Senate Passes Credit Card Bill

The Senate passes a stricter version of the bill passed by the House.

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The Senate approved the credit card bill today, which means President Obama will likely sign it into law as soon as the House and Senate reconcile their two versions of the legislation. Almost immediately, the American Bankers Association expressed its dismay:

Credit cards are a strong economic driver and are relied upon by consumers and small businesses to make payments and to bridge short-term financial gaps. The goal in the legislation should be to obtain the right balance: providing protections, while maintaining the important role of credit cards in providing loans to consumers and small businesses. Unfortunately, we believe the bill does not achieve that balance and will therefore cause an unnecessary decrease in credit availability.

Most importantly, this bill fundamentally changes the entire business model of credit cards by restricting the ability to price credit for risk. What has been a short-term revolving unsecured loan will now become a medium-term unsecured loan, which is significantly more risky. It is a fundamental rule of lending that an increase in risk means that less credit will be available and that the credit that is available will often have a higher interest rate. While the recent Federal Reserve rule also contained restrictions on pricing card credit for risk, this bill goes much further in this and other areas. We are concerned that the Senate bill will have a dramatic impact on the ability of consumers, students, and small businesses to obtain and use credit cards.

Will card companies start restricting credit even more than they already have? Will consumers stop taking on debt they can't afford? The predictions are as varied as kinds of things you can charge to a credit card.