Last year, the Federal Reserve announced new rules for credit card issuers that would rein in controversial practices like arbitrary rate increases on existing balances. Consumer advocates welcomed the news, but the regulations wouldn't take effect until mid-2010. So members of the House and Senate introduced legislation that would essentially move up the start date for the Fed's plans.
That's still not fast enough for some. Hearing it from their constituents, Democratic Sens. Charles Schumer (N.Y.) and Chris Dodd (Conn.) asked the Federal Reserve on Thursday to hurry up and stop arbitrary rate increases immediately.
"Credit card providers have been aggressively raising rates on consumers now to avoid the ramifications of this rule when it goes into effect next year," the senators wrote. "Companies have increased interest rates across the board now, to increase interest rates before the new rules go into effect."
The senators say the people they represent have been getting soaked: "Consumers describe situations to our offices in which the interest rates on their accounts have doubled or tripled overnight, without any misconduct on their part."
Public anger over credit card rates has reached the White House -- on Thursday President Obama assembled CEOs to talk to them about their controversial practices. After the meeting, the president called credit cards "an important convenience for a lot of people...We think that's important and so we want to preserve the credit card market... but we also want to do so in a way that eliminates a lot of the abuses and the problems that a lot of people are familiar with."
Obama called out industry practices like enticing consumers with low interest "teaser rates," hidden fees, and unclear contracts. He called for an end to "the days of any time, any place rate increases." The president said his team would be working with Congress to make it happen.
White House spokesman Robert Gibbs said on Monday that the administration supports Rep. Carolyn Maloney's (D-N.Y.) Credit Cardholder Bill of Rights, one of the bills that would advance the Fed's new rules and codify them into law. A House committee approved the legislation on Wednesday.
Elected officials aren't the only ones hearing from frustrated credit card holders. In February, the Huffington Post asked readers to share their stories of credit card debt -- and the letters haven't stopped since. Banks blame the economy for the rate hikes.
On Monday, John in Oregon wrote that he had "never, ever, missed or been late on a payment." But rates recently increased for each of his cards: "Capital One (9.9 to 19.9), Chase (8.9 to 18.5), American Express Blue 8.9 to 19.9), and Citi (8.8 to 19.99) ... all went up. And AmEx saw fit to lower my available balance from 15,000 down to 5, I think they all did actually."
Paul from Mississippi wrote:
I paid off my credit card debt to Bank of America, about $2600 in a single payment. Understand that my credit is in great shape with them, and I have never had a late payment in the years I have been their customer to them or any other creditor. A week ago, they sent me a letter claiming I have TOO MUCH CREDIT! My credit card did have $14K available, but they lowered the amount to $11.5K. I did nothing wrong but pay off my debt, and they reduced my available credit, which will affect my credit rating.
On Thursday, a few hours before the senators sent their letter, we received this note from Barbara:
I am writing in regards to my recent unfairness by credit card companies. I have ALWAYS paid my bill 2 weeks in advance of my due date and have always paid way above my minimum payment ! I receive a letter saying they are raising my rate from 7.99% to 29.99%. after several phone calls they simply dont care. I have been a customer of both of these companies for a long time and consider myself a VERY GOOD customer. this is raping people and unjust and NEEDS to stop. how much more can a person do? now it IS getting harder to make payments. this needs TO STOP ! I am self employed and yes business is bad but these companies and CEOS are at fault for greed and it must stop.
Here is the text of the senators' letter:
April 23, 2009
Ben S. Bernanke
The Federal Reserve Board
20th Street and Constitution Avenue, NW
Washington, DC 20551
John E. Bowman
Office of Thrift Supervision
1700 G. Street, NW
Washington, DC 20552
Michael E. Fryzel
National Credit Union Administration
1775 Duke Street
Alexandria, VA 22314-3428
Dear Chairman Bernanke, Director Bowman, and Chairman Fryzel:
We write to you today to urge you to use your emergency authority under the "good cause" exception to the Administrative Procedures Act, to immediately implement the provision in the final rules you have previously issued concerning interest rate increases on existing balances for consumer credit cards. The rules are currently scheduled to become effective in July 2010. As you are also aware, Congress is working on legislation to strengthen these rules and provide additional protections for consumers. As Congress works to pass this legislation, and before your rules become effective, issuers continue to operate using unfair and deceptive acts and practices.
Credit card providers have been aggressively raising rates on consumers now to avoid the ramifications of this rule when it goes into effect next year. Companies have increased interest rates across the board now, to increase interest rates before the new rules go into effect. Consumers describe situations to our offices in which the interest rates on their accounts have doubled or tripled overnight, without any misconduct on their part. This kind of practice clearly violates the spirit and intention of the rules, even if the delayed implementation date has the effect of making such behavior legal.
The OTS, NCUA and Federal Reserve have all used this emergency authority numerous times since 2007 to implement rules without public notice or comment, and to make final rules effective immediately. Over the past year, the Federal Reserve has cited the financial crisis as one of the reasons for acting quickly to implement new lending facilities and programs to protect financial institutions. It is long past time for the regulatory agencies to act with the same sense of urgency to protect consumers from the behavior of those same financial companies. Therefore, we strongly urge you to utilize your emergency powers to put this rule into place immediately and protect consumers from these outrageous rate increases.
Thank you for your consideration of this matter. Please don't hesitate to contact our staffs any information or questions.
United States Senator
United States Senator
Are you being forced to use your credit cards to make ends meet? Has a credit card company jacked up your interest rate after missing a single payment - or raised your rate even though you haven't missed one? Have you been charged unexpected add-on fees? If so, we want to hear your story. Share it with us by emailing email@example.com.