Congress appears to be in the mood to reform credit cards. Indeed, in the wake of populist outrage over the vagaries of big banks in the run up to and after the global financial crisis, Congress is trying to appear as though it is getting things done on behalf of the people it is supposed to represent. The Senate just passed new credit card rules that have more teeth than those passed last December by the Fed, and the credit card industry is not happy about it.

While there are a number of changes to credit card regulations (including notice for changes to terms and when statements must be mailed out), my favorite changes have to do with interest and fees:

Credit card issuers must credit payments toward higher interest debt first. If you have two balances, one at a promo rate and one at a higher rate, the credit card company used to apply your payment to the lower rate debt, leaving your higher interest rate to continually punish you and reduce the amount of principle you were paying. Now, though, efforts have to be made to pay down the principle of the higher rate debt before moving on to the lower rate debt.

Credit card issuers must reject over the limit transactions, unless you give permission for them. Until now, credit card companies happily approved transactions that went over the limit, and then charged high fees. No more. No companies have to reject these transactions, unless you offer permission for it.

I also like the idea that credit card companies can no longer retroactively raise interest rates on existing balances. The only exception to that rule is if you are 60 days overdue with payments. However, I’ll bet credit card companies spend the next 9 months doing what they can to get whatever they can before the rules go into effect. It’s going to get ugly…