Credit card reform helps economy

Imagine signing a contract with a bank for a loan, but the bank is allowed to increase your interest rate at any time for any reason, charge you late fees even if your payment is on time and divert payments away from high interest balances so that you can never really pay off the loan.

Most folks would tell the bank, "No thanks." But of course, almost all of us already have one of these deals — it's called a credit card.

Credit cards can be useful tools, providing us with payment convenience and revolving credit when we need it. However, banks have written the rules to strip wealth from working families, utilizing all sorts of tricky bait and switch tactics, exploding interest rates and outrageous fees.

That is now changing.

Earlier this year, Congress passed and the president signed the Credit Card Accountability, Responsibility and Disclosure Act, or CARD Act. This first-of-its-kind bill — which I was pleased to help pass out of committee on a 12-11 vote — finally places some common-sense limits on what credit card companies can do.

Starting this month, credit card companies will have to send your bill 21 days in advance to make sure you have enough time to receive it and send back payment. They will have to give you 45 days notice before changing the terms of your agreement so that you can decide whether or not you want to keep that card. And the banks now won't be able to unilaterally charge you more for money you already borrowed: They will have to give you the option of closing your account and paying off the balance at the existing rate.

The rest of the CARD Act will go into effect in February 2010. At that point, banks will be barred from arbitrarily increasing the interest rate on money you have already borrowed without requiring you to close your account. They will also periodically have to evaluate your account to determine whether you qualify for a reduction in rates. Also going into effect includes a ban on multiple over-the-limit fees during a single billing cycle, a requirement that payments be applied first to the balance with the highest interest rate and limits on aggressive marketing to young people.

This law starts leveling the playing field between consumers and powerful financial institutions, but there is much more we can and should do to ensure fairness throughout the financial marketplace. Most importantly, we must move quickly to create a strong Consumer Financial Protection Agency. This new agency would ensure that we have the ongoing, professional oversight of our consumer credit markets to prevent the proliferation of new tricks and traps. We shouldn't need landmark legislation like the CARD Act every time the financial industry thinks up new practices that are clearly abusive.

Our country does well when middle-class Americans do well. But for too long, unregulated consumer credit practices have been stripping wealth from our families, turning a useful tool into a destructive force. The new CARD Act reforms start restoring balance to our financial system so that it works for the best interests of America's families and America's economy once again.