CORRECT: US House Votes To Immediately Impose New Credit-Card Law

Of DOW JONES NEWSWIRES

WASHINGTON -(Dow Jones)- The U.S. House, in a slap at the credit-card industry, on Wednesday voted to immediately impose strict new credit-card rules currently set to take effect in February or later.

The 331-92 vote comes after lawmakers have been flooded with complaints from consumers furious that issuers raised interest rates, hiked minimum payments and lowered credit limits. Dozens of Republicans joined Democrats to approve the measure.

Lawmakers have portrayed the industry's actions as a last-ditch attempt to commit abuses that will soon be banned. But the new rules still give issuers wide latitude to raise interest rates and fees on new accounts and balances.

"The consumers are justly outraged and they've come to their Congress members and to this Congress asking for relief," said Rep. Carolyn Maloney (D., N.Y.), the bill's sponsor.

Under the legislation, several key provisions of a sweeping credit-card law passed in May would come into force immediately after enactment. Initially, lenders were given until February to implement most of the new rules.

"We gave them time--more time than I wanted to," said House Financial Services Chairman Barney Frank (D., Mass.). "They then used that time not to calibrate so they'd be ready for the effective date, but to start to jack up the rates."

The credit card law's accelerated effective date hinges on action in the Senate, where the appetite for such measures is unclear. Senate Banking Chairman Christopher Dodd (D., Conn.) has introduced legislation to freeze credit-card rates until the new credit-card rules take effect next year.

The new effective date in the House-passed bill wouldn't apply to card issuers with fewer than 2 million credit cards in circulation or to gift-card issuers.

The banking industry warns that speeding the new rules would expose lenders to class-action lawsuits because they won't have time to comply. They say it will also raise the risk of mistakes on monthly statements and systems failures at retailers during the Christmas shopping season.

To implement the new law "is an enormous task, requiring the complete reworking of internal operations, risk-management models, funding calculations, employee training, and computer coding necessary to service hundreds of millions of accounts every day," the American Bankers Association said in a letter urging lawmakers to oppose the measure.

The industry says the bad economy and the new credit-card law have forced lenders to raise rates and rein in credit. It has repeatedly warned Congress that the new rules would result in higher interest rates for new accounts and new balances. But consumer advocates and Democrats claim the industry has gone too far.

"The response is not in any way proportionate to the situation," said Ed Mierzwinski, a director at U.S. PIRG. "They're using the recession as cover for going nuclear."

Since August, issuers have had to comply with the law's ban on surprise rate increases. Card issuers must give borrowers 45 days' notice before raising rates on new and existing balances or changing any significant card terms. Consumers can opt out by closing the account and paying off the balance over time at the original rate.

In February or later, a host of other rules are currently slated to take effect, including a ban on raising rates on existing balances unless the cardholder is at least 60 days late making a payment. If the cardholder pays on time for the next six months, the old rate must be restored.

Also, lenders will be required to allocate proportionately payments among balances that carry different interest rates. Or they can credit payments entirely to the balance that carries the highest rate. And lenders will be required to keep fees "reasonable" and proportional to costs. These provisions, as well as new restrictions on marketing cards to students, would take effect immediately upon enactment instead of next year under the House-passed measure.

Raising rates retroactively on consumers who carry a balance and have paid their bills on time is the "single unfairest economic transaction I can think of that doesn't involve a pistol," Frank said.

The House agreed to tweak the credit-card law to ensure that consumers don't have to endure a 45-day waiting period in cases where a credit-card company is willing to decrease interest rates or other fees.

Many Republicans raised strong objections to the bill, saying it could stifle credit during an already troubling time for consumers.

"We're going to enact legislation that is simply pro-cyclical and will make the situation worse," said Rep. Jeb Hensarling (R., Texas).

-By Jessica Holzer and Sarah N. Lynch, Dow Jones Newswires; 202-862-9228; jessica.holzer@dowjones.com

  (END) Dow Jones Newswires
  11-04-092003ET
  Copyright (c) 2009 Dow Jones & Company, Inc.