A bill to curb sharp practices in the credit card business was on track for approval by the U.S. Senate as early as Tuesday, with President Barack Obama expected to sign it into law before the end of the month.
Enactment of the legislation would mark the crest of a political backlash rising for years against the card industry amid sudden interest rate increases, hidden fees and aggressive marketing programs that have angered consumers, analysts said.
"This is a tough bill and will hurt the profitability of credit card lenders in our view. But the legislation could have been much worse" for card companies, said Jaret Seiberg, financial services policy analyst at Concept Capital.
If enacted, it would be the first major financial regulation reform completed by Obama as he tries to rewrite the rules of banking and the markets to better protect consumers and investors, and prevent another credit crisis.
The House of Representatives passed its bill on April 30 by a 357-70 vote, and Obama on Thursday urged Congress to complete a final bill so he can sign it into law by the end of May.
Total U.S. credit card indebtedness has been falling lately. In March it stood at $945.9 billion. But that level was still up almost 25 percent from a decade ago, reflecting Americans’ love affair in recent years with plastic money.
Seventy-eight percent of U.S. families have a card and the average debt among families with a balance was $7,300 in 2007.
Senator Byron Dorgan on the Senate floor on Monday criticized card issuers, citing what he said was a marketing pitch by a major issuer for a pink, white and yellow "Hello Kitty" credit card aimed at children 10 to 14 years of age.
"I’d just love to know the person who thought this up and to say, ‘Are you nuts?’" Dorgan said. "What on earth are credit companies doing soliciting young kids to get a credit card?"
For major issuers — such as Capital One Financial, Bank of America, JPMorgan Chase & Co and Citigroup — the Senate bill’s impact is hard to isolate, and already largely factored into share prices, analysts said.
Late on Monday, the KBW Banks index was up 5.9 percent at 38.81, above an early-March lifetime low of 18.62, reflecting sentiment that the worst may be over for banks.
The Senate bill would limit, but not prohibit, card issuers’ ability to raise interest rates on existing balances.
It would require 45-day notice of most rate increases; limit rate increases for new and promotional-rate accounts; prohibit certain kinds of fees; and bar extension of credit to consumers under the age of 18, with narrow exceptions.
In addition, the bill would require more disclosure of the terms of card agreements; require periodic review of a cardholders’ interest rate and open the possibility of lowering it if warranted; and direct the Federal Reserve Board and other regulators to write more detailed rules.
The bill largely codifies new regulations already adopted last year by the Fed. On their own, those rules take effect in July 2010. But the legislation would speed things up.
Much of the Senate bill would take effect nine months after enactment. Some portions would take effect sooner.
The bill does not include a cap on interest rates, as some lawmakers wanted. Nor does it bar lenders from issuing cards to college students, although that is limited under the bill.
A push for an amendment to address "interchange fees" charged on card transactions failed. "Procedurally, there does not seem to be a way for them to offer the amendment," said Charles Gabriel, an analyst at Capital Alpha Partners.
Democratic Senate leaders had to fend off dozens of other amendments last week that slowed the bill’s expected passage, despite wide support for it in both parties.