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Consumers Lobby Congress to End Credit Card Abuses

Valentine's Day cards and candy kisses carry the messsage

By Truman Lewis
ConsumerAffairs.com

February 15, 2008

Consumers Union, Service Employees International Union, and the Consumer Federation of America delivered over 120,000 “Kiss Credit Card Abuses Goodbye” Valentine’s Day postcards along with Hershey’s Kisses to members of Congress signed by constituents demanding credit card reform.

The Valentine’s Day delivery was part of an intensifying push by consumer groups and lawmakers in Washington to rein in credit card lending practices that unfairly penalize Americans and contribute to increasing debt during an economic downturn. The effort comes amid new reports that some banks are arbitrarily and sharply raising credit card interest rates.

“Consumers are sick and tried of credit card company gotchas that result in unfair penalties and interest rates that climb through-the-roof,” said Jeannine Kenney, senior policy analyst at Consumers Union, the nonprofit publisher of Consumer Reports. “These practices have always been abusive, but now consumers are being hurt even more at a time when the economy is worsening and they can least afford it.”

In mid-January, Bank of America sent notices of steep rate hikes to many of its cardholders. The move has prompted a storm of protest from consumers who face rate hikes even though they’re in good standing with Bank of America.

Mitch of Claremore, OK got one of the notices.

"Bank of America have changed my interest rate to the default rate of 27.99%. Reason given was that my balances were too high. I have never had a late payment, checked complete credit record today," Mitch told ConsumerAffairs.com.

"Associate that I spoke to was rude and told me I was living too high, and that I had too expensive of a home, I told her the home was worth 350K and my mortgage was only for $48,000."

George of Hammond, LA had a simlar experience.

"I have a $10,000.00 line of credit with BOA and am not close to the limit nor have I ever been late. ... They dropped the bomb in Jan. '08 and my rate went from 11.99 to 24.99 for no apparent reason," he said.

"To top it all, the BOA is sending me mail and calling me to increase my limit because I am a 'Good & Valued Customer.'"

GAO Findings

A 2006 report by the General Accounting Office (GAO) found that credit card fees have risen much faster than inflation and that late fees were assessed on 35 percent of all credit card accounts in 2005. That year, the six largest credit card issuers collected $7.4 billion in penalty fees.

The GAO concluded that current fee disclosures are difficult to understand, bury important information, and often fail to convey to cardholders when late fees would be charged and what actions could result in penalty interest rates.

The Consumer Federation of America estimates that Americans’ total credit card debt amounted to approximately $850 billion at the end of 2007, with the average credit debt per household $7,430.

Many Americans are finding themselves crushed by debt because credit card companies are quick to raise interest rates for even minor infractions like a single late payment.

Consumer groups have urged Congress to pass legislation that eliminates some of the worst credit card lending practices, including:
• Hiking interest rates and fees for any, or no reason at all
• Charging interest on balances already paid off
• Requiring consumers to pay off balances with lower interest rates before applying any payments to balances with higher interest rates, allowing debt to accumulate at the more expensive rate
• Charging late fees when consumers mail their payments well in advance of the due date
• Applying unfair interest rate hikes retroactively to balances incurred under the old rate
• Raising interest rates to cardholders in good standing due to behavior unrelated to the credit card
• Charging over the limit fees when the issuer approves the transaction that exceeds the limit
• Assessing excessive penalty fees that exceed the actual costs incurred by the issuer.

Bills in Congress

A number of credit card reform bills have been introduced in Congress to curb many of these abusive practices.

Last week, Rep. Carolyn Maloney, Chairwoman of the House Financial Institutions Subcommittee, introduced the Credit Cardholders Bill of Rights, which limits hidden interest rate charges, reins in unfair rate hikes and provides other protections. In the Senate, a measure sponsored by Senator Carl Levin (D-MI), prohibits a range of credit card lending abuses.

“Too many credit cards are designed to trip up consumers and trap them in debt,” said Travis Plunkett, legislative director of the Consumer Federation of America. “Congress should not let another year go by without acting to prohibit abusive credit card fees and practices.”

As the financial industry absorbs massive losses from the fallout of the mortgage meltdown, banks have been rushing to increase fees and hike interest rates on credit cards for any reason in order to maintain profitability. This has led to increases in credit card debt worldwide, as cash-strapped consumers juggle ballooning mortgage payments, high utility bills, and escalating credit card fees.

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