WASHINGTON — Consumers who are paying more in interest because they have fallen behind on their credit card bills could regain their older, lower rates if they pay their bills on time for six months under a compromise proposal reached by senators seeking changes in laws governing the credit card industry.
The Senate proposal was brokered between Republicans, who say lenders should be able to take into account a person's behavior, and Democrats, who contend that the practice of hiking rates on past balances prevents consumers from climbing out of debt.
The agreement was included as part of a broader package on credit card reform, announced Monday by Senate Banking Committee Chairman Chris Dodd, D-Conn. The bill was expected to pass this week with President Barack Obama's support.
Dodd had originally proposed an outright ban on retroactive rate increases. But without Republican support, his bill was considered unlikely to overcome procedural hurdles in the Senate.
The latest proposal would prohibit lenders from increasing interest rates on past buys unless the cardholder has fallen at least 60 days behind. Lenders would also be required to review a cardholder's terms every six months.
"It makes a strong point to the industry that if they are going to change the terms of a card based on (risk) factors, it should be a two-way street," said Nick Bourke, manager of the Safe Credit Cards Project at the Pew Health Group.
Under the request by Republicans, the bill also would require the Federal Reserve to report to Congress every two years on the cost and availability of credit.
"Should this legislation become law, it is crucial that Congress carefully monitor its implementation and effect to ensure that this balance in design is also a balance in fact," said Sen. Richard Shelby of Alabama, the top Republican on the Banking Committee.
Debate on the bill comes as the Center for Responsible Lending estimated that about 10 million cardholders have seen their interest rates increase in the past six months for no particular reason. Many cardholders have seen increases of 10 percentage points or more, the group says.
The bill would go into effect nine months after enactment. The House passed its own version of the bill in April by a 357-70 vote.