit card company’s policies of “any-time, any reason” re-pricing of interest rates; prohibits “two-cycle billing”; and prohibits credit card companies from charging late fees whenever a card holder provides proof of having mailed their payment within 7 days of the due date.

Yesterday, representatives for credit card companies had a chance to testify, and said by basing rates on an individual's risk profile, they've been able to extend credit to more consumers. The proposed bill, they said, would jeopardize that. " You will indeed see two things happen -- an increased cost of credit and reduced access to credit to those people who need it most," said Carter Franke, marketing executive with JP Morgan Chase.

The Federal Reserve is also looking at industry practices and reviewing regulations that govern the credit card issuers. The fed is expected to impose new rules later this year.