Amidst all the financial turmoil on Wall Street and in the credit markets lately, one could easily forget about money-related legislation that is quietly pending in Congress. Ranging from credit card reform to foreclosure assistance to identity theft prevention, these legislative initiatives could have major consequences for your money if passed and signed into law. While these bills won’t be going anywhere during President Bush’s last month in office, President-elect Obama can and likely will breathe new life into these proposals.
This article will describe some of the more significant money-related bills pending in Congress. You will also find links to resources that will allow you to conduct further research and track this legislation as it moves through Congress. In this regard, GovTrack is an invaluable resource for finding and tracking all federal legislation.
Credit card reform
There are several bills pending in Congress that would overhaul the consumer credit card market. Two credit card reform bills were introduced in 2008, one in the House and one in the Senate. The House version, called the Credit Cardholders’ Bill of Rights Act of 2008, was passed by the House on 23 September 2008. The Senate version, dubbed the Credit Card Reform Act of 2008, was introduced in March 2008 and has been referred to committee. While both bills offer somewhat different consumer protections, they both attempt to address what some view as predatory lending practices within the credit card industry.
In a nutshell, here’s what the House version would accomplish:
- Interest Rate Increases: The bill amends the Truth in Lending Act to prohibit a creditor from using certain adverse information, including information in a consumer report or any change in a consumer’s credit score, as the basis for increasing any annual percentage rate (APR) of interest on the consumer’s outstanding credit card balance. This provision would, for example, eliminate the universal default for credit already outstanding.
- Double-Cycle Billing: The bill prohibits a creditor from imposing interest on credit repaid within the interest-free repayment time period. This restriction would prohibit double cycle billing, which is a method of calculating the daily outstanding balance that often fails to give consumers credit for payments made during the last two billing cycles.
- Reports to Credit Agencies: The bill prohibits a creditor from furnishing information to a consumer reporting agency concerning a newly opened credit card account until the consumer has used or activated the credit card. One advantage here is that if a consumer decided to cancel the card before using it (because, for example, they were unhappy with the credit limit offered), they could do so before the card company had furnished information to the credit reporting agencies.
- Payment Allocation: The bill details mandatory pro rata payment allocations by a creditor. This provision is critical to those with credit card balances subject to different interest rates. For example, balance transfer offers are typically at 0%, but a cardholder may also have made purchases that are subject to high rate interest charges. Currently, credit card companies allocate principal payments to the 0% balance first, and then to the balance subject to interest rate charges. The bill would require credit card companies to allocate payments across both balances.
So would such a law help consumers? Some yes; some no. For example, limiting a credit card company’s ability to raise interest rates would certainly help those that fall on hard times. Today, when a credit card issuer determines that a cardholder is at greater risk of default, it can and often does raise interest rates in response to the increased risk. The pending legislation would make it much harder for a credit card company to do this.
On the downside, it could mean higher credit card interest rates for everybody. Just like a mortgage, a fixed-rate credit card generally will carry a higher interest rate than a variable-rate card, all other things being equal.
With foreclosures on the rise, we can expect to see a rash of federal assistance aimed at bolstering real estate prices. Such assistance undoubtedly will include, among other things, keeping people in their homes.
Currently, Congress has passed or is considering a number of foreclosure assistance related bills. The Housing and Economic Recovery Act of 2008 was enacted into law on 30 July 2008. Among other things, this law established the Home Ownership Preservation Entity Fund to fund the HOPE (Home Ownership Preservation Entity) for Homeowners Program, which will insure up to $300 billion for 30 year refinanced loans for distressed borrowers between 01 October 2008 and 30 September 2011.
Introduced in February 2008, the Foreclosure Prevention Act of 2008 would also address the foreclosure crisis. The big news here is that the bill permits a bankruptcy court to modify a mortgage in a Chapter 13 bankruptcy (individual reorganization). Under the bankruptcy laws enacted in 1978, such a modification is not permitted. Here’s a summary of this provision:
Authorizes a bankruptcy plan for individuals with regular income to: (1) modify an allowed secured claim secured by the debtor’s principal residence if the debtor’s income is insufficient to retain possession of the residence by curing a default and maintaining payments while the case is pending; (2) provide for payment of such claim for a period of up to 30 years; (3) set conditions for the addition of certain fees, costs, or charges to secured debt; and (4) waive any prepayment penalty on a claim secured by a debtor’s principal residence.
As with credit card reform, the Foreclosure Prevention Act of 2008 would help some and hurt others. Allowing a bankruptcy judge to modify the terms of a mortgage would save some homeowners from foreclosure, but it likely would increase the cost of mortgages for everybody because it would introduce some level of additional interest-rate risk to both fixed- and variable-rate mortgages.
Identity Theft Prevention Act
As one last example of pending legislation that could impact your finances, the Identity Theft Prevention Act was introduced in the Senate in 2007.
This bill provides three key measures in the fight against identity theft:
- Requires entities that maintain consumers’ confidential information to enforce a written program designed to secure that information.
- Requires these entities to notify consumers and, in certain circumstances reporting agencies, of any security breach that creates a reasonable risk of identity theft.
- Enables consumers to put a security freeze on their credit report. A security freeze prohibits a reporting agency from releasing your report for credit review purposes without your prior express authorization.
With President-Elect Obama’s plan to make the economy the number one issue when he takes office, we can expect a number of legislative actions that will impact our finances. The above three are some of the more significant bills pending in Congress, but as noted above, you can track any legislation you want quite easily with GovTrack.