Representative Carolyn Maloney (D-NY)

Yesterday, the U.S. House of Representatives passed the Credit Cardholders’ Bill of Rights in a vote of 312 to 112. The passed legislation would limit surprise interest rate increases and fees charged to credit card holders. The bill faces an uncertain fate in the Senate amid the current credit crisis and Congress’ debate whether or not to move forward with the current $700 billion bailout.

“For too long card issuers have been allowed to do whatever they want for any reason,” said New York Rep. Carolyn Maloney (D-NY). “No other industry is allowed to raise the price of a product after a consumer has bought it.” Representative Maloney is the bill’s sponsor and has received praise from several consumer groups for the bill.

The Credit Cardholders’ Bill of Rights would prevent banks from retroactively increasing interest rates on credit card balances unless the account is more than 30 days past due. Banks would also be required to notify customers of interest rate increases 45 days prior to a rate increase. Cardholders would also have more time to pay their bill by receiving it 25 days before the due date versus the current 14 days. Mailing a payment 7 days before the due date would be considered “paid on-time” despite processing delays or other arbitrary times; helping consumers avoid late fees of up to $40. The bill also requires banks to apply payments towards balances proportionately, preventing banks from applying payments to lower interest rate balances first.

Banks oppose the bill citing that the legislation could limit their revenue from credit cards when institutions are already struggling from the lack of available capital brought on by the housing slump. The White House and House Republicans also oppose the bill, believing the new bill will restrict access to credit for many consumers and make credit more expensive due to a bank’s inability to adjust for risk and market conditions. The White House says it is concerned about unfair and deceptive practices, but said regulations are better suited to address problems than legislation.

The Federal Reserve typically handles unfair and deceptive consumer practices and has sought input from citizens on the matter this year. Credit card issuers could still face additional restrictions from the Federal Reserve by the end of this year. Among the largest credit card issuers are Bank of America, Capital One, Chase, Citigroup and Discover Card.