The House voted today to hasten the enactment of fresh rules for credit card companies after constituents complained of a drastic rise in interest rates and steep new fees.

The bill, approved 331-92, will force credit card companies to meet the terms of the new rules at once unless they agree to stop increasing interest rates and fees.

The bills chances in the Senate are weak; where several Senators worry that a short deadline would hurt the industry and limit the availability of already scare credit.

All the same, Wall Street seemed to take notice of the House’s vote, sending bank stocks tumbling in the last hour of trading today immediately following the House vote

Rep. Barney Frank, D-Mass., the chairman of the House Financial Services Committee, was quoting as saying “This is both real and a lesson to them”. Many feel this is a warning to the banks to back off their predatory practices.

The Credit Card Reform Act was signed into law earlier this year and was designed to protect consumers by regulating interest rate increases, the issuance of cards to people under 21, and the way information and what information is presented in communications from lenders. The downside was many in the Senate felt the rules were too harsh, so the banks were given 9 months to prepare for the changes. Instead they used the 9 months to wring consumers dry while it was still legal. Recent studies have shove that interest rates have risen by 20% in the past year on average. It seems odd that the banks argued that they needed months to enact the new rules, but have the business agility to enact rate increases and credit limit reductions almost instantaneously.

There’s been a lot of talk recently about identity theft. With identity theft rising 22% in 2008 over 2007, with an average cost of over $500 to repair the damage, being proactive it becoming more and more necessary.

One option is a credit monitoring service that alerts you anytime there is a change in your credit report. Many people find this overkill though, because there are many legitimate changes that take place in your credit report. The last thing we all need is more spam, and a lot of times this is what it seems like credit monitoring notifications devolve into. There is a less intrusive solution though, for people who still want protection, but not annoyance. Put a credit freeze on your credit files with the three major bureaus.

What a credit freeze does, essentially, is allow your current creditors, the ones you already have an established relationship with, to view your information, but new creditors cannot view your information without your authorization. This protects you because most forms of identity theft involve the criminal opening new accounts with your identity. If they apply for a new account with your biographical information, then lenders is most likely going to want to review your credit report before making a decision to extend credit—and when they do you’ll know, alerting you to the criminal act before any damage is done.

If this is something that sounds useful for you, there’s a few things you should know going in. First, there is typically a moderate cost associated with setting up the credit freeze. You’ll have to set it up with each of the credit bureas, TransUnion, Equifax, and Experian, and pay each of them separately. Second, you’ll need to protect your security information, because when the times comes that you need to lift the freeze to apply for credit, you’ll need to call the bureas and provide them with your secret passwords to have it lifted. They’ll also usually access a small fee for lifting the freeze temporarily as well.

Be aware though, a credit freeze is only going to protect you from thieves that try to open new accounts with your identity. A freeze won’t do a thing to stop the criminal who steals your wallet from using your debit card, so you still need to remain vigilant with your accounts, checking each statement for suspicious usage.

If you want to know more about this, you can visit the Consumer’s Union site.

By Eva Norlyk Smith, Ph.D.

The Credit CARD Act signed into law in May of this year aimed to protect cardholders from unfair and abusive credit card practices. Unfortunately, as most all cardholders know first hand by now, credit card companies have been raising interest rates aggressively in advance of the enactment of the new law, in an effort to minimize the impact of some of its provisions.

Well, there may be good news. If your interest rate has been raised anytime after January 1, 2009, credit card companies could be required to lower the interest rate back down, once an important new provision of the new Credit CARD Act steps into effect.

Congress put a bit of a poison pill into the Credit CARD Act, a.k.a. section 101(c). The section requires credit card companies to regularly review interest rate increases they make on credit cards, and lower rates back down, if the cardholder’s risk profile or general market conditions have improved. The interest rate reviews will step into effect in August 22, 2010. Most significantly, the reviews are to include credit card interest rate hikes dating back all the way to January 1, 2009.

Credit card companies are further required to set up and maintain “reasonable methodologies” for the interest rate review, and undertake reviews at least every six months. Based on the review, if any risk factor has declined, the card issuer shall reduce the annual percentage rate previously increased. Card issuers will also be required to provide a written notice of future interest rate increases, including a statement with the reasons for the interest rate increase.

That is the good news. The bad news is that the law leaves plenty of uncertainties. Most notably, it says nothing about how much the interest rate reduction should be, or whether credit card companies will be required to reset interest rates to their previous levels. It also leaves out any discussion about which criteria card issuers should use to go about determining what constitutes “reduced risk.”

These specifics and other details of how 101(c) will be implemented are left to the Federal Reserve Board to determine, as the nation’s primary financial regulatory agency. The Fed is required to issue rules for how the interest rate reviews are to be conducted by February 22, 2010, six months before the interest rate reviews become effective.

Disturbed by the recent interest rate hikes on credit cards, Senator Chris Dodd, Chairman of the Senate Banking Committee, recently sent a letter to Fed Chair Ben Bernanke along with the heads of key regulatory agencies. In the letter, Dodd called on the Federal Reserve Board to provide tough, clear specifics for what would be required by the interest rate reviews. He further called on the agencies charged with enforcing the Credit CARD Act to hold the credit card companies strictly accountable for conducting thorough reviews and decreasing rates.

Dodd asked Fed Chair Ben Bernanke to immediately notify credit card companies that they will be held accountable for all interest rate increases since January 1, 2009, and will be subject to the review requirement once it takes effect.

According to Senator Dodd, the January look-back provision was designed expressly as a means to deter card issuers from raising interest rates before the provisions of the Credit CARD Act take effect. “However,” Senator Dodd states in his letter to the Fed Chair, “the look-back provision will serve as a deterrent only if it will be implemented and enforced effectively.”

In view of the aggressive rate hikes that have hit consumers over the last six months, Section 101(c) could turn out to be one of the more important parts of the Credit CARD Act. Whether or not the regular interest rate reviews will have any teeth, however, will ultimately boil down to the criteria the Fed Reserve Board lays out for conducting the reviews and determining how much interest rates should be lowered.

We won’t know the details about that until the Fed issues the guidelines for interest rate reviews, sometime on or before February 22, 2010. After that, there will be a required public comment period, during which the public—and that means you and I—will be able to weigh in on whether or not the rules for interest rate reviews deliver on the intention of the law: to protect consumers against arbitrary and unreasonable interest rate increases.