The US Senate yesterday passed a credit card reform bill with bipartisan support, that restricts card companies from charging unexplained fees, or raising charges without proper notice.

The bill was passed in the House by a margin of 361 to 64 yesterday, following its adoption by 90 to 5 in the Senate earlier in the week.

"This is a victory for every American consumer who has ever suffered at the hands of a credit card company," said senator Christopher Dodd, chairman of the Senate Banking Committee.

"It was abusive; it needed to stop. It needed to change," he added.

"Most consumers feel overmatched in dealing with the credit card company, but today the little guy won," senator Chuck Schumer pointed out.

US President Barack Obama was sent the credit card bill for his approval by the Congress, which he is expected to do next week. (See: Obama's pledge to curb sharp credit card practices gets bill moving in US Congress)

So far, Credit card companies tend to hide most parts of the worst deals in the customer agreements in fine print.The bill contains relief from penalty fees and high interest rate. As per the new bill, card companies will no longer be able to raise rates without giving at least 45 days notice, or charge fees for paying bills by phone or online.

The card issuers could still impose penalty rates on customers who fall behind - 30 days in the House version and 60 days in the Senate's; however, they would no longer be able to lure customers with attractive rates, then double or triple those rates on old balances even when cardholders stay current.

They also will not be able to charge "over-the-limit" fees without the cardholder's consent.

Card issuers will also have to apply payments beyond the minimum to the highest-rate balances first, mail statements 21 days before bills are due, and keep promotional rates in effect for at least six months.

Oponents of the bill,  however, say that the new bill will deprive small time consumers, students and small businesses to obtain and use credit cards.

"This bill fundamentally changes the entire business model of credit cards by restricting the ability to price credit for risk," Edward L Yingling, president of the American Bankers Association, said after the vote.

But the industry has said that if the bill became law, as expected, it would be forced to recoup its lost revenue by raising annual fees and doing away with perks such as airline miles and "cash back" rewards for its more creditworthy customers.
 
"The restrictions on pricing imposed by the credit card bills will result in changes elsewhere, including a return of annual fees and a termination of rewards programmes," said an industry spokesman.

"Those who manage their credit well will be subsidising those who don't," he added.

According to the White House, total credit card debt has reached $963 billion, a 25 per cent jump over the past 10 years. The average amount of credit card debt among families holding a balance was $7,300 in 2007.

Penalty fees comprise a fair chunk of industry revenue. Credit card issuers collect $15 billion each year in penalty fees, which accounts for a tenth of total revenue.

The bill, which would go into effect one year after it is signed into law, is also stronger than a set of regulations on credit card practices developed by the Federal Reserve Board, which is expected to take effect in July 2010.