Republicans Swiftly Block Move to Freeze Credit Card Rates

Senate Republicans have effectively killed an effort to freeze credit card interest rates for the next three months, and it took just 13 words.

“On behalf of several senators on this side of the aisle, I object,” Republican Senator Thad Cochran, R-Mississippi, announced after an impassioned plea by Senate Banking Committee Chairman Chris Dodd, D-Connecticut, to take up and pass the Credit Card Rate Freeze Act.

The freeze would have imposed a stop to any hikes on current credit card balances, pending the full enforcement of credit reform laws in February. Dodd and other Democrats backed the measure, citing interest rate hikes and card cancellations by card issuers over the past few months.

Cochran’s objection effectively killed the rate freeze bill by putting it on hold, a procedural step that makes it virtually impossible for it to pass. With healthcare reform taking up much of the Senate’s time until Christmas, its consideration is highly unlikely.

The move also puts into further doubt that the Senate will take up a measure to immediately begin enforcing the Credit CARD Act of 2009. Such a bill already passed the House. 

From the start, the rate freeze faced an uphill battle. Some Democrats were likely to join Republicans in treating the measure as far-reaching, unnecessary and possibly worsening an already weak economy.  Their reasoning: A rate freeze on cards would cut into banks’ profits, and lending would slow again to levels of several months ago.

“This will provide us a window of about 12 weeks between now and around the first of February, during this holiday season, to just put a stop to these outrageous rates and fees being charged to people,” Dodd said on the Senate floor.

The Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009 was signed into law by President Obama last May and will mark a turning point for American credit card consumers and the banks and companies that issue those cards.

Here are some key highlights of the CARD Act:

Bans Unfair Rate Increases:
Financial institutions will no longer raise rates unfairly, and consumers will have confidence that the interest rates on their existing balances will not be hiked.

Bans Retroactive Rate Increases:
Bans rate increases on existing balances due to “any time, any reason” or “universal default” and severely restricts retroactive rate increases due to late payment.

First Year Protection:
Contract terms must be clearly spelled out and stable for the entirety of the first year.  Firms may continue to offer promotional rates with new accounts or during the life of an account, but these rates must be clearly disclosed and last at least 6 months.

Prevents Unfair Fee Traps:
Institutions will have to give card holders a reasonable time to pay the monthly bill – at least 21 calendar days from time of mailing.  The act also ends late fee traps such as weekend deadlines, due dates that change each month, and deadlines that fall in the middle of the day.