In the most sweeping changes to the credit card industry in 40 years, President
"With this bill we are putting in place some common sense reforms designed to protect consumers," Obama said at a signing ceremony at the
"We're not going to be giving people a free pass and we expect consumers to live within their means and pay what they owe. But we also expect financial institutions to act with the same sense of responsibility that the American people aspire to in their own lives," he said.
The new law — which includes restrictions on interest rate increases and credit offered to college students — deals a blow to the banking industry, which has lobbied aggressively against tighter regulation. At the same time, it provides less than a complete win for consumers because it doesn't cap interest rates or fees.
The legislation "is not going to be a hanging for banks, but I think Congress has collared them and are bringing them in," says Robert McKinley, founder of CardTrak.com, which consults with banks. "It's been the Wild West for the card industry for a long time."
Marcia Sullivan, director of government relations for Consumer
"I think that every single company that offers a credit card is reassessing its cost," says Sullivan. Issuers will be "reassessing what they do and how they do it."
The law's impact will be felt by most households in America. About 90 million households carry credit cards, with an average debt load of more than $10,500, according to CardTrak.com. The curbs, which mostly take effect in nine months, deal with controversial practices including:
•Interest rate increases. Issuers can generally raise rates on existing credit card debt only if consumers have paid their bill more than 60 days late.
•Penalty fees. Issuers can't charge an over-limit fee unless consumers have asked for this additional credit. Banks also can't impose late fees if they delayed crediting a payment.
•Marketing to college students. Banks can't extend credit cards to people under 21 without verifying their ability to pay or getting their parents' permission.
The law comes on the heels of consumer outcry about increases in credit-card rates and fees during the downturn. Banks have said that higher funding costs, along with surging loan delinquencies and defaults, forced them to reassess card risk.
The problem is, banks' actions have only made it harder for consumers to pay their bills. In the first quarter of 2009, the latest data available, credit card delinquencies hit an all-time high of 6.5%, according to the
Susanna Montezemolo, a vice president at the Center for Responsible Lending, an advocacy group, says because the law is a "compromise piece of legislation, there are certainly other areas where it could be made stronger." Still, Montezemolo says that consumers groups are generally "thrilled" that borrowers will have new rules of the road for credit cards.
