Credit card curbs near final showdown

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WASHINGTON (CNNMoney.com) -- A bill that targets credit card rate hikes and fees is headed for a final showdown in the Senate as key lawmakers negotiate a possible compromise measure.

The issue, which could go to the Senate floor this week, has grown increasingly popular, especially since President Obama and top White House advisers got involved in negotiations a few weeks ago.

"The president has created a strong impetus for immediate action," said Travis Plunkett with the Consumer Federation of America.

Capitol Hill veterans say they expect the Senate to, at minimum, pass a bill that looks a lot like legislation that the House passed by a 357 to 70 vote last week. But the final shape of the bill depends on negotiations underway among key senators trying to reach a compromise.

The House bill, which won 105 Republican votes, cements into law many changes to credit cards practices that the Federal Reserve passed last year. Among them: preventing credit-card issuers from hiking interest rates based on nonpayment of unrelated bills.

However, the Fed changes don't go into effect until July 2010 and could be more easily undone than any consumer protections passed by Congress, proponents of the bill say.

The Senate bill is tougher than the House version. Senate Banking Committee Chairman Chris Dodd, D-Conn., is continuing to push his proposal after it eked out of his panel with all Republicans and one Democrat voting against it.

Dodd is working on a compromise with the top Republican on the Banking Committee, Sen. Richard Shelby, R-Ala.

Some Republicans have echoed banking industry concerns that too harsh a bill could cut into the availability of credit cards, especially for those with less-than-stellar credit history.

"Our concern is that as policymakers move forward, that they strive to find the right balance between enhancing consumer protection and ensuring that credit cards remain available," said Peter Garuccio of the American Bankers Association.

Some of the major sticking points include provisions of Dodd's bill that would:

• Make the effective date of the bill nine months after passage of the bill; the House bill would take effect 12 months later or in July 2010.
• Limit "dormancy" fees on gift cards not redeemed after an extended period of time; the House bill doesn't address gift cards.
• Prevent interest rate hikes on consumers who are late on their payments; the House bill and Fed rules limit interest rate hikes but allow them when a payment is 30 days late.

Another big hang-up involves the issue of cardholders who face two different sets of interest rates on their card balance.

Cardholders who roll over debt from older cards to take advantage of low interest rates on new ones sometimes face two different rates. Some card companies' first credit payments against the lowest interest rates, which means consumers continue racking up finance charges on the highest interest rates.

The House bill would match new Fed guidelines ensuring that balance repayments are credited proportionally, giving consumers a chance to whittle down debt accrued at the highest interest rates.

Dodd's bill forces any payment to be entirely deducted from the balance at the highest interest rates. He is pushing to keep that measure in the final Senate bill, according to those familiar with negotiations.

The Senate was expected to start discussing the issue later this week, but a Senate staffer said it could also get pushed back to early next week.

The House sponsor of the credit card legislation, Rep. Carolyn Maloney, D-N.Y., said Obama told her he hoped to sign the legislation into law before Memorial Day.