Editorial: A thousand cuts

Few things are more infuriating than your credit-card company raising your interest rate for no reason at all.

Well, there is one thing. It's when your credit-card company behaves arrogantly after it receives taxpayer bailout money.

Take Bank of America Corp., which received $45 billion from the federal government. The bank, based in Charlotte, N.C., told some of its credit-cardholders earlier this month that it's nearly doubling their interest rates to about 14 percent.

Meanwhile, Citigroup, which got $50 billion in federal bailouts, has been soliciting customers to apply for quick loans of up to $5,000. The fine print? The bank could charge interest of up to 30 percent.

So it was welcome news when Larry Summers, President Obama's chief economic adviser, said the administration will support efforts in Congress to crack down on abusive practices by credit-card companies. The only lesson some banks seem to have learned from the bailout is to try to stick it to taxpayers twice.

A proposed "Credit-Cardholders' Bill of Rights" in Congress would help to level the playing field for consumers. Among its provisions, the bill would prohibit companies from hiking interest rates for cardholders in good standing who have paid their bills on time.

These protections are especially needed, because the average household is carrying about $9,000 in credit-card debt. And the tricks played by credit-card companies make it harder for consumers to get out from under that burden.

Late fees, which averaged about $10 a few years ago, have risen as high as $39. Mailed statements arrive nearer to the due date than in previous years. And about one-third of credit-card companies engage in "double-cycle billing," charging cardholders interest not only on the unpaid balance, but also on the portion of the balance paid on time. The average credit-card interest rate rose to 12.35 percent from 11.38 percent in the past six months.

These practices are designed to keep customers with revolving debt unable to pay off their obligations.

Credit-card companies say they need to raise fees and interest rates, even on good customers, to recoup some of their losses from bad loans. But this is punishing customers who are not bad risks. And it comes at a time when money is especially cheap for banks, which can borrow from the Federal Reserve at virtually no cost.

Small wonder, then, that Bank of America yesterday reported first-quarter earnings of $4.2 billion, up $1.2 billion from the same period one year ago.

The Fed took public comment on credit-card fees last year and issued new rules for banks that would prohibit some of these abuses. But the new restrictions won't take place until July 2010.

The Credit-Cardholders' Bill of Rights would take effect 90 days after it becomes law. Given the banks' behavior, consumers deserve this extra protection now.