License Revoked! Cracking Down on Credit Cards
Credit card companies have pretty much had a license to print money for a long time. And while associations like Consumers’ Union, publisher of Consumer Reports, have long spoken out against some of the industry’s most questionable practices, nothing has changed much in at least ten years.
Enter the election year and the soft economy. Finally the lawmakers are feeling the heat — and if they have to toss credit card companies into the fryer to keep themselves out they will do it! Naturally, banks and credit companies are gearing up to fight hard. Lobbyists are already spinning out claims that regulation will cost consumers more and make less credit available. It’s pretty funny, actually. The ABA claims that credit card issuers are better-regulated and more consumer friendly than mortgage lenders and so don’t deserve to have the spotlight turned on them. “Credit cards are a highly regulated industry,” Ken Clayton, counsel for the ABA said. “The parallel doesn’t work.”
Mortgage borrowers are in fact better protected than credit cardholders. Homeowners know upfront what their credit will cost them and how their rates are determined. They are also protected by caps which limit how much rates can increase at any one time and how high they can go over the life of the loan. On the other hand, rates and terms for credit cards can be arbitrarily changed any time. Americans are carrying higher balances, being charged more, and falling further behind. Card delinquencies increased to 4.38 percent in March, according to an American Bankers’ Association survey — the highest level in the past 18 years.
To add insult to injury, what’s bad for consumers is good for credit card issuers as people turn increasingly to credit cards to pay for routine living expenses — and rack up late charges and over-limit fees. Senate Banking Committee Chairman Chris Dodd asserted that “Americans do not deserve to be pushed down the economic ladder by credit card companies. It’s wrong, it’s unfair, and it must end.” Dodd and others including both Democratic presidential candidates have put forward various proposals for reform. Most include banning the following common practices:
- applying payments to the balances with the lowest rate instead of the highest
- increasing the borrower’s rate for late payments on other unrelated debt
- unlimited rate increases on late-paying borrowers
- unilaterally changing the terms of the credit card agreement
- charging interest on fees
- applying new rates to existing balances without giving borrowers notice
- “bait and switch” tactics on so-called “pre-approved” offers
Eleven consumers’ groups back the most far-reaching of the proposed laws, which would make all of the above-mentioned practices illegal. Both the Federal Reserve and the Treasury Department’s Office of Thrift Supervision are joining the party with their own versions of expected shortly. Consumers’ organizations are pleased that credit abuse issues are finally getting some attention from lawmakers, although no one is counting on all reforms to make it through. Travis Plunkett, legislative director of the Consumer Federation of America is guardedly optimistic. “It’s still a long shot that a bill would clear both houses, but it’s not unthinkable.”
Tags: consumer protection, consumers, credit cards, legislation, new law, reform
