II 109th CONGRESS 2d Session S. 2655 IN THE SENATE OF THE UNITED STATES April 26, 2006 Mr. Menendez introduced the following bill; which was read twice and referred to the Committee on Banking, Housing, and Urban Affairs A BILL To amend the Truth in Lending Act, to prohibit universal default practices by credit card issuers, to limit fees that may be imposed on credit card accounts, and to require credit card issuers to verify a prospective consumer's ability to pay before extending credit to the consumer, and for other purposes.

1.

Short title

This Act may be cited as the Credit Card Reform Act of 2006.

2.

Prohibition on universal default and unilateral changes to cardholder agreements

Chapter 4 of the Truth in Lending Act (15 U.S.C. 1666 et seq.) is amended— (1)by redesignating section 171 as section 173; and (2)by adding at the end the following:

171.

Universal defaults prohibited

(a)

In general

No credit card issuer may use any adverse information concerning any consumer, including any information contained in any consumer report (as defined in section 603) or any change in the credit score of the consumer, as the basis for increasing any annual percentage rate of interest applicable to a credit card account of the consumer under an open end consumer credit plan, or to remove or increase any introductory annual percentage rate of interest applicable to such account. (b)

Exception

The limitation under subsection (a) shall not apply to— (1)a credit card issuer that increases an annual percentage rate of interest in accordance with a credit card agreement that provides for rate changes according to changes in an index or formula; or (2)the removal or increase in an introductory annual percentage rate of interest applicable to the usage or payment of such account because of actions or omissions of a consumer that are directly related to such account. (c)

Notice to consumer

The limitation under subsection (a) on the use of adverse information by a credit card issuer shall be clearly and conspicuously described to the consumer by the credit card issuer in any disclosure or statement required under subsection (a) or (b) of section 127. (d)

Unilateral changes in credit card agreement prohibited

(1)

In general

No credit card issuer may amend or change the terms of a credit card contract or agreement under an open end consumer credit plan, unless the consumer has provided specific written consent, in a separate document signed or initialed by the consumer, to the change or amendment of such terms. (2)

Authority to payoff balances

A cardholder shall have the right to repay all existing balances under the terms in effect when the balances were incurred. (3)

Construction

Termination of an account due to failure to agree to a change in terms shall not constitute a default under an existing cardholder agreement, and shall not trigger an obligation to immediately repay the obligation in full.

.

3.

Cap on fees charged by creditors

(a)

In general

Chapter 4 of the Truth in Lending Act (15 U.S.C. 1666 et seq.) is amended by adding at the end the following:

172.

Limitations on late payment fees and other adverse consequences

(a)

In general

If a late payment fee is to be imposed with respect to a credit card account under an open end consumer credit plan due to the failure of the consumer to make payment on or before a required payment due date, the credit card issuer shall state clearly and conspicuously on the billing statement— (1)the date on which the payment must be postmarked, if paid by mail, or by the date on which a consumer initiates a payment using an electronic fund transfer (as defined under section 903 of the Electronic Fund Transfers Act), in order to avoid the imposition of a late fee with respect to the payment; and (2)the amount of the late payment fee to be imposed if payment is postmarked after such date. (b)

Limitation

No card issuer may, with respect to a credit card account under an open end consumer credit plan, impose a late payment fee, raise the annual percentage rate on the credit card account for late payment, or impose other adverse consequences for late payment if the cardholder's payment is postmarked on or before the required postmark date stated in accordance with subsection (a)(1). (c)

Cap on fees

The amount of any fee or charge that a credit card issuer may impose in connection with any default, omission, or violation of the cardholder agreement, including any late payment fee, over the limit fee, increase in the applicable annual percentage rate of interest, or any similar fee or charge, may not exceed an amount that is reasonably related to the cost to the card issuer of such default, omission, violation, or similar event.

. (b)

Conforming amendment

Section 127(b) of the Truth in Lending Act (15 U.S.C. 1637(b)) is amended by striking paragraph (12). (c)

Clerical amendment

The table of sections for chapter 4 of the Truth in Lending Act (15 U.S.C. 1666 et seq.) is amended by inserting after the item relating to section 170 the following new items: 171. Universal defaults prohibited. 172. Cap on fees. .

4.

Verification of ability to pay credit obligations

Section 127 of the Truth in Lending Act (15 U.S.C. 1637) is amended by adding at the end the following: (h)

Verification of ability to pay

(1)

In general

A credit card issuer may not open any credit card account for any person under an open end consumer credit plan, or increase any credit limit applicable to such an account, unless the credit card issuer has determined, at the time at which the account is opened or the credit limit increased, that the consumer will be able to make the scheduled payments under the terms of the transaction, based on a consideration of their current and expected income, current obligations, and employment status. (2)

Regulations

The Board shall prescribe, by regulation, the appropriate formula for determining the ability of a consumer to pay and the criteria to be considered in making any such determination for purposes of this subsection. (3)

Prohibitions

The Board, by regulation or order, shall prohibit acts or practices in connection with any credit card account under an open end consumer credit plan— (A)that the Board finds to be unfair, deceptive, or designed to evade the provisions of this title; and (B)that the Board finds to be associated with abusive lending practices, or that are otherwise not in the interest of the consumer. .

5.

Effective dates

The amendments made by this Act shall take effect 6 months after the date of enactment of this Act, except that the Board shall begin to propose such regulations as may be appropriate to implement such amendments on or after the date of enactment of this Act.