Could it be? Is Congress really ready to put an end to the credit card industry’s most abusive practices? A bill introduced a few weeks ago by Rep. Carolyn Maloney (D-NY), would change the way most credit card companies do business and provide significant consumer protection for every cardholder.
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“In recent years the playing field between credit card companies and credit cardholders has become very one-sided,” Maloney said. “A credit card agreement is supposed to be a contract, but what good is a contract when only one party has the power to make decisions?”
The Credit Cardholders’ Bill of Rights Act of 2008, known as H.R. 5244, would protect cardholders from arbitrary interest rate increases and unfair fees. Maloney, who chairs the House Financial Institutions and Consumer Credit Subcommittee, is quick to point out that her bill does not have any price controls. It does not cap rates or fees.
“I firmly believe the free market works best when consumers are empowered to make their own choices,” she says. “This bill helps foster fair competition and free market values.”
The banking industry says it is committed to consumer protection and responsible lending, yet it opposes many of the provisions in the bill. In a statement, Edward Yingling, president of the American Bankers Association, says he has “serious concerns” that certain aspects of this legislation “would have unintended consequences such as more expensive and less accessible credit.”
Consumer groups are rallying behind the bill. On Thursday, they delivered more than 120,000 postcards to Congress signed by people who want credit card reform. “We’re seeing a groundswell of consumer outrage about credit card practices,” says Jeannine Kenney, senior policy analyst at Consumers Union. “People are fed up.”
The rules keep changing
Chances are the contract you have with your credit card company gives it the right to change the terms of the deal at any time and for any reason with just 15 days written notice. That includes increasing your interest rate.
Consumer groups have long argued that it’s blatantly unfair for credit card companies to boost the interest rate without clearly telling customers — in advance — what will trigger a rate hike.
The Credit Cardholders’ Bill of Rights would prohibit credit card companies from arbitrarily changing their contract with a cardholder. “They’d need a specific reason to change my interest rate and that specific reason would need to be written into the contract when I get the card,” explains Ruth Susswein, deputy director of national priorities at Consumer Action.
The credit card company would also be required to give you 45 days notice in writing that your rate was going to change. Then you would have three billing cycles to say no to the new terms. This would give you time to look for another card.
Changes in how interest is charged
You can have a perfect payment record with your credit card company and still see your interest rate skyrocket — as high as 32 percent in some cases — if your credit score drops for any reason. This could be caused by a layoff, big medical bills, or a late payment to another card.
When a bank invokes the “universal default” clause, it applies the new interest rate to both future purchases and your outstanding balance. This can be devastating. Your minimum monthly payments get higher and the amount of time it takes to pay off that old debt increases.
"No other business in America could raise the price on something after you purchased it,” says Travis Plunkett, legislative director at the Consumer Federation of America. “But that’s exactly what credit card companies do when they increase your interest rate on an outstanding balance.”
Many big banks recently eliminated universal default. But this is voluntary. Consumer groups want the practice banned. The bill before Congress does not go that far, but it would prohibit a new and higher universal default interest rate from applying to prior charges.
And then there’s “double-cycle billing.” It lets the bank charge interest on balances you’ve already paid. Here’s how it works. Let’s assume you had a credit card bill of $1,200 and you paid off all but $100. With double-cycle billing you’ll be charged interest on the entire $1,200 the following month, not just on the $100 you carried over.
“That seems unfair to us and it seems unfair to a lot of consumers,” says Consumers Union’s Jeannine Kenney.
The Credit Cardholders' Bill of Rights would prohibit charging interest on debt that is paid on time during a grace period, putting an end to double-cycling billing.
Getting rid of the gimmicks
For the last few months, I’ve tracked my Visa and American Express statements. They normally arrive just 8 to 14 days before the due date. That’s just not fair.
This bill would require credit card companies to mail billing statements at least 25 days in advance of the due date. The current minimum is 14 days.
The bill would also set a uniform industry-wide standard for crediting payments. All payments received by 5 p.m. Eastern Standard Time on the due date would be considered on time. Payments made online or by phone directly to the credit card company before 5 p.m. would have to be credited to the consumer’s account that business day.
My two cents
The credit card industry has been out of control for a long time. Credit card contracts are filled with “gotchas” that result in exorbitant fees and higher interest rates. The industry says people could avoid these costly consequences if they simply followed the rules. That’s hard to do when the rules keep changing in the middle of the game — and for no good reason.
Congresswoman Maloney is to be commended for her bill. It’s sensible and fair. It reforms the major industry abuses without attacking the free market principles we hold so dear.
Even so, the nation’s bankers will try to kill the bill or eliminate many of the significant consumer protections.
We cannot let the lobbyists stop this much-needed reform. Tell your members of Congress that you want them to vote for the Credit Cardholders’ Bill of Rights. Tell them right now! Use this congressional director to find contact information.
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