House passes credit-card curbs, debate moves to Senate

From the WSJ.

Many Senate Democrats want stricter limits on card companies' ability to raise rates on consumers who are paying their credit-card bills on time. But most Senate Republicans want credit-card companies to have the right to establish a price for credit based on risk. That means adjusting terms if a consumer's credit quality has deteriorated -- even if that consumer hasn't been delinquent.

Industry officials say that is necessary to offer credit fairly to consumers. "If you cannot adjust for the behavior of a consumer or the risks that they pose, you're going to have to raise rates for everybody at the outset," said Kenneth Clayton, senior vice president of card policy at the American Bankers Association, an industry trade group. "That's unfair to consumers that have been playing by the rules because they're going to pay the price."

The House overwhelmingly passed legislation last week that would ban numerous practices, such as the retroactive interest-rate increases on existing balances, and require clearer disclosure and advance notice for changes to terms. Most of the House provisions mirror federal regulations, approved by the Federal Reserve in December, that take effect in July 2010. . . . .

Sen. Chuck Schumer (D., N.Y.) said companies are instituting "arbitrary credit-rate increases" -- with interest rates doubling or tripling "without any misconduct" by cardholders. "The companies are doing more of this now. And the feeling is they're doing more of it because they know your rules will go into effect" in more than a year, he told Mr. Bernanke.

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