The credit card industry has figured out all sorts of ways to trap consumers into paying high fees and interest charges. Some of those practices that one would think would be illegal, such as retroactively raising interest rates on current balances, are fairly common and raise billions of dollars in profits from unwitting cardholders. Finally, it appears Congress will put an end to the worst elements of the credit card business.
Last month in an overwhelming and bipartisan vote, the House approved the Credit Card Holders' Bill of Rights. It has the support of President Barack Obama, who met recently with credit card executives only to tell them that he would sign the bill. Now the Senate is expected to take up the issue this week, and it should not water down key consumer protections.
Americans owe more than $960 billion in credit card debt and should be held accountable for that spending. But unethical "gotcha" practices of the industry for late or incomplete payments exact too high a financial punishment.
For example, a common gimmick is for companies to avoid applying payments to the debt that carries the highest interest rate, a practice that the House bill would outlaw. It also would ban double-cycle billing, a particularly noxious practice in which interest is charged on prior balances that have been paid off if the consumer revolves a balance the next month. So if a consumer pays off a $600 balance one month but leaves $100 balance unpaid the next month, he is charged interest on $700.
The House measure would also require companies to give consumers 45 days' notice before increasing interest rates. It also protects young people from aggressive predatory marketing by preventing companies from issuing credit cards to anyone under 18.
Leading Democrats in Congress have tried for years to rein in these types of abuses, but the powerful banking lobby has been able to quash reforms. Now with rising populist anger over the role that banks played in the current fiscal crisis and the billions they received in taxpayer bailout money, their influence has been somewhat tempered.
Many of the House reforms amplify those adopted late last year by the Federal Reserve, which are due to take effect in July 2010. But having them written into law would ensure they cannot be retracted later by the Federal Reserve Board.
For far too long the credit card industry has been given a free hand to pick consumers' pockets. If passed, the Credit Card Holders' Bill of Rights will turn industry practices that were outrageously abusive into outlawed acts; and Congress will have finally done its job to act in the public's interest. The House has approved significant reforms, and the bipartisan effort that will kick off this week in the Senate should be just as strong.