Last Monday, Senator Christopher Dodd (D-CT) proposed the immediate freezing of interest rates on existing balances for the estimated 700 million credit cards in circulation. Since the passage of the Credit CARD Act of 2009, which outlaws several common abusive lending practices -- particularly the retroactive raising of interest rates and the levying of excessive fees and penalties -- credit card companies have been jacking up interest rates in anticipation of February 22, 2010, when the law goes into full effect.
While key sections of the legislation are already in place, the portion that calls for the termination of deceptive practices will not become active until next year, purportedly so the credit card industry would have ample time to implement proposed regulatory reforms.
However, rather than using this time to diminish their deceptive practices, credit card companies are doing the exact opposite. According to a recent Pew report, "Still Waiting: Unfair or Deceptive," after an examination of nearly 400 credit cards, including all consumer credit cards offered online by the largest 12 bank issuers in America, they found that not only has the credit card industry continued their "unfair or deceptive" practices, they actually have done more to continue cashing in on these practices. All 12 banks examined in the survey, which control more than 90 percent of outstanding credit card debt nationwide would not meet the requirements of the Credit CARD Act of 2009 if it were to be effective today as many continue to raise interest rates on outstanding balances by unilaterally changing account agreements.
Another study conducted by Demos, "The Plastic Safety Net: How Households Are Coping in a Fragile Economy," found that one in four households reported paying a 20 percent interest rate or higher on their card with the highest balance. Nearly one-half of all the households surveyed reported they had been late on a payment and charged a fee as a result -- on average, four times in the last year.
Due to the continued predatory nature of the industry's business practices, recent action by the House Financial Services Committee to move up the effective date of the legislation from February 2010 to December 2009 is welcome news. Senate Banking Committee Chairman Sen. Chris Dodd's proposal to immediately terminate increased interest rates should be a clarion call to members of the Congress that the credit card madness needs to end sooner rather than later.
While Dodd's proposed measure may seem extreme to companies profiting from rates hikes, American families, now more than ever, need government to get tough, before these abusive methods bring anymore families to the brink of financial ruin.