‘Bill of Rights’ for credit cardholders

In the wake of increasing concerns about the ongoing mortgage crisis and the effectiveness of the $168 billion economic stimulus package to prevent an economic recession, Representative Carolyn Maloney (D-NY), Chair of the Financial Institution and Consumer Credit Subcommittee, introduced a bill on Thursday, February 7, that focuses on another worrisome portion of consumer debt - credit cards.
The measure known as the “Credit Cardholders Bill of Rights Act of 2008” would establish additional federal regulation and oversight of credit card lending practices by requiring banks to provide greater disclosure when changing interest rates and contract terms, as well as limiting fees associated with late or partial payments and exceeding credit limits.
Critics of the credit card industry blame the lack of strong oversight for contributing to the growing - and often unmanageable - amounts of credit card debt many consumers now hold.
A recent Federal Reserve survey of consumer credit estimated that total use of revolving credit lines jumped 7.8 percent in 2007 from the previous year. A separate Federal Reserve study also indicates that credit card default and delinquency percentages increased steadily over the same two-year period.
The Maloney bill calls for prohibiting the “universal default” policy across the industry.
In a statement of support for the measure, several consumer advocacy groups hailed its importance as a first step towards comprehensive credit card reform.
The measure would also help mitigate some of the negative effects resulting from the bankruptcy reforms enacted in 2005, which were strongly supported by the credit card industry, noted Ed Mierzwinski, spokesperson for the consumer advocacy group U.S. Public Interest Research Group (US PIRG).
The 2005 reforms introduced more stringent tests for determining whether a borrower could declare bankruptcy and discharge outstanding debts.
Homeowners would almost certainly welcome the bill’s provisions as an additional form of relief as they juggle several forms of debt. Stanley Raj, vice president of the Inter-Community Civic Association in Richmond Hill, realized that many of the homeowners in his neighborhood facing foreclosure were also struggling with their credit card debts, when they described their total monthly payments.
He recalled one member, who after initially receiving an interest rate of 7 percent on his credit card, missed a single payment recently. The lender immediately quadrupled the card’s interest rate to over 28 percent.
When asked about the impact the bill would have on the economy, Representative Maloney wrote via email, “In recent months, the U.S. Congress has succeeded in passing major mortgage reform legislation and an economic stimulus plan. Both of these important steps will help get our economy back on track, but we cannot overlook credit card reform - it’s a critical part of the equation.