Nov. 4 (Bloomberg) -- The U.S. House voted to move up the start date of a law that limits rate increases on existing credit-card balances, after lawmakers said banks are heaping finance charges on cash-strapped consumers.

The 331-92 vote today moves up the implementation of many credit-card rule changes under legislation that takes full effect next year. Democrats were responding to consumer complaints about interest-rate changes card issuers have made since President Barack Obama signed the Credit Card Accountability Responsibility and Disclosure Act into law May 22.

“The credit-card companies brought this on themselves,” said Representative Carolyn Maloney, a New York Democrat. “They have used the time to raise interest rates for any time, for any reason. Consumers are justly outraged.”

Changes that would be speeded up include a ban on retroactive rate increases on existing balances and protection from so-called hair-trigger rate changes for infractions such as sending a single payment a few days late.

Over-the-limit fees would be restricted, according to a statement from Maloney and payments would have to be applied to balances with the highest interest rates first. Penalty fees would have to be “reasonable and proportional to the omission or violation.”

Senate Bill

The bill would make most remaining parts of the credit-card law effective as soon as a similar bill is passed in the Senate and is signed by the President. Some of the provisions already are in force, more were due to be implemented in February and some next August. Lawmakers also amended the bill to exempt companies from the earlier deadline if they meet certain conditions.

The bill now goes to the Senate where a vote hasn’t been scheduled. Senate Banking Committee Chairman Christopher Dodd, a Connecticut Democrat, introduced separate legislation last month to freeze rates on existing card balances until the CARD Act takes effect. Card companies have been imposing “jacked-up rates” that “can quickly create crushing debt,” Dodd said Oct. 26.

Speeding up implementation of the law will be difficult for banks and may result in “unintended consequences,” Federal Reserve Chairman Ben S. Bernanke wrote in an Oct. 20 letter. Card companies need time to complete an orderly transition, Bernanke said.

‘Wholly Unnecessary’

“This is a wholly unnecessary and potentially destructive bill,” said Representative Virginia Fox, a North Carolina Republican, in a speech on the House floor. “People who take out credit cards don’t have a gun to their head. If you don’t like the rate, get another credit card.”

Maloney cited a Pew Charitable Trusts study examining nearly 400 cards advertised by banks and credit unions. Almost all of them -- 99.7 percent through the end of July -- allowed the issuers to change rates at any time, up from 93 percent in December.

The lowest-advertised interest rates rose by more than 20 percent, while the highest-advertised rates increased 13 percent, according to Pew.

Lawmakers are just “spinning their wheels” and tweaking the CARD Act won’t help consumers until there’s more competition in the industry, said Odysseas Papadimitriou, chief executive officer of Evolution Finance Inc., an Arlington, Virginia, company that runs CardHub.com, a Web site that compares card offers.

Market Control

Most of the U.S. market is controlled by eight major companies, Papadimitriou said, such as Bank of America Corp., JPMorgan Chase & Co. and Citigroup Inc. The banks are raising rates because of losses on bad debt, and consumers don’t have enough alternatives, he said.

“Have they overreacted to the law? Yes,” said Papadimitriou, a former credit-card executive with McLean, Virginia-based Capital One Financial Corp. “They’re terrified. They’re going too far in protecting themselves. There’s a lack of competition, and that makes companies behave in a way to take advantage of their customer base.”

The American Bankers Association opposes the bill, describing the industry’s efforts to implement the CARD Act on the original schedule as “an enormous task requiring the complete reworking of internal operations, risk-management models, funding calculations, employee training and computer coding.”

The legislation will “compound the problems of rate increases and credit pullbacks,” ABA senior vice president Kenneth Clayton said in a statement.

To contact the reporter on this story: Jeff Plungis in Washington at jplungis@bloomberg.net.

Last Updated: November 4, 2009 17:58 EST