The House approved legislation today to have its previously passed credit card reforms take effect next month, rather than three months later.

The bill is designed to fix a problem the lawmakers themselves created. Earlier in the year, Democratic leaders bowed to the wishes of the credit card issuers by granting them a long window to implement the reforms. Indeed, most of the changes aren’t scheduled to take hold until late February. Many banks have taken full advantage of the delay, hiking fees and rates — even on existing balances — to pad their profits ahead of the law.

Under the House bill, sponsored by Rep. Carolyn Maloney (D-N.Y.), the reforms will go into effect Dec. 1. The lower chamber passed the bill 331 to 92.

“I believe the card issuers have heard the message loud and clear today: their practices can no longer be tolerated,” Maloney said in a statement following the vote.

But that depends. The Senate would still have to pass the bill in order for it to become law. And at the rate the upper chamber is moving, Dec. 1 doesn’t seem that far away.

Both bills would require banks to get customer consent before enrolling them in the overdraft protection program; both would cap the number of overdraft fees at six per year; both would require banks to notify customers beforehand when a purchase or ATM withdrawal is set to trigger an overdraft fee; and both would prohibit banks from re-ordering transactions for the purpose of maximizing the number of fees.

One significant distinction between the chambers’ bills: the House proposal would also apply to written checks that overdraw an account, not just debit purchases that exceed balances. The Senate bill excludes checks as it applies to the opt-in provision.

There’s a lot at stake here — both for consumers and the banking industry — as overdraft fees have evolved into an enormous money-maker for the banks. This year alone, the banks are expected to reap more than $38 billion in overdraft charges, according to Moebs Services, an Illinois-based financial research firm.

Translation: Don’t expect the industry to take this one sitting down.

So after some Democrats initially delayed the implementation date until next year — a naked bow to the banking industry — others are now trying to change the implementation timeline so the reforms take effect sooner.

Indeed, the House Financial Services today is marking up legislation to do just that. The bill, sponsored by Reps. Carolyn Maloney (D-N.Y.) and Barney Frank (D-Mass.), would expedite the reforms so that they kick in Dec. 1 — 12 weeks earlier, for most provisions, than the existing law.

Boosting the effort, Sen. Mark Udall (D-Colo.) today introduced an identical proposal in the upper chamber.

Outside of the legislative effort, Democrats have been urging the Federal Reserve, which is responsible for implementing the legislation, to expedite the reforms on its own. But Fed Chairman Ben Bernanke told lawmakers this week that, while the quicker start date “could provide benefits for consumers, the [Fed] continues to believe that, given the breadth of the changes required by the [law], card issuers must be afforded sufficient time for implementation to allow for an orderly transition.”

In a letter to Rep. Spencer Bachus (Ala.), senior Republican on the Financial Services Committee, Bernanke also claimed that expediting the reforms unilaterally would steal an opportunity from the public and the card companies to comment on the change.

That response riled Sen. Charles Schumer (D-N.Y.), who said this week that if the Fed doesn’t make the changes, “we should quickly pass legislation in both the House and Senate to do so.”

Stay tuned…

“These billions of dollars drained from consumers each year represent lost opportunities for families to save for a rainy day or buy necessary goods and services that could help spark the economy,” CRL senior researcher Leslie Parrish said in a statement.

Moebs Services, an Illinois-based financial research firm, estimates the 2009 overdraft revenue will top $38 billion.

The results shouldn’t come as much of a surprise, for several reasons. First, banks, recognizing the profit-churning potential of overdraft fees in recent years, have grown more sophisticated in their methods of triggering them. Some, for example, will reorder debit purchases by amount, rather than chronology, in order to maximize the number of overdraft fees slapped on consumers.  Also, the increase in joblessness that’s accompanied the recession means that more bank accounts are hovering near empty. (Of course, it was the banks that were primarily responsible for the economic collapse that caused the recession, so for them now to be hitting affected consumers with additional fees to pad their profit margins only adds insult to injury.)

The trend has caught the eye of some powerful lawmakers, who are hoping this year to pass legislation to protect consumers from runaway overdraft fees. A House bill, sponsored by Rep. Carolyn Maloney (D-N.Y.), would prohibit banks from charging the fees unless consumers sign up for the overdraft protection service. It would also prevent banks from reordering purchases in order to maximize the number of overdraft fees.

Senate Banking Committee Chairman Chris Dodd (D-Conn.) says he plans to introduce a similar bill shortly.

Now, some other Democrats want to expedite the same rules their colleagues delayed. Reps. Carolyn Maloney (D-N.Y.) and Barney Frank (D-Mass.) have introduced legislation to bump up implementation date for most of those reforms from late February to December 1. The House Financial Services Committee, headed by Frank, has scheduled a hearing on the bill next Thursday.

“These are positive changes, but the system has gotten completely out of whack,” Senate Banking Chairman Chris Dodd (D-Conn.) said in a statement. “We are talking about abusive practices that never should have been instituted in the first place.  I will take a close look at the banks’ new policies as I continue work on a bill to permanently protect customers from excessive overdraft fees.”

Rep. Carolyn Maloney (D-N.Y.) reiterated that message, saying the voluntary changes at BoA and Chase mark “significant improvements,” but “what we need are consistent overdraft reforms for all Americans.”

Maloney already introduced a bill this year to rein in some of the practices that banks use to increase overdraft fees, which have grown into a $38 billion per year business. Dodd announced last week that he’ll be introducing similar legislation soon.

The bill is sure to provoke an outcry from the banking industry, which claims the overdraft policy protects consumers by covering their purchases even when accounts have run dry. But many lawmakers and consumer groups maintain that the fees — averaging nearly $30 a pop — are excessive, particularly because consumers are rarely informed that they’re about to exceed their balance — or that a $30 penalty will accompany their latte purchase.

There’s a lot at stake here. Overdraft fees are estimated to bring the banks more than $38 billion this year alone, The Washington Post reported today, citing data from Moebs Services, an Illinois-based financial research firm.

Similar legislation to rein in overdrafts, introduced by Rep. Carolyn Maloney (D-N.Y), has been sitting idle in the House for months.

You’ll recall that Dodd recently passed on the chance to take over the chairmanship of the Senate Health, Education, Labor and Pensions Committee, saying there is  “important work” left for the Banking panel. He was talking about a slew of new finance industry reforms the Democrats hope to tackle this year, of which overdraft reform is just one piece.

Facing a difficult election next year, Dodd will need such victories to convince a skeptical public that the millions of dollars he’s accepted from the banks over the years haven’t left him using kid gloves when it comes to taking on the industry.

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This is what many of us feared about a law that didn’t take effect right away. It was never going to take this long for the credit card companies to get ready for the new reforms. Instead, issuers are using the delay in the effective date to wring more dollars out of their customers. It is against the spirit of the law and it is just plain wrong.

Omitted in the criticisms, however, is the inconvenient fact that it was the Democrats themselves who bowed to banking industry demands to delay their reforms for nearly a year after the bill was signed into law.

Indeed, the original Senate bill would have implemented the changes immediately, but the timeline was stretched to nine months by Democratic leaders, including Banking Committee Chairman Christopher Dodd (D-Conn.), during the markup of the bill.

A similar scene unfolded in the House, where the initial proposal, sponsored by Rep. Carolyn Maloney (D-N.Y.), called for the reforms to kick in 90 days after the bill’s passage. During a subcommittee markup of the bill, however, Rep. Luis Gutierrez (D-Ill.) extended the implementation timeline to 12 months.

The final bicameral compromise adopted the Senate’s nine-month window, meaning the changes — including that which Schumer has requested of the Fed — don’t take effect until February.

The irony here is that, as a chief justification for adopting credit card reforms as legislation, Democrats had cited the need to expedite similar reforms adopted by the Federal Reserve, but which won’t go into effect until July 2010. The Democrats’ legislation beats the Fed’s rules by a few months — but as supporters of that bill are finding out the hard way, that’s leaving plenty of time for the card companies to cash in on the legal leniencies currently in place.

Among the most vociferous opponents of the measure was Rep. Darrell Issa (R-Calif.), who offered a failed amendment that would have gutted the new benefit by forcing new parents to “exhaust all annual and sick leave” before the paid parental leave would kick in.

“[T]here is no way Congress can justify granting a costly benefit government workers [sic] at the expense of a nation that is struggling to survive the affects of a deep recession resulting in the loss of more than two million new jobs since January,” Issa, the senior Republican on the House Committee on Oversight and Government Reform, said in a statement Thursday. “There is no way for Congress to tell nearly 14 million unemployed Americans that 2.7 million gainfully employed federal workers will receive additional benefits at a projected cost close to $1 billion.”

The cost claim is disingenuous, of course. The federal budget already includes full federal salaries, so paying for parental leave wouldn’t cost the government a dime more than it already intends to spend.

But, as Washington Post columnist Joe Davidson points out today, Issa didn’t let that little fact mitigate the ferocity of his opposition, which included release of a YouTube video suggesting that Maloney’s aim to join “other progressive family-friendly-oriented countries” would thrust the the United States into a category of nation’s including North Korea, Iran, Cuba and Venezuela.

Davidson wryly counters:

Perhaps Issa would feel more comfortable keeping the United States in the company of Lesotho, Liberia, Swaziland and Papua New Guinea, the only nations that do not guarantee some form of paid parental leave, according to a report by researchers at McGill and Harvard universities.

Or perhaps Issa, who’s wealth is estimated to be between $160 and $526 million, simply knows he’d never need the help.

Those fees have become an enormous profit engine for banks, generating $17.5 billion each year, according to a 2007 report from the Center for Responsible Lending. To boost those profits, banks commonly employ several devices: (1) They often offer the overdraft protections automatically, without telling customers. And (2) they commonly manipulate the order of purchases to increase the occurrence of overdraft fees, which range from $10 to $38, with a median charge of $27.

In a May 27 letter to Federal Reserve Chairman Ben Bernanke, Democratic Reps. Barney Frank (Mass.), Carolyn Maloney (N.Y.) and Luis Gutierrez (Ill.) urge the Fed to prohibit overdraft fees unless customers opt-in to the program. The lawmakers are also asking the Fed to ban the reordering of purchases altogether.

[A]n overdraft fee charged on a typical debit card purchase is vastly disproportionate to the amount of the overdraft itself,” the lawmakers wrote. “It is only fair, then, that institutions be required to obtain consumers’ affirmative consent before enrolling them in fee-based overdraft programs for these types of transactions.”

In December, the Fed proposed two strategies to protect consumers from overdrafts. One would install the opt-in method the Democrats want. The other would prohibit banks from charging overdraft fees without first offering the customer the chance to opt out of the automatic program.

Maloney has introduced legislation that includes the opt-in approach, while also eliminating the practice of reordering purchases to maximize the number of overdraft fees. A House subpanel took up that proposal in March, but faced with tough industry opposition and an already tight legislative calendar, it has a long and difficult road ahead.