The Senate bill, sponsored by Dodd and Alabama Republican Sen. Richard Shelby, is viewed as more aggressive than the House version. Most strikingly, it would prevent lenders from raising interest rates on any account that is less than 60 days past due. The House version allows a rate increase after only 30 days.
The Senate measure, which goes into effect one year after it is signed into law, is also stronger than a set of regulations on credit card practices developed by the Federal Reserve Board. Those take effect in July 2010.
The Senate version would also regulate retail gift cards, preventing companies from charging excessive and hidden fees if the card is not used within a short period of time. The bill would require such cards to be viable for five years. The House bill does not address gift cards.
The bill's advocates were ecstatic. "It has taken 10 years to get to this point," said Pamela Banks, senior policy counsel with Consumers Union. "I think consumers can breathe a sigh of relief."
The credit card industry has fought the bill from the start, saying the regulations would tighten credit available to consumers. "The Senate greatly restricts the ability of banks to tailor credit terms to each cardholder," said Scott Talbott, a lobbyist for the Financial Services Roundtable, an industry trade group. "This will result in a restriction of credit." According to the White House, total credit card debt has reached $963 billion, a 25 percent jump over the past 10 years. The average amount of credit card debt among families holding a balance was $7,300 in 2007.
Penalty fees make up a fair chunk of industry revenues. Credit card issuers collect $15 billion each year in penalty fees, which accounts for a tenth of total revenues.
The industry has said that if the bill became law, it would be forced to recoup its lost revenue by raising annual fees and doing away with perks such as airline miles and "cash-back" rewards for its more credit-worthy customers.
"The restrictions on pricing imposed by the credit card bills will result in changes elsewhere - including a return of annual fees and a termination of rewards programs," Talbott said. "Those who manage their credit well will be subsidizing those who don't." Schumer acknowledged that he expected the industry to take a hit. "It won't be as profitable as it was, but those profits were way out of line," he said.
