The Checkout

Credit Where It's Due

Kathy Lally

Have you ever had your credit card interest rate increase for no apparent reason? Have you ever been charged interest on a late fee? Or have you ever been charged an overlimit fee twice for going over your limit just once?
If so, you're not alone, and several lawmakers have taken notice. In recent months, one member of Congress after another has introduced a bill to curb "unfair" and "deceptive" practices by credit card companies.
The latest bill was unveiled this week by Sen. Chris Dodd (D-Conn.) and Sen. Carl Levin (D-Mich). Their Credit Card Accountability, Responsibility and Disclosure Act (the C.A.R.D. Act) would do the following:
· Prevent credit card issuers from increasing interest rates on cardholders for reasons unrelated to the card, a practice known as universal default. For example, many card issuers will increase the interest rate on a consumer who makes late payments on a card he or she has with another lender;
· Prohibit interest charges on any portion of credit card debt that the cardholder has paid on time during a grace period;
· Require that interest rate increases apply only to future debt, not existing balances;
· Ban the charging of interest on transaction fees, such as late or overlimit fees;
·Prevent the charging of repeated overlimit fees for a single instance of exceeding the limit;
· Require payments to be applied first to the credit card balance with the highest interest rate so as to minimize finance charges;
·Keep card issuers from charging cardholders a fee for making a payment by mail, telephone, electronic transfer, or any other form.
These are just a few of the proposals contained in the bill. Levin, chairman of the Permanent Subcommittee on Investigations, is already co-sponsoring another bill that would reform the credit card industry, but called this one "the strongest credit card bill yet in this Congress."
"With all the economic hardship facing folks today, from falling home prices to rising gasoline and food costs, it is more important than ever for Congress to act now to stop credit card abuses and protect American families from unfair credit card practices," Levin said in a written statement.
The American Bankers Association quickly denounced the bill. In a written statement, Edward L. Yingling, president and CEO of the organization, said:
"We have serious concerns that this legislation could hurt much-needed consumer access to credit by inserting the federal government into credit markets in unprecedented ways. Many of the practices this bill attempts to curtail allow credit card issuers to provide worthy borrowers with low-interest rates, no annual fees and broad access to credit.
We are concerned that the changes outlined in this legislation would have serious, unintended consequences such as unfairly raising the cost of credit for consumers - even those who have a record of managing their credit well."
The Federal Reserve is also taking on credit card companies through the regulatory process. The agency, along with the U.S. Office of Thrift Supervision and the National Credit Union Administration, has proposed the toughest rules governing credit card practices in decades. Those changes are expected to be finalized by the end of the year.
--Nancy Trejos

By Kathy Lally |  May 2, 2008; 10:00 AM ET Credit Issues , Nancy Trejos
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Comments

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Maybe this is already part of the bill, but they need to require credit card companies to disclose credit limits to the 3 credit reporting agencies. I have a capital one card, and they finally caved into pressure to disclose credit limits within the last few months. For anyone shopping for a mortgage, the lack of disclosure could seriously affect your credit score which in turn qualifies you for a higher interest rate for your home mortgage. I'm glad Congress is finally taking on the big credit card companies. It's about time for them to be held accountable for their suspect practices.

Posted by: Michelle | May 2, 2008 10:44 AM

Maybe this is already part of the bill, but they need to require credit card companies to disclose credit limits to the 3 credit reporting agencies. I have a capital one card, and they finally caved into pressure to disclose credit limits within the last few months. For anyone shopping for a mortgage, the lack of disclosure could seriously affect your credit score which in turn qualifies you for a higher interest rate for your home mortgage. I'm glad Congress is finally taking on the big credit card companies. It's about time for them to be held accountable for their suspect practices.

Posted by: Michelle | May 2, 2008 10:44 AM

I just cancelled a credit card account with Citicards that I had since 1996 over some of these practices. If they don't value my business, there are plenty of other credit card companies that do. I don't carry a balance, but at least I generate a lot of merchant transaction fees for them.

Posted by: M Street | May 2, 2008 10:47 AM

It is about time some action was taken. Many of the major credit card providers have shifted from providing a useful financial service for a reasonable profit (and in a transparent manner) to engaging in predatory and quasi-fraudulent practices designed to entrap and drain their customers dry. Where are the other branches of government?

Posted by: 1st Street | May 2, 2008 11:57 AM

It always amazes me about how lightly regulated some areas within the financial services industry are compared to others. In my opinion, the credit card industry is the worst, with the mortgage industry a close second. However, companies (often just other divisions of the same company that offers your credit card and your mortgage) trying to sell retirement products, mutual funds, or other investments, are much more regulated.

To function in this society you need to have credit card debt to get the larger more essential debts needed to purchase cars and houses. Your ability to secure a loan depends on your credit score and if you've never had debt that your credit score will be low and you won't qualify for a car or house loan. If you do, you will be charged a high interest rate.

In short, our system is flawed because there are much less barriers to sell debt products than investment and savings products. In addition, we are encouraged to take on debt by the credit score system.
And we wonder why we are nation of debtors.

Posted by: Anonymous | May 2, 2008 2:35 PM

I was completely clueless that this was going on. I had stopped using my credit cards in an effort to pay them off and I pay them online so I never pay late, but when a friend told me about what another friend was going through with interest rate hikes and late fees I was completely floored. Apparently her interest rates would jump, not just 1 or 2 percentage points, but 5 or 6 if she paid one day late, not to mention outragious late fees. I know this is totally the friend's fault and we've been trying to get her to cut her spending, but at this rate its going to be really difficult to get out of this mess and unless she wins the lottery, it will take years for her to pay off.

Posted by: Anonymous | May 2, 2008 4:51 PM

Finally, Congress is waking up to the incredible abuses of the credit card company but I have doubt the the lobbyist will allow any substantial change to happen.
I have just sent over a notice I received from Capital to Chuck Schumer to see how the credit card company will increase ALL fees by June. There is a passage saying "You have the right to decline" which directs me to page 4 hidden apart. That page says that to decline, one has to call the 800 number and cancel the card but those fees would nevertheless apply.
What kind of doubletalk is that??

Posted by: Marianne | May 5, 2008 10:14 AM

In response to:

To function in this society you need to have credit card debt to get the larger more essential debts needed to purchase cars and houses.

I have had 0 credit card debt my entire life (never carried a balance) and I was able to get a mortgage. Carrying debt does not make your credit score higher. Making on-time payments every month makes it higher. If you choose to pay the minimum, that's your own choice.

Posted by: Aaron | May 5, 2008 5:19 PM

Lawmakers seem to have missed my pet peeve- making the due date a day on which the card doesn't accept payment, such as a Sunday or holiday, and having a requirement in the "small print" that the payment must be made the Friday before the due date. I also don't like having to mail the payment early because they have a mailing address halfway across the country. Time to rein in these creeps!

Posted by: random | May 6, 2008 10:39 AM

Does ANYONE know what the bill reference is (i.e., S.2900 or whatever)?

I really, really wish that the bill reference would be displayed whenever a bill is referenced online, in print, etc.!

Posted by: Mark | May 7, 2008 11:08 AM

I e-mailed someone who said that the bill being introduced was just a way of saying it was introduced via a PRESS CONFERENCE. It has NOT been introduced in the Senate (does it really take 19 days to get a bill introduced)? I really want to read the bill to use against the credit card companies when they call me, because I'd like to tell them what they're in for! Once it gets introduced, we'll have a reference for it and can read it.

Posted by: Mark | May 19, 2008 11:09 AM

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