II 

109TH CONGRESS 

2D SESSION S. 2655 

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. 

IN THE SENATE OF THE UNITED STATES 

APRIL 26, 2006 

Mr. MENENDEZ introduced the following bill; which was read twice and 

referred to the Committee on Banking, Housing, and Urban Affairs 

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. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Credit Card Reform 

5 Act of 2006’’. 


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1 SEC. 2. PROHIBITION ON UNIVERSAL DEFAULT AND UNI2 LATERAL CHANGES TO CARDHOLDER AGREE3 MENTS. 

4 Chapter 4 of the Truth in Lending Act (15 U.S.C. 

5 1666 et seq.) is amended— 

6 (1) by redesignating section 171 as section 173; 

7 and 

8 (2) by adding at the end the following: 

9 ‘‘§ 171. Universal defaults prohibited 

10 ‘‘(a) IN GENERAL.—No credit card issuer may use 

11 any adverse information concerning any consumer, includ12 ing any information contained in any consumer report (as 

13 defined in section 603) or any change in the credit score 

14 of the consumer, as the basis for increasing any annual 

15 percentage rate of interest applicable to a credit card ac16 count of the consumer under an open end consumer credit 

17 plan, or to remove or increase any introductory annual 

18 percentage rate of interest applicable to such account. 

19 ‘‘(b) EXCEPTION.—The limitation under subsection 

20 (a) shall not apply to— 

21 ‘‘(1) a credit card issuer that increases an an22 nual percentage rate of interest in accordance with 

23 a credit card agreement that provides for rate 

24 changes according to changes in an index or for25 mula; or 


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1 ‘‘(2) the removal or increase in an introductory 

2 annual percentage rate of interest applicable to the 

3 usage or payment of such account because of actions 

4 or omissions of a consumer that are directly related 

5 to such account. 

6 ‘‘(c) NOTICE TO CONSUMER.—The limitation under 

7 subsection (a) on the use of adverse information by a cred8 it card issuer shall be clearly and conspicuously described 

9 to the consumer by the credit card issuer in any disclosure 

10 or statement required under subsection (a) or (b) of sec11 tion 127. 

12 ‘‘(d) UNILATERAL CHANGES IN CREDIT CARD

13 AGREEMENT PROHIBITED.— 

14 ‘‘(1) IN GENERAL.—No credit card issuer may 

15 amend or change the terms of a credit card contract 

16 or agreement under an open end consumer credit 

17 plan, unless the consumer has provided specific writ18 ten consent, in a separate document signed or ini19 tialed by the consumer, to the change or amendment 

20 of such terms. 

21 ‘‘(2) AUTHORITY TO PAYOFF BALANCES.—A 

22 cardholder shall have the right to repay all existing 

23 balances under the terms in effect when the balances 

24 were incurred. 


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1 ‘‘(3) CONSTRUCTION.—Termination of an ac2 count due to failure to agree to a change in terms 

3 shall not constitute a default under an existing card4 holder agreement, and shall not trigger an obligation 

5 to immediately repay the obligation in full.’’. 

6 SEC. 3. CAP ON FEES CHARGED BY CREDITORS. 

7 (a) IN GENERAL.—Chapter 4 of the Truth in Lend8 ing Act (15 U.S.C. 1666 et seq.) is amended by adding 

9 at the end the following: 

10 ‘‘§ 172. Limitations on late payment fees and other 

11 adverse consequences 

12 ‘‘(a) IN GENERAL.—If a late payment fee is to be 

13 imposed with respect to a credit card account under an 

14 open end consumer credit plan due to the failure of the 

15 consumer to make payment on or before a required pay16 ment due date, the credit card issuer shall state clearly 

17 and conspicuously on the billing statement— 

18 ‘‘(1) the date on which the payment must be 

19 postmarked, if paid by mail, or by the date on which 

20 a consumer initiates a payment using an electronic 

21 fund transfer (as defined under section 903 of the 

22 Electronic Fund Transfers Act), in order to avoid 

23 the imposition of a late fee with respect to the pay24 ment; and 


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1 ‘‘(2) the amount of the late payment fee to be 

2 imposed if payment is postmarked after such date. 

3 ‘‘(b) LIMITATION.—No card issuer may, with respect 

4 to a credit card account under an open end consumer cred5 it plan, impose a late payment fee, raise the annual per6 centage rate on the credit card account for late payment, 

7 or impose other adverse consequences for late payment if 

8 the cardholder’s payment is postmarked on or before the 

9 required postmark date stated in accordance with sub10 section (a)(1). 

11 ‘‘(c) CA P ON FEES.—The amount of any fee or 

12 charge that a credit card issuer may impose in connection 

13 with any default, omission, or violation of the cardholder 

14 agreement, including any late payment fee, over the limit 

15 fee, increase in the applicable annual percentage rate of 

16 interest, or any similar fee or charge, may not exceed an 

17 amount that is reasonably related to the cost to the card 

18 issuer of such default, omission, violation, or similar 

19 event.’’. 

20 (b) CONFORMING AMENDMENT.—Section 127(b) of 

21 the Truth in Lending Act (15 U.S.C. 1637(b)) is amended 

22 by striking paragraph (12). 

23 (c) CLERICAL AMENDMENT.—The table of sections 

24 for chapter 4 of the Truth in Lending Act (15 U.S.C. 


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1 1666 et seq.) is amended by inserting after the item relat2 ing to section 170 the following new items: 

‘‘171. Universal defaults prohibited. 

‘‘172. Cap on fees.’’. 

3 SEC. 4. VERIFICATION OF ABILITY TO PAY CREDIT OBLIGA4 TIONS. 

5 Section 127 of the Truth in Lending Act (15 U.S.C. 

6 1637) is amended by adding at the end the following: 

7 ‘‘(h) VERIFICATION OF ABILITY TO PAY.— 

8 ‘‘(1) IN GENERAL.—A credit card issuer may 

9 not open any credit card account for any person 

10 under an open end consumer credit plan, or increase 

11 any credit limit applicable to such an account, unless 

12 the credit card issuer has determined, at the time at 

13 which the account is opened or the credit limit in14 creased, that the consumer will be able to make the 

15 scheduled payments under the terms of the trans16 action, based on a consideration of their current and 

17 expected income, current obligations, and employ18 ment status. 

19 ‘‘(2) REGULATIONS.—The Board shall pre20 scribe, by regulation, the appropriate formula for de21 termining the ability of a consumer to pay and the 

22 criteria to be considered in making any such deter23 mination for purposes of this subsection. 


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1 ‘‘(3) PROHIBITIONS.—The Board, by regulation 

2 or order, shall prohibit acts or practices in connec3 tion with any credit card account under an open end 

4 consumer credit plan— 

5 ‘‘(A) that the Board finds to be unfair, de6 ceptive, or designed to evade the provisions of 

7 this title; and 

8 ‘‘(B) that the Board finds to be associated 

9 with abusive lending practices, or that are oth10 erwise not in the interest of the consumer.’’. 

11 SEC. 5. EFFECTIVE DATES. 

12 The amendments made by this Act shall take effect 

13 6 months after the date of enactment of this Act, except 

14 that the Board shall begin to propose such regulations as 

15 may be appropriate to implement such amendments on or 

16 after the date of enactment of this Act. 

Æ 


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