A bill to amend the Truth in Lending Act, to prohibit universal default practices by credit card issuers, to limit fees that may be imposed on credit card accounts, and to require credit card issuers to verify a prospective consumer's ability to pay before extending credit to the consumer, and for other purposes.

Summary: Credit Card Reform Act of 2006 - Amends the Truth in Lending Act to prohibit a credit card issuer from using any adverse information concerning any consumer (including information contained in any consumer report, or any change in the consumer's credit score) as the basis for increasing any annual percentage rate of interest (APR) applicable to a credit card account under an open end consumer credit plan, or from removing or increasing any introductory APR.

Prohibits a credit card issuer, also, from changing the terms of a credit card contract or agreement under an open end consumer credit plan without written consumer consent.

Prohibits a credit card issuer from imposing adverse consequences for late payment if the cardholder's payment is postmarked or initiated by electronic funds transfer on or before the required postmark date in accordance with this Act.

Limits late payment and related fees to an amount reasonably related to the cost to the card issuer of consumer default, omission, or violation of the credit plan agreement.

Requires a credit card issuer to verify, when the account is opened or the credit limit increased, that the consumer will be able to make the scheduled payments based on a consideration of current and expected income, current obligations, and employment status.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Credit Card Reform Act of 2006''.

SEC. 2. PROHIBITION ON UNIVERSAL DEFAULT AND UNILATERAL CHANGES TO 
              CARDHOLDER AGREEMENTS.

    Chapter 4 of the Truth in Lending Act (15 U.S.C. 1666 et seq.) is 
amended--
            (1) by redesignating section 171 as section 173; and
            (2) by adding at the end the following:
``Sec. 171. Universal defaults prohibited
    ``(a) In General.--No credit card issuer may use any adverse 
information concerning any consumer, including any information 
contained in any consumer report (as defined in section 603) or any 
change in the credit score of the consumer, as the basis for increasing 
any annual percentage rate of interest applicable to a credit card 
account of the consumer under an open end consumer credit plan, or to 
remove or increase any introductory annual percentage rate of interest 
applicable to such account.
    ``(b) Exception.--The limitation under subsection (a) shall not 
apply to--
            ``(1) a credit card issuer that increases an annual 
        percentage rate of interest in accordance with a credit card 
        agreement that provides for rate changes according to changes 
        in an index or formula; or
            ``(2) the removal or increase in an introductory annual 
        percentage rate of interest applicable to the usage or payment 
        of such account because of actions or omissions of a consumer 
        that are directly related to such account.
    ``(c) Notice to Consumer.--The limitation under subsection (a) on 
the use of adverse information by a credit card issuer shall be clearly 
and conspicuously described to the consumer by the credit card issuer 
in any disclosure or statement required under subsection (a) or (b) of 
section 127.
    ``(d) Unilateral Changes in Credit Card Agreement Prohibited.--
            ``(1) In general.--No credit card issuer may amend or 
        change the terms of a credit card contract or agreement under 
        an open end consumer credit plan, unless the consumer has 
        provided specific written consent, in a separate document 
        signed or initialed by the consumer, to the change or amendment 
        of such terms.
            ``(2) Authority to payoff balances.--A cardholder shall 
        have the right to repay all existing balances under the terms 
        in effect when the balances were incurred.
            ``(3) Construction.--Termination of an account due to 
        failure to agree to a change in terms shall not constitute a 
        default under an existing cardholder agreement, and shall not 
        trigger an obligation to immediately repay the obligation in 
        full.''.

SEC. 3. CAP ON FEES CHARGED BY CREDITORS.

    (a) In General.--Chapter 4 of the Truth in Lending Act (15 U.S.C. 
1666 et seq.) is amended by adding at the end the following:
``Sec. 172. Limitations on late payment fees and other adverse 
              consequences
    ``(a) In General.--If a late payment fee is to be imposed with 
respect to a credit card account under an open end consumer credit plan 
due to the failure of the consumer to make payment on or before a 
required payment due date, the credit card issuer shall state clearly 
and conspicuously on the billing statement--
            ``(1) the date on which the payment must be postmarked, if 
        paid by mail, or by the date on which a consumer initiates a 
        payment using an electronic fund transfer (as defined under 
        section 903 of the Electronic Fund Transfers Act), in order to 
        avoid the imposition of a late fee with respect to the payment; 
        and
            ``(2) the amount of the late payment fee to be imposed if 
        payment is postmarked after such date.
    ``(b) Limitation.--No card issuer may, with respect to a credit 
card account under an open end consumer credit plan, impose a late 
payment fee, raise the annual percentage rate on the credit card 
account for late payment, or impose other adverse consequences for late 
payment if the cardholder's payment is postmarked on or before the 
required postmark date stated in accordance with subsection (a)(1).
    ``(c) Cap on Fees.--The amount of any fee or charge that a credit 
card issuer may impose in connection with any default, omission, or 
violation of the cardholder agreement, including any late payment fee, 
over the limit fee, increase in the applicable annual percentage rate 
of interest, or any similar fee or charge, may not exceed an amount 
that is reasonably related to the cost to the card issuer of such 
default, omission, violation, or similar event.''.
    (b) Conforming Amendment.--Section 127(b) of the Truth in Lending 
Act (15 U.S.C. 1637(b)) is amended by striking paragraph (12).
    (c) Clerical Amendment.--The table of sections for chapter 4 of the 
Truth in Lending Act (15 U.S.C. 1666 et seq.) is amended by inserting 
after the item relating to section 170 the following new items:

``171.  Universal defaults prohibited.
``172.  Cap on fees.''.

SEC. 4. VERIFICATION OF ABILITY TO PAY CREDIT OBLIGATIONS.

    Section 127 of the Truth in Lending Act (15 U.S.C. 1637) is amended 
by adding at the end the following:
    ``(h) Verification of Ability to Pay.--
            ``(1) In general.--A credit card issuer may not open any 
        credit card account for any person under an open end consumer 
        credit plan, or increase any credit limit applicable to such an 
        account, unless the credit card issuer has determined, at the 
        time at which the account is opened or the credit limit 
        increased, that the consumer will be able to make the scheduled 
        payments under the terms of the transaction, based on a 
        consideration of their current and expected income, current 
        obligations, and employment status.
            ``(2) Regulations.--The Board shall prescribe, by 
        regulation, the appropriate formula for determining the ability 
        of a consumer to pay and the criteria to be considered in 
        making any such determination for purposes of this subsection.
            ``(3) Prohibitions.--The Board, by regulation or order, 
        shall prohibit acts or practices in connection with any credit 
        card account under an open end consumer credit plan--
                    ``(A) that the Board finds to be unfair, deceptive, 
                or designed to evade the provisions of this title; and
                    ``(B) that the Board finds to be associated with 
                abusive lending practices, or that are otherwise not in 
                the interest of the consumer.''.

SEC. 5. EFFECTIVE DATES.

    The amendments made by this Act shall take effect 6 months after 
the date of enactment of this Act, except that the Board shall begin to 
propose such regulations as may be appropriate to implement such 
amendments on or after the date of enactment of this Act.