Credit Card Companies in US Face New Limits

This is the VOA Special English ECONOMICS REPORT.

A bill to place new restrictions on the credit card industry in the United States won final approval this week in Congress. The measure went to President Obama to sign into law with popular support, except among banks.

Credit card companies will have to inform cardholders forty-five days before they raise interest rates or change other important terms. The new act will also bar companies from raising rates on existing debts unless payment is at least sixty days late.

Also, companies will have to send out billing statements at least twenty-one days before a payment is owed. They will have to tell how long and how much it would take to pay off a card if the holder makes only the lowest monthly payment. And they will have to write their cardholder agreements clearly and publish them online.

These changes, however, will not take effect for nine months.

President Obama recently said it was time for credit card reform:

BARACK OBAMA: "Instead of an 'anything goes' approach, we need strong and reliable protections for consumers. Instead of fine print that hides the truth, we need credit card forms and statements that have plain language in plain sight."

Credit card companies say the changes will only reduce the availability of credit. These come at a time of recession when banks are reporting billions in losses in their credit card divisions.

The president of the American Bankers Association says the legislation "changes the entire business model of credit cards." Edward Yingling says it restricts the ability to price credit for risk -- in other words, to charge more for those more likely not to repay their debts.

Lots of people pay off their credit cards in full each month to avoid finance charges. But industry experts say card providers might now start charging new fees for all cardholders. And, they say, companies could raise their interest rates.

Americans held nine hundred forty-six billion dollars in credit card debt at the end of March. That was down from last year, but still about twenty-five percent more than ten years ago.

Elizabeth Kiss is a personal finance specialist with Purdue University in Indiana. She says the main value of the new credit card act is that it "provides an opportunity for consumers to have more information."

But, she says, consumers have to make their own informed decisions. In her words, "We need to know how using credit fits into our plans and goals."

And that's the VOA Special English ECONOMICS REPORT, written by Mario Ritter. I'm Steve Ember.