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.
Saying that, if our government would go after credit-pushers like they go after drug-pushers, it would help. Banks and credit card companies will keep dreaming up new ways to get more money out of while using OUR money.
And people with variable rate mortgages are losing their homes if they are in CH 13 when interest rates go up. Courts won't let them pay the higher payment. And the budget they put you on isn't very much. You only have a couple hundred dollars a month and the money you spend on health insurance and health care is considered disposable income. Medical care is not considered an necessity if it's a condition not present when you file.
“If someone can pay their bill in full every month, why would they have credit cards?”
Simple really. Convenience, rebates, airline miles...
Use your affinity card, say from United Airlines, for EVERYTHING. All bills, any purchase. Pay off your bill every month. Watch the free miles and free airline tickets pile up. I know several millionaires who do this. For what it’s worth.
For once Congress is doing some right. I hope they slam the thieving credit card industry.
I’ve never had a credit card problem but the idea of 30% interest is plain theft, especially when it is triggered by something that has nothing to do with a person’s dealings with their credit card company.
Good for Congress, squeeze them until the squeal like pigs.
Not sure who that quote is from, but cc bills and attendant interest and fees are lowest on the priority totem pole when someone files bankruptcy, whether chapter 7 or 13. They are routinely discharged.
As if your health is on a budget. These bean counters....Geezzz!
And then the high fat food industry.
And then those evil gun manufacturers.
“if someone can pay their bill in full every month, why would they have credit cards?”
I have several credit cards, and that is exactly what I do. Credit cards are an expensive way to borrow, so if that’s what you use them for, then don’t be surprised if you get charged up the wazzoo. The only economical way to use a credit card is to use it as a convenience device, so that you don’t have to carry a lot of cash everywhere you go, or to make payments over the internet, and if you do only that, then you can and should pay off every month, before the due date.
I have a charge card, which means I have to pay it off every month. But I have it for a lot of reasons; I get rewards points for using my card, so I can get things I like. I get perks, like free hotel or rental car upgrades, free companion airfares. My card also guarantees my purchases and extends the warranty on items that I buy.
I never pay cash for anything. I've had the same $50 bill in my pocket for six months.
“How do you switch companies when they are all doing the same crap to their customers?”
Search for low introductory rates, low or no fees.
Transfer your balance. One can do this numerous times to get one’s balance under control.Use your card only when necessary and NEVER be late or miss a payment. Read the fine print to see how much they can raise your rate. Once your card/cards are under control, start to pay them off every month. Don’t carry a balance.
“People not taking responsibility for their actions and depending on the federal government to bail them out becomes a slippery slope.’
I don’t want or expect the govt to bail anyone out. I think the banks take the risks, make the profits, and can suffer the consequences when people can’t repay. But its not that simple. Congress got involved at the behest of the banks and now there is little risk of not being repaid.
Restricting a company from doing something unethical (universal default) is not a bailout.
Well, if you don’t have cancer when you file a chapter 13 plan, you don’t budget for cancer treatment.
If you get cancer a year into your chapter 13 plan, you amend the plan, and pay your unsecureds a bit less.
And to address another comment by doc, when a house payment doubles while you are in a 13, then it’s time to surrender the house and move into an apartment for a third the price. Any deficiency will become nonpriority unsecured debt. Then you use any remaining excess income to pay back a proportionate amount of your unsecured debts.
Or your convert to Chapter 7 if your income is low enough (right now a family of 4 making $55,000 to $60,000 is considered under median in southeast Michigan and can qualify for chapter 7).
“We don’t need Congress regulating the minutia of American commercial relations. They’ve got bigger fish to fry, though they don’t seem to realize it. “
Honestly, I can see both sides of this. There are a lot of unsophisticated people who get hosed by the credit card companies. But I also don’t like more laws. Government screws up whatever they touch. One of the items on their agenda was to pass a law about what snacks can be offered in schools! You’d think everything was wonderful in this country if that’s all they had to do.
Here’s what I’d do. Educate the people. Spend some money and educate the masses on the evil of credit cards. Then let the market work.
Unfortunately, 80% of consumers do not pay it off every month. The only safe way to use a credit card is not to use a credit card.
Credit Limit Suppression – Several years ago, a disturbing trend began where credit card issuers decided to withhold their customer’s credit limit from their credit reports. This was done in an effort to hide a customer’s true value to competing credit card companies. This practice spread like wildfire, and within six months it reached epic proportions as all the major credit card issuers began withholding credit limit data.
The credit limit is a key component in credit scoring models. It gives them a way to calculate a consumer’s revolving utilization. Without this amount, the credit-scoring model could accidentally penalize a consumer’s credit score.
Education is the key. We need to push our local school boards to have mandatory classes on financial management in high school. It's insane that high schoolers take a mandatory class to learn how amoebas reproduce but graduate without ever learning how credit, insurance, or investing works.
Health insurance is considered a necessary and allowable expense item when reorganizing under Chapter 13. You can also budget for co-pays, and increase that budget if the co-pays go up, like for diabetes medicine. It’s not a static thing.
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