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Time to Get Tough On Credit Card Companies

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Today, the House of Representatives is scheduled to vote on a credit card reform bill -- an important step toward cracking down on the deceptive and abusive practices that are standard operating procedure for the credit card companies.

To be sure, it's a far cry from where we were twenty years ago, when I first began waging what was then a lonely fight. Today, we have the President on our side. Recognizing that credit card reform is essential to our economic recovery, President Obama pledged last week to get credit card reform "done in short order."

The need is obvious. A recent survey of the country's 12 largest credit card issuers by the Pew Charitable Trusts found that 93 percent of surveyed cards allowed the issuer to raise interest rates at any time for any reason. And the results are clear; between March 2007 and February 2008, credit card companies raised interest rates on nearly one out of every four accounts -- about 70 million cardholders who were charged $10 billion in extra interest. According to CreditCard.com, the average outstanding credit card debt for households with a credit card was $10,679 at the end of 2008.

Recently, Senator Chuck Schumer and I wrote the Federal Reserve, urging them to expedite a provision limiting interest rate increases on existing balances in rules set to go into effect in July, 2010.

But with our economy hanging in the balance, layoffs mounting and consumers increasingly relying on credit cards to pay for basic necessities, the moment is right for broad reform.

I've introduced the Credit Card Accountability Responsibility and Disclosure Act. It prevents credit card companies from tricking consumers into paying additional interest and fees. It protects the rights of financially responsible credit card users.

And perhaps most importantly, it prevents "any-time, any reason" increases in interest rates and changes in terms.

My legislation was passed out of the Banking Committee earlier this month, and over the next several weeks we will be working with President Obama and the House to reach an agreement. Whatever the final product, it must include strong protections for consumers, including:

Robust Protections for Young People and Students. Recently, my seven year-old daughter received a credit card solicitation in the mail. Jackie and I laughed it off, but it brings up a serious point: young people are faced with an onslaught of credit card offers -- often years before they turn 18 and usually as soon as they set foot onto a college campus. According to Sallie Mae, college students graduate with an average credit card debt of more than $4,100 - that's up from $2,900 four years ago. Nearly a fifth of students have balances over $7,000. Just as we saw in the mortgage crisis with lenders and borrowers, too often, issuers offer cards to young people without verifying any ability to repay whatsoever before allowing them to take on what is all too often a lifetime of debt.

Ban Retroactive Rate Increases. One constituent of mine transferred her student loans to her credit card to take advantage of a low "fixed rate" offer only to have her interest rate on that debt increased from 5 to 24 percent. Her monthly payments increased by over $260. She had to cash in her retirement IRAs to pay off the debt -- all because she paid one day late by phone. Another woman I met in Connecticut had her interest rate raised from 12 to 27 percent when she was three days late on a credit card payment for the first time in 18 years. Credit card companies must end these unfair practices.

Fair Allocation of Payments. Many cardholders hold multiple credit card balances with multiple interest rates. We need to ensure that if you pay down your balance by, say, $1,000, that amount is credited to the account with the highest interest rate first.

Tougher Penalties and Enforcement.
My legislation imposes serious penalties on credit card companies for violating the terms of an agreement. That means, if your credit card company wrongly raises your rate, the company could pay as much as $5,000 per violation - or even higher if the company is found to engage in a pattern or practice of violations. My hope is that strong incentives like these will encourage companies to act more responsibly in the first place.

For me, these provisions are essential to achieving real reform.

We have a once-in-a-generation opportunity to end the abusive and predatory practices of the credit card companies. Americans do not deserve -- and cannot afford -- to be pushed down the economic ladder by credit card companies any longer. Now is the time to stand up to these companies and force real reforms.

This Post originally ran yesterday on CTNewsJunkie.com

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