Bill Seeking Cap Rate Increases in Credit Cards Likely to Be Rejected

Lawmakers are set to meet on January 27 to discuss and vote upon another legislation that is seeking to further regulate the credit card industry.

Sponsored by Congressman Louise Slaughter (D-New York) and Congressman John Tierney (D-Massachusetts), this bill entitled Renewing America’s Commitment to Consumers Act contains, among others, provisions that would limit credit card penalty fees to $15 and put interest rate caps at 16%. However, some industry insiders expressed that this bill is likely not to pass.

At the Senate, Sen. Bernard Sanders also introduced a similar bill that would limit interest rates. It was rejected garnering only 33 votes; 27 votes short of the 60 needed.

In a press release last November, Slaughter said that credit card companies had exploited people by increasing rates up to 30%. She also stated that this bill would “provide flexibility for market and lending conditions by allowing for temporary increase in the rate cap, only in extraordinary circumstances and upon regulatory findings” aimed at protecting consumers.

Those who oppose this proposed law, in all likelihood, would cite a record plunge of $17.5 billion that consumer credit took as contained in a Federal Reserve’s report. Some lawmakers also see the latest effort as disadvantageous for small businesses and the economy.

Another factor that would not go untouched is the economic condition which is being blamed much for this credit crunch. Since the recession begun, banks were stricter in their lending standards and card holders were charging less on their cards.

Aware that some of the provisions of the Credit CARD Act of 2009 include prohibitions to raise interest rates if a card holder pays on time, some issuers have started raising fixed rates. The new federal law, which was signed on May 22, 2009 will be fully implemented on February 22.

In the wake of said law’s implementation, some banks and credit card companies have started to shift a large portion of their customers to variable rates. This is because reforms would not be able to touch cards which are based on variable indexed rates. Citigroup, one of the nation’s largest credit card issuer, had written policy notices to its customers that different variable annual percentage rate (APR) for purchases are being hiked to the country’s prime rate plus 12.99%. It also sets-out a minimum of 18.99 annual percentage rates.

According to banks, however, further regulation would hinder credit access for most consumers. A spokesman from the American Bankers Association (ABA) stated that over-regulation would upset the balance between creditors and card holders as such a move would limit access credit.