Time to Get Tough On Credit Card Companies

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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Comments

[muckraker3]

Wow what great reform. Companies such as Bank of America that get free money from the taxpayer and the Federal reserve can still assess unlimited interest rates on the same people who are bailing them out. Without usury laws the Senate will allow this evil system to bankupt the citizenry. As Senator Durbin say's "The Banks own this place' We must work to defeat every incumbent. There is only one party the Republicrats. By the time this paltry legislation goes into effect all the increases will have taken place. b of A just jacked up my rate last week for no reason.

[Brian Englert]

Gracious Senator, here are the top 5 industries that 'donated' to your campaign.
Industry Total
Securities & Investment $4,249,146
Lawyers/Law Firms $1,948,803
Insurance $1,444,522 $
Real Estate $1,288,941
Commercial Banks $905,294
How can you ensure you are doing right for citizens with these campaign numbers?

[rsprags]

We are behind you Chris 100%; Please pass this law and let's call all senators next week to put pressure on them to get it done now and to start now not next year.

[ProudNeoCon]

Senator,

You are saying that 93% of the credit cards allow for increase of rates at any time. What about other 7%? Why aren't people give those card preference? The fact that the cards without "any time" change rule are not bigger means that either people do not care or they do nto bother to do this research. Instead of limiting ability of private companies to offer product you should have a rule of clear disclosure and let consumers make a choice...


How many people actually read the credit card agreement? For most of them this is the second most important financial document (after mortgage), yet nobody bothers to read it...

[AntiClast]

so I remodeled my kitchen, planning to pay cash. The salesman goes, no no, take our credit card, you won't have to make payments for 10 months, why not keep the money for now?
I read the fine print when the credit card came -- if I missed one payment by one day all the interest I didn't pay for 10 months would be added to my card. The added interest would have been huge -- enough to pay for a feature I'd cut out of the remodeling because I didn't want to spend that much money.
So I paid up when the 10 months were up. My life is too busy to be worry about kilobucks of interest if I was late. And I'd had another department store card which levied a fine of $25 on a $75 bill after I had a confirmation of payment. Somehow the electrons got lost (no I don't think I gave the wrong bank info) after they confirmed it. I canceled that card too.
Stores used to give credit cards so you'd purchase at their store, maybe on impulse. Now they swindle you.

[entropygal]

Usury laws are needed, but congress does not have the backbone to pass the laws. Too many lobbyists giving our money from credit card companies. This is what got us into this economic mess; one piece of the puzzle. Discover charged me 50% interest when I paid on time and had a 750 credit score. I couldn't believe it!

[Oldsmo-boy]

The answer to this whole mess IMHO is a restoration of usury laws. Current unfettered interest rates provide incentive to the banksters to make risky loans, allowing them to cover the inevitable defaults by raising rates and fees on the people who continue to pay (when they're not lobbying congress to stack the bankruptcy laws against us). If the amount of interest were capped to a rational level, then banks would have to do better "due dilligence" on potential borrowers in order to limit losses. No more unsolicited cards. No more teaser rates. A return to civilized banking. Some would not be able to get the credit lines that they currently receive at 21 percent. That means less debt on the whole, which is what many on this board are advocating.

I think 8 percent is a reasonable return by a bank on a well vetted investment, don't you? Especially when the current rate that the Fed charges banks for loans in 0 percent.

[ProudNeoCon]

Do you think 8 percent is reasonable if you are lending to people who statisticly have 10% chance of defaulting?

Or would you deny everyone who does not have a perfect credit a credit card?

I would deny, but then I would limit voting rights to people who actually pax taxes so who will listen to me...

[JePense]

I read Mastercard is crying the blues because people are not using their credit cards as much this past quarter and revenue is down. That makes me happy because I have paid mine off this past quarter and I don't plan to use a credit card any time soon if I can avoid it. Of course -- if I go in the hospital -- it'll probably be my only way out.

While they['re still working on the credit card law -- it'd be nice if they'd put some privacy in it. The last update allowed banks and credit card companies to share private info for the purpose of marketing additional products to their customers.

THAT'S WRONG. I provide private info when I create a banking relationship with a single bank -- and I don't want every tom, dick, and harry using my "profile" to harass me at home to buy additional products.

I' m grown up enough to SEEK out services and products I want - on my own - and I'd like to retain the right to decide WHO I give my "profile" information too. These banks merge and multiply like rabbits and there's really no business in town that ISN"T an "affiliate" these days.

[JePense]

Back in 1966 when my oldest brother was a freshman in college, he received a credit card in the mail with his name on it from an oil and gas company. He had not applied for it -- but he was definitely targeted as a commuting college student - and he used the card to buy gas. Next thing you know, Diners Club sent him a card...and then another oil company sent one (there were no visa or mastercards then). In short order he was over his head with debt.

Congress poassed a law that prohibited credit card companies from sending out cards unless someone actually applies for them -- but it hasn't really stopped. Each time they merge and change banks names, we receive new cards for additional accounts although the ones in our wallets remain valid.

We don't activate or use the new accounts -- but they show up on our record when available credit is calculated, and the interest rate climbs in sync with the legitimate cards. "Any time for any reason."

The worst thing these masters of usury do - they come up with a lot of miscellaneous fees and charges and then charge interest on the fees. I think interest should only be calculated on the purchases balance -- not on the fees -- otherwise the fees are really purchases and not fees?

I wish the new credit card law would address the interest on fees.

[WASanford]

What we need is a national usury law. Limit the total interest allowed to 7% or something like that and stop the robbery! You know the lobbyists will pay anything to stop us but we should try anyway.

[cinemabon]

I would encourage Huffington posters to go to Chairman Dodd's committee and Barney Frank's committee for their email updates. I easily found them on google. We can't change government for the better if we do not get involved.

[rsprags]

I agree start a campaign for everyone to call them to get this passed now!

[hat trick]

i have to agree with a lot of the sentiment here. dems or republicans, our congress, has abandoned us a long time ago. & i'm skeptical this bill will pass.

how many hours have i spent on the phone with a bank, credit card, phone co. etc, resolving their mistakes? i always want to ask, "who do i invoice?"

with credit cards, things like $40 late fees & increasing interest rates at will are quiet examples of the saying "the house always wins." america has become one big casino. we have almost no choice but to play. if you have some kind of financial or social mobility....or a mobility created by education (also a privilege) than you may opt out & not be trapped on this roulette wheel.

this country has a major psychological flaw which has left us with the the inability to critique this "democratic" form of capitalism. this flaw is that we believe capitalism rewards the strong & socialism/marxism rewards the weak/lazy. this has led us down a path of ignorance of the very economic philosophies that should have been critiquing the banks, wall street, our local & federal govts on our path to what people are calling the apocalypse of a brand of capitalism based on extreme debt & ecological disaster. a.k.a. the american economy.

it's not about being a socialist or a commie-it's about being educated & understanding economy & the law. and who the laws protect & who they really reward.

so here we

[SinisterK9]

Education is not merely some far off privilege that few of us can have. Get off your rear and make it happen for yourself. I joined the military to fund mine.

I agree there need to be restraints placed on some of the business practices of CC companies. But also at the same time, you do not have to have 5 credit cards in your wallet to survive in the world. Too many consumers buying too much crap they can't afford is 90% of the problem. I am middle class, if not lower middle class. I too fell into the credit card trap early in my life. Once I wised up, over a few years I payed off all my debt, and got rid of the credit cards.

[hat trick]

i am speaking as someone who has worked hard for their education. but i also live in a city where(NYC) a majority of working class people have not had real wage increases since the 1970s & who have to make a monthly choice between rent & groceries-not plasma screens.

i am against hyper consumerism & debt culture. but the reality with a disintegrating wage increase model of the economy with more aggressive credit cards banks & the structural advantage given to them & other forces at play-working class people have been sinking for a long time (what private citizen gets a 26% return on lending their money to banks? 2% is more like it). i understand infrastructure costs, but i am also familiar the with success of credit unions for example versus predatory banks. which are more responsible?

we have not had the economic vocabulary in this country to discuss critical economic dynamics. nor have we had to government that has concerned itself with ensuring that education, health, housing & income is a priority in spending our tax dollars. we've been in a trickle down mindset for a long time & it has always seemed to me that "trickle up" is the more sound economic foundation & historically the most successful.

just as you responded with "pull yourself up by the bootstraps"-you ignore the larger institutional disasters that prevent a sustainable economy for everyone. to reply to your military comment, i shouldn't have to put a gun in my hand

[fairandjust]

Senator Durbin already stated that THIS SENATE is "Owned" by the Banksters - Can you get this much needed Credit Card Reform passed?

Reform additions:

1) Cap credit card interest rates at 3% until the Bank has paid back all TARP and FED loans. Since the Banks got free money and are borrowing at 0%, should not be allowed to gouge US Taxpayers TWICE.

2) Credit limits should be restored to what they were a year ago. Not the Consumer's fault that Banks Poor Investment decisions - have now cut credit limits too low for many responsible consumers. This has caused Lower FICO scores for many consumers and Small Business Owners (those you said deserved better treatment by banks) - now no one can refinance or get additional credit.

3) Stop Lobbying from Banks who have received TARP Bailout money and excessive FED loans. Outrageous - the taxpayer is funding the Banks to Lobby against the Consumer.

4) Stop Insider Transactions for Bank CEOs - until all TARP Bailout money and excessive FED loans - have been repaid. Ridiculous that the CEO is cashing out stock options worth MILLIONS - based on profits only achieved from US Taxpayer monies. If the banks cannot be profitable without Bailouts - then CEOs do not deserve to Cash Out at taxpayer expense - again.

Senator Dodd - you must get serious Banking and Credit Card Reform passed NOW - or you need to leave office and your legacy will be that you were

[fairandjust]

"Senator Dodd - you must get serious Banking and Credit Card Reform passed NOW - or you need to leave office and your legacy will be that you were - Bought Off by the Banks and Did Not Care about Consumers."

I hope that is not what you want your legacy to be.

[JePense]

EXCELLENT post.
I hope Sen Dodd has some staffers reading through these comments.

[ProudNeoCon]

1) How do you expect the bank will repay TARP money if we do not let them make money? Moreover TARP came from taxpayers and 45% of US population does nto pay income tax (source IRS). Should they also get a break on rates?

2) Credit card is not a right. Nobody is required to provide you with credit line.
..
3) This will be fair the moment goverment stop forcing banks to keep TARP money. Some banks need it, others do not. But goverment forced everyone to take it

4) This is BS... all stock options for the banks are under the water since the stocks are down big... Name me one CEO who cashed out his/her option in the last year...

[1sparrow]

i have spent my entire life without using credit cards. except for my mortgage, my goal was to put enough money away and retire. the biggest conflict i have is a typical credit card like MACY'S get over 25% return for the lender. i would never find that return on any investment . i would loan my money for 15% return and retire now. this excessive return is not available. in fact i should expect i'm lucky my money market fund is still retaining it's $1.00 share value. if this isn't oligarchy i don't know it. privatize the profits- socialize the losses.

[ProudNeoCon]

you have to factor in the default rate...

FYI there are a lot of bonds which yield over 25% right now...

[mariah793]

I am glad that Sen. Dodd is attempting this, but it doesn't go far enough, and I don't have any faith whatsoever that there will be any meaningful credit card reforms coming out of this Senate.

Each family needs to figure out a way to survive/thrive in a way that is legal but allows them to break free of the game where the rule-makers are always the winners. Who says our lives have to be measured by our FICO scores? Maybe we should be tar and feathering that pirate hat?

[ProudNeoCon]

Credit card is not a right- banks can measure any way they want... Do not like it - do not use credit card.... You really do not need it...

[RustyPatina]

Great idea, but the congress is so beholden to banking interests that they can't afford to follow through in any meaningful way. We should all begin to give up our credit cards and demand that merchants accept other forms of electronic payment (e.g. PayPal, debit card).