The House gave final approval Wednesday to a bill that would prohibit credit card companies from arbitrarily raising interest rates on existing balances and charging certain fees.
With a 361-64 vote, the House ensured that President Obama would be able to sign the bill into law by Memorial Day, as he requested.
The House had approved a more diluted credit card reform bill last month but chose to send the stronger Senate version to the president instead. The Senate overwhelmingly passed its bill, written by Banking Committee Chairman Christopher J. Dodd (D-Conn.), on Tuesday.
The landmark credit card legislation will force the $960-billion card industry to reinvent itself and consumers to rethink how they use plastic.
The bill would prohibit card companies from raising interest rates on existing balances unless the borrower is at least 60 days late. If the cardholder pays on time for the following six months, the company would have to restore the original rate. On cards with more than one interest rate, issuers would have to apply payments first to the debts with the highest rates, which would help borrowers pay off their cards more quickly.
Card executives said the changes would force them to charge higher rates and annual fees to delinquent customers and those in good standing.
"This bill fundamentally changes the entire business model of credit cards by restricting the ability to price credit for risk," said Edward L. Yingling, the chief executive of the American Bankers Assn. He said that lending would become more risky and that, "It is a fundamental rule of lending that an increase in risk means that less credit will be available and that the credit that is available will often have a higher interest rate."
Scott Talbott, senior vice president of government affairs for the Financial Services Roundtable, an industry group, said available credit could be reduced by as much as $2 billion. Those with the weakest credit histories would be hardest hit.
The industry makes $15 billion annually from penalty fees, and one-fifth of consumers carrying credit card debt pay an interest rate above 20%, according to figures cited by the White House and compiled from the Government Accountability Office and the Federal Reserve.