S. 414, the Credit CARD Act: Why AFFIL Likes It

AFFIL and our Partners are supporting S. 414, the Credit CARD Act introduced by Senator Chris Dodd.  This bill will be “marked up” by the Senate Banking, Housing and Urban Affairs Committee next week.  Last year the Senate did not address credit cards at all, though the House did, so this is a big step forward.

Below is what we like about the bill.  Thanks to Consumer Action for providing this nice summary!

S. 414 eliminates “any-time for any reason” increases in interest rates and terms, and bars credit card issuers from increasing interest rates on cardholders in good standing because of a problem with another lender (universal default).

It would prevent issuers from changing the terms of a credit card contract for the length of the card agreement and allow customers who close their accounts to pay under the existing terms.

The bill would require interest rate increases to apply only to future credit card debt and ensure that payments are first applied to the credit card balance with the highest rate of interest, to minimize finance charges.

The bill would get rid of many traps, including:

• early deadlines for credit card payments
• fees to pay a credit card by mail, telephone, electronic transfer, or any other way
• multiple over-limit fees for exceeding a card limit

The bill requires issuers to offer consumers a fixed credit limit that can’t be exceeded. It would ensure that issuers lower penalty rates after six months, if the cardholder has no further violations, and that cardholders will always be given 45 days’ warning of any allowable interest rate increases.

If passed, issuers would be required to provide disclosures to consumers upon card renewal when the card terms have changed.

The bill would require all applicants under 21 to provide:

• the signature of a parent, guardian, or other individual who will take responsibility for the debt,
• proof that the applicant has an independent means of repaying the credit card debt, or
• proof that the applicant has completed a certified financial literacy course

In addition, young people who are at least 18, but not yet 21, must make a proactive choice (“opt in”) if they want to receive credit card solicitations.