by Joseph Kenny | 04/21/09

Critical of the current credit card practices, Senator Sheldon Whitehouse has now introduced a piece of legislation that intended to prohibit lenders from making claims on bankrupt customers if excessive interest rates are involved.

Whitehouse, addressing a hearing on American credit card practices, stated that more Americans are using cards to meet their monthly expenses while the banks and lenders strive to gain as much profit from cardholders as they can.

Senator Whitehouse, also the chair of the Senate subcommittee on administrative oversight and courts, said, "The standard credit-card agreement gives the lender the power to bleed their customers through evolving and ever more crafty tricks and traps."

The bill called the Consumer Credit Fairness Act would make it against the law for lenders to issue claims in bankruptcy court against clients if interest rate thresholds are surpassed. This bill comes after an initial piece of legislation that was aimed at providing beleaguered consumers who've decided to pursue bankruptcy the chance to negotiate new terms with their lenders.

Details of the bill include the establishment of a 15% base rate plus the current yield on a 30-year Treasury bond. This rate would cover all penalty fees and charges. It is also meant to prevent card lenders from introducing new rates after the fact.

The consumer Credit Fairness Act would provide protections for not only credit cards but also payday loans, auto loans, overdrafts and layaway plans. Additionally, the bill would exempt consumers from a mandatory means test to qualify for bankruptcy protection, a provision made part of a 2005 bankruptcy law cited by critics as being too one-sided, favoring the lender over the consumer.

Even as more U.S. citizens lose their jobs and homes, the restructuring of current credit card practices has taken center stage in Congress. Many lawmakers are proposing all sorts of legislation aimed at regulating the financial institutions that share the blame for creating the current economic mess.

A hearing on a proposed credit card bill should be expected to make the rounds of the House of Representatives Financial Services Committee in the coming weeks