Senate May Cap Credit-Card Interest Rates

The U.S. Senate may consider capping interest rates on credit cards, Banking Committee Chairman Christopher Dodd said as the lawmakers began debating amendments to consumer-protection legislation.

Dodd told reporters today that he is “inclined to do something” about an interest-limit, which isn’t in the bill currently. He said he is talking about the possibility with other senators.

“There’s a growing appetite for that,” said Dodd, a Connecticut Democrat. “There used to be a time you’d go to jail for rates like this.”

Dodd and Richard Shelby of Alabama, the banking panel’s senior Republican, reached an agreement over the weekend on the measure, which restricts how lenders increase credit-card rates and impose fees. The bipartisan support makes it more likely that revised credit-card rules will reach President Barack Obama’s desk this year.

Senator Bernie Sanders, a Vermont independent, will offer an amendment limiting all lenders to 15 percent interest rates, he said in a statement. That’s the same limit that applies to cards offered by credit unions, according to the statement.

The Senate doesn’t have an agreement limiting the number of amendments on the legislation, according to Dodd, who said he hopes a final vote will take place before the end of the week.

The Senate credit-card legislation would require lenders to apply payments to balances with the highest interest rates first. It would prohibit increasing a consumer’s rate on existing balances based on late payments to another lender, a practice known as “universal default.”

“When credit-card companies engage in practices that are designed to be deceptive and specifically trip up the consumer, then they feel deceived, and they want change,” Dodd said. “That’s what we’re attempting to do.”

45 Days’ Notice

The bill would require credit-card companies to give 45 days’ notice before increasing an interest rate. It would prohibit retroactive rate increases on existing balances unless a consumer was 60 days late with a payment. Companies would have to restore the original, lower rate if a cardholder stayed current six months after a late payment.

The bill also would require the Federal Reserve to monitor the cost and availability of credit and report to Congress every two years, Shelby said in a statement.

Limiting lenders’ ability to charge fees, allocate payments and manage risks will reduce the amount of credit available to consumers and businesses, the American Bankers Association said in a statement. The bill “will have a dramatic impact on the ability of consumers, small businesses, students, and others to get credit at a time when our economy can least afford such constraints,” Floyd Stoner, the association’s executive director of congressional relations and public policy, said in the statement.