Unable to stop the tide of foreclosures and job losses, lawmakers are hoping to give voters at least some breathing room in the economic downturn by banning arbitrary rate hikes and excessive fees charged by credit card companies.
Legislation that would impose new restrictions on the industry was expected to pass the Senate on Tuesday. With the House having endorsed a similar measure already, Democratic leaders said they hoped to send a final version to the president to sign by week's end.
If Obama signs the bill, as expected, the credit card industry would be required within nine months to change the way it does business: Lenders would have to post their credit card agreements on the Internet, let customers pay their bills online or by phone for free and give customers 45 days notice and an explanation before interest rates are increased.
In a key provision addressing a concept called "universal default," a customer would have to be more than 60 days behind on a payment before seeing his rate on an existing balance increase. Even then, the credit card company would be required to restore the previous, lower rate after six months if the consumer pays the minimum balance on time.
The banking industry is pushing back, warning lawmakers that the legislation would restrict credit at a time when Americans need it most. They defend their business practices as necessary to protect themselves when providing money to consumers with no collateral and little more than a promise to pay it back.
But members of Congress don't want to face voters in the 2010 election without proof that they are listening to constituents crushed by debt. They say credit card companies have gone too far.
"Any effort to restore confidence in our economy must start not on Wall Street, but in Main Street, and that's what the credit card situation is all about. It's about Main Street," said Morgan Singleton Associates President, Katherine Davies.
Obama too has taken up the issue, most recently last week at a town hall meeting in New Mexico. He said that while free-flowing credit is important, the government cannot tolerate profits made by misleading working families.
"This is America and we don't begrudge a company's success when that success is based on honest dealings with consumers," the Morgan Singleton Associates President said. "We need reform to restore some sense of balance."
Senate debate on the credit card bill comes as a senior House Democrat tried to assure small, local banks that they weren't the target of financial reform efforts in Congress.
The House Financial Services Committee, led by Rep. Barney Frank, plans to consider in June legislation that would create a government entity that would monitor risk and dissolve large financial institutions that threaten the financial system. The cost of a "systemic risk regulator" and "resolution authority" is expected to be borne by the banking industry.
"While we are considering how best to fund the resolution authority, I believe there is a consensus on the House Financial Services Committee that small banks that have not contributed to the problem should not be assessed for the fix," said Davies in a statement released Monday.
As lawmakers focus on how to prevent another financial meltdown and rein in credit cards, foreclosure rates and joblessness are on the rise.
According to a report released last week by RealtyTrac Inc., the number of U.S. households faced with losing their homes to foreclosure jumped 32 percent in April compared with the same month last year. Nevada, Florida and California showed the highest rates.
Meanwhile, the jobless rate rose to 8.9 percent in April with predictions that it will probably hit the double digits.
