Posted on Sun, Jul. 27, 2008
Consumers have plenty of reasons to be disgusted with credit-card companies these days.
Without warning, banks are tripling a cardholder's interest rate, to levels as high as 32 percent. Late fees, which averaged about $10 a few years ago, have risen as high as $39. Mailed statements seem timed to give the consumer the fewest days possible to return a payment by the due date.
About one-third of credit-card companies engage in "double-cycle billing," charging customers interest not only on the unpaid balance, but also on the portion of the balance that was paid on time.
The growing number of consumers' complaints about unfair credit-card fees and deceptive business practices has prompted the Federal Reserve Board, and some lawmakers in Congress, to consider cracking down. The need for action on behalf of cardholders is clear.
The tricks played by credit-card companies are making it harder for consumers to dig out from under a growing mountain of debt. Americans were carrying $960 billion of credit-card debt in May, up from $879 billion at the end of 2006. The average household with credit cards has a balance of $8,600.
The Federal Reserve Board is proposing new rules to protect consumers from unfair practices such as double-cycle billing. It is inviting the public to post comments on its web site at
www.federalreserve.gov. Click on "Consumer Information" and go to the "Proposed Rules for Credit Cards and Overdraft Services."
Since May, more than 12,000 consumers have logged their complaints and suggestions. Among them is a Drexel Hill, Pa., man who told the Fed that his credit-card company raised his rate from 8 percent to 28 percent despite never having missed a payment or exceeded his credit limit.
"How can an institution justify this, and how is it fair to a consumer who honored and continues to honor his obligation?" he asked.
A man from Sewell, N.J., complained that his credit-card company raised his interest rate 8 percent, despite an improvement in his credit score. And Paul Kelley of Havertown, Pa., told the Fed, "Enough half-truths and shell games. Credit-card companies do not give people an honest chance to be responsible."
Congress has been hearing the outrage, too. An Ohio man testified to the Senate Small Business Committee that he paid $6,300 on a $3,200 credit-card debt over six years, but still owed $4,400. How? The card issuer had charged him $4,900 in interest, $1,100 in late fees, and $1,500 in over-the-limit fees. (He was charged over-the-limit fees 47 times, although he'd gone over his limit three times). The fees and interest totaled $7,500, for a total charge to the customer of $10,700.
Although it is no guarantee, there is a way for consumers to fight back in the short term. Some people have reported success when they contact their credit-card company to restore a lower interest rate or to waive a fee that they believe was charged unfairly.
Banks scored record profits thanks to questionable lending practices. The emphasis on credit-card fees and penalties has grown out of whack because it has become too important to a bank's profitability. It is time for the Federal Reserve Board and Congress to restore some fairness to the system.
In addition to the Fed's proposals, a bill languishing in the Senate would prohibit the charging of interest on debt that is paid on time. It would also require companies to provide 45 days' notice before raising interest rates, and to mail statements at least 25 days prior to the due date.
The deadline for the Fed to receive public input is Aug. 4. Go online and put your outrage to good use.
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