The Credit Card Bill & You

Today the Senate passed a new Credit Card Bill, and if you use plastic, especially if you’re one of the estimated 10 million people who have had their rates arbitrarily raised since the first of the year, you’re probably going to be happy about it.

Essentially this law will end many of the practices that banks have used for years to squeeze more interest and fee income from consumers.

• It says that when you make a payment, it goes to pay off the balance with highest interest first. Until now, banks often did it the other way around.
• It says credit card companies can’t increase rates during the first year after you open an account. Currently they can change them pretty much any time.
• It says that card companies thereafter are required to give a 45-day notice before increasing rates: currently it’s 15.
• It says companies must also mail statements at least 21 days before the bill is due.
• It eliminates a practice called Double-cycle billing, which consumer advocates have long claimed unfair.
• It will require more disclosure of things like how much it costs in both time and money to pay off a debt when you only make minimum minimum payments.
• And here’s a novel approach to lending: it requires anyone under 21 to prove that he or she can repay the money before being given a card, or have a parent co-sign.

The new rules are slated to go into effect on 9 months after the president signs it, which could happen before the end of the month.

Of course, not everyone’s happy with the new law: The American Bankers Association says it will make it harder for some consumers to get credit and may raise the cost of credit for others. But for the vast majority of Americans, especially those who have felt abused by their banks, it’s all good. And as far as this consumer advocate is concerned, it’s about time.

UPDATE: President Obama signed this bill into law on May 22, 2009.