Posted on 12/04/2007 5:29:07 AM PST by Brilliant
WASHINGTON (AP) -- Congress is renewing its scrutiny of the credit card industry, as some lawmakers denounce the practice of raising customers' interest rates when their credit scores decline, even if they make their card payments on time.
Industry critics say it's another example of abusive, confusing credit card practices that can push consumers deeper into debt.
Sen. Carl Levin, D-Mich., chairman of a Senate Homeland Security and Governmental Affairs subcommittee, is holding out the club of possible legislation to spur voluntary changes by the industry.
"Working people are being squeezed," Levin told reporters Monday. In a call for "good, strong legislation" to be enacted next year, Levin said that "these abuses need to be remedied. ... We have some real momentum for reform."
With Americans weighed down by some $900 billion in credit card debt -- an average $2,200 per household -- practices of the very profitable industry have been ripe for scrutiny by the Democrat-controlled Congress. They have also grabbed the attention of the Federal Reserve, which plans to require credit-card issuers to give customers at least 45 days' notice before raising interest rates and to provide clearer information on fees.
At a hearing Tuesday, Levin's subcommittee, which has been investigating the industry, planned to look at how credit-card issuers raise consumers' rates, to as high as 30 percent, when their so-called FICO credit scores decline -- even if they've paid credit card bills regularly and promptly. In many cases, consumers have little notice of the increased rate, which are automatically triggered by declines in FICO scores for reasons left unexplained, the subcommittee found.
In some cases, just opening another account, such as a department store credit card, could trigger the downgrade in credit score.
In one of the cases cited by the subcommittee, Marjorie Hancock of Arlington, Mass., wound up with interest rates on her four Bank of America credit cards of 8 percent, 14 percent, 19 percent and 27 percent, even though her credit risk is the same for all four.
Ken Clayton, managing director of card policy for the American Bankers Association, which represents the banking industry, said Monday: "Costs for nearly every product can change, be it because consumer's risk profiles change or because underlying costs change. Credit cards are no different."
Five big financial companies -- Discover Financial Services LLC, Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co. and Capital One Financial Corp. -- issue around 80 percent of U.S. credit cards, according to the subcommittee. Officials of Discover, Bank of America and Capital One were testifying at Tuesday's hearing.
Citigroup and JPMorgan Chase recently have said they will discontinue the practice; Citigroup's change already is in place and JPMorgan Chase's will take effect in March. But Levin says legislation may still be needed to get other companies to do the same.
Larry DiRita, a spokesman for Bank of America, said its customers "have the right to say 'no' to an increase."
In March, the subcommittee focused on complex billing and interest-rate practices, such as charging interest on balances paid on time but not in full, and so-called double-cycle billing -- which eliminates the interest-free period of consumers who move from paying the full balance monthly to carrying a balance.
The week before the subcommittee's hearing in March, Citigroup announced that it would no longer make "any-time-for-any-reason" increases to interest rates and fees charged to customers until a credit card expires and a new one is issued, usually in two years.
And oh, by the way, if you use your credit card in such a way that you have to pay interest in the first place, then you're a fool. The only safe way to use a credit card is to pay it off every month so that you don't pay interest at all.
Or do what I did--call the CC company and tell them to roll it back. Worked for me and only took a few minutes of my time, but I can see how Congress needs to get involved to solve a horrendous problem like this...not.
We got an offer from a competing bank offering to transfer our balance for a cheaper rate. When we tried to do it, we found it could not be done because the existing credit card was handled by the same service as the new card.
How do you switch companies when they are all doing the same crap to their customers? It’s nice to be able to stand on a high horse and denounce people who need to carry a balance, but the fact remains that there are people who do and the CC companies try every scheme in the book to make you pay them money forever. Many of those schemes they’ve come up with in the last few years look like arrangements between lords and serfs from the middle ages rather than legitimate lending practices.
True. The Dave Ramsey approach.
Though if you do need to carry a balance, be an informed consumer and shop around. There are low fixed rate cards out there. I just received one from a credit union in Raleigh, NC that is 7.99% fixed. I have another from a credit union in California for 8.9% fixed.
Levin’s remarks are aimed at consumers who get glassy-eyed at the latest slick advertising. There are forums filled with folks (mostly moonbats) that try to game the system or figure out ways to avoid paying their bills:
http://www.creditboards.com/forums
http://debt-consolidation-credit-repair-service.com/forums/
Dems in Maryland did something similar. They made it illegal to offer us with good credit a discount on our homeowners insurance. They claimed people with bad credit take just a good of care of their homes as us. Well it just raised our insurance rates, another tax to pay for those irresponsible.
“the CC companies try every scheme in the book”
That’s why you don’t do it, though. It’s part of the cost. Congress can eliminate this practice, but they will find another way to get it out of your hyde. They aren’t in business for the fun of it. If you want to borrow, don’t do it on your credit card.
But how can we get a good “credit crunch” going if we can’t run up our credit cards to the max? How will we be able to cry “doom!”?
I haven’t paid interest in over ten years. I never put anything on my card I cannot payoff at the end of the month.
The problem is that those people who are “universal defaulted” are in the kind of problems that don’t allow switching.
It is like telling a broke and starving person to “just go buy food”.
Essentially they credit card companies are squeezing a few pennies out of people before bankrupcty.
“This is just another excuse for the socialists to exert more control over the people. “
Maybe and maybe not. Do you think the business practices of the credit card industy are predatory? I do. Sure people make their own bed but the banks sure help them buy the bed regardless of their ability to repay.
Then they send you 10-12 offers a week for new cards or special services. IMO, the banks are consolidating to virtual monopolies. Their practices are immoral and extremely risky. As we see in the mortgage industry they will ask the govt for a bailout when the stuff hits the fan.
First, your premise is wrong. They aren't "all" doing it. Credit unions are an exception. Problem is people burn their bridges with the good institutions by poor payment history and then fall for the lure of the shysters.
Second, who cares? There is NO government-mandated "solution" that won't make the problem infinitely worse. Let folks pay off their own debts, or if they are hopelessly over their heads, they can seek legal relief in a Chapter 13 reorganization where they pay their debts back with little or no interest. (And yes, the court puts you on a budget for 3 to 5 years).
There I fixed it. With interest rates at or near all time lows the credit cards rates should not be at 21% or higher ie: Sears ect.
So you are a day late with your phone bill and your CC interest rate should jump to 30%, even if you are current on your CC? That's just plain wrong. What's even worse is that if someone does get into that situation, they will likely be heading for bankruptcy because paying on such an interest rate is simply not sustainable. And the CC bills don't get discharged in bankruptcy, either. So the CC companies are making money like crazy on this. Top top it off, the CC debts become a bigger priority than paying your mortgage and that has resulted in people losing their homes. If the CC companies are stupid enough to lend to someone withh risky credit, it's partially their fault if they don't get repaid. And oh, by the way, if you use your credit card in such a way that you have to pay interest in the first place, then you're a fool. The only safe way to use a credit card is to pay it off every month so that you don't pay interest at all.
That's a pretty arrogant statement. If someone can pay their bill in full every month, why would they have credit cards? Most people use them for things thet can't afford in a lump sum. Major car repairs for example. What should I do if I need $2K in unexpected repairs? Just wait until I can save, but not be able to get to work? Or if the house needs a major unexpected repair? Or major medical bills? There's lots of very good reasons why people need CC today and it's pretty damn arrogant of you to think otherwise. Or have you been turned down too often from the CC companies because your FICO score is under 560 and you are just crying sour grapes?
God help us (excuse me, government help us) from 10-12 offers a week.
More seriously, government is more predatory than any credit card company can ever hope to be. See my #15. Let folks work out their own problems without the government screwing things up more.
I don't know why this is so hard for some folks to understand.
Ahhh, they already did about year ago. The BK laws were changed to heavily favor the CC companies.
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