Got Debt? Shining a Light on Credit Card Fees

Got Debt? Who doesn’t these days…

Democrats on the Hill are gearing up to take on the credit card companies and their “abusive practices that trap borrowers in an endless debt cycle.” As the economy sinks even lower due to the housing market slump, consumers are trapped in a vicious cycle with debt. Adding to the woes of consumers, credit companies often raise interest rates on cards, not because the cardholder has defaulted on their agreement with the card company but because they may have defaulted on another credit card account. Finally, the WaPo reports, “federal and state officials are shining light on the most controversial practices and preparing changes that would make card companies’ policies more consumer-friendly.”

The fight between consumer advocates and the banks that issue credit cards has been simmering for decades. But a rise in cardholder complaints and the ascension of Democrats in the House and Senate is pushing companies to engage in preemptive damage control and is setting the stage for what could be the most significant changes to the industry in more than two decades.

Sen. Carl M. Levin will be holding a hearing this week “focusing on card companies that raise interest rates for consumers who comply with the terms of their original agreement.”

It is becoming increasingly difficult for the credit card industry to defend this type of unfair interest rate increase,” he said.

In the face of the hearing, major card issuer J.P. Morgan backtracked on the practice, which includes using data-profiling to raise interest rates for customers who pay their card bills on time but fall behind on other expenses such as utilities.

“This is a huge issue to the public because credit cards have become a way of life,” said Rep. Carolyn B. Maloney (D-N.Y.), who is drafting legislation that would strengthen disclosure requirements for rates and fees. “What they are most concerned about is when they are given fees and fines for things they were unaware of. Credit card customers ought to be able to fully understand their accounts and control them.”

One consumer caught up in the unfair practices used by credit card companies, Dennis Kocik of Charlottesville said he “canceled one of his longstanding credit cards after reading the fine print and noticing that his interest rate almost had doubled.”

Kocik was so angry about the issue that he said he wrote a complaint letter to the Federal Reserve Board, the chief bank overseer. He said he is outraged on behalf of thousands of people who don’t scrutinize the leaflets that arrive with their card statements.

“Nobody reads that stuff,” Kocik said. “The banks that issue credit cards are like pigs feeding in a trough. . . . If the sun rises in the east and sets in the west, you get a fee.”

In the wake of Congress preparing to take on the credit card companies, “card companies and banks are spending millions of dollars to hire well-connected lobbyists to argue their case.” They claim they “need flexibility to assess the risks posed by customers who may be on the verge of defaulting — and taking card companies along with them.” And, their reasoning is that “more federal oversight of the card industry would be counterproductive and would only hurt borrowers by reducing their access to credit.” What a load of B.S. that is.

Lucky for consumers that “Senior Democrats, including the leaders of the Senate Banking Committee and the House Financial Services panel, would seem to disagree” with the lobbyists and banking companies.

Christopher J. Dodd (D-Conn.), who chairs the banking panel, is preparing to introduce his own legislation by early next year, aides said.

His bill would come on top of legislation already proposed by Levin. Levin’s plan would cap interest rate increases that companies impose to penalize customers for late payments at no more than 7 percent. It also would stop companies from charging interest on debt paid on time or during a grace period, putting an end to situations when customers postmark payments before the due date but a card company does not credit the payment until after the monthly deadline has passed.

While Congress is looking into credt cadrd company practices at the federal level, “investigators working for New York Attorney General Andrew Cuomo (D), who roiled the student loan industry this year by uncovering improper payoffs to college loan officers, are turning their attention to credit card marketing on university campuses, according to sources familiar with the inquiry.”

Under special scrutiny are arrangements in which companies that supply electronic cards used to pay for purchases at bookstores and cafeterias are granted exclusive access to market their card products to students, said the sources who spoke on condition of anonymity because the investigation is at an early stage.

Benjamin Lawsky, a senior deputy to Cuomo, would not provide details of the investigation but did say that the attorney general understood the high stakes when it came to protecting students and would “bring the same level of scrutiny to campus credit card abuses that he brought to the student loan industry.”

My daughter, who turned 18 months ago has been inudated with credit card offers since her birthday. Not one has had a decent interest rate worth applying for. When we moved her up to college in September, on move-in day, the bank of choice at the college had a booth there for students to apply for credit cards and bank accounts. The bank in question has the monopoly on campus, owning all the ATM’s on the campus, making it difficult for students who don’t bank with that company to use their ATM’s with out being charged a fee.

The entire credit industry has become one of the greatest rackets of our time and consumers are being dragged down in their deceptive practices.

Finally, here’s a few tips for readers who are being dragged down by debt. I regularly check my statements to see if interest rates have changed and when they have I call the company immediately and request that they reinstated my former rate. Some are more gracious than others and will lower the rate back down if you request it. Most credit card companies will also reverse one or two late fees per year if you call. I make the effort to pay more on the cards with highest interest rates and balances and try to get those balances down monthly.

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One Response to Got Debt? Shining a Light on Credit Card Fees

  1. elig says:

    I’ve got to say that Bush and the Democratic Presidential candidates are pulling the wool over our eyes on the housing crises.

    On freezing interest rates for subprime loans, Bush’s plan today is a total crock. The NY Times reports his plan would “exclude many — if not most — subprime borrowers” including those who are delinquent on their payments. In a nutshell it’s a sham.

    But what’s worse: a President no one trusts making promises no one believes or the Democratic candidates trying to replace him covertly aiding and abetting his policies?

    Jesse Jackson spelled out the problem recently, noting nearly every single Democratic candidate lacks an agenda to promote African American issues while condescendingly expecting votes from that community. Presidential candidate Senator Chris Dodd is a key example. While loudly denouncing Bush for allowing the housing crises to precipitate, as Chairman of the Senate Banking Committee, he has been helping Bush’s HUD Secretary Alphonso Jackson to close the last remaining resource for helping homebuyers avoid predatory loans. Senator Dodd is siding with Republicans in the Senate to oppose Maxine Water’s and Barney Frank’s bill in the House to save downpayment assistance programs, which allow nonprofits to help working families with the 3% downpayment necessary for Federally insured home loans.

    The posturing on this is reaching new heights….but where is the press in uncovering the double talk? Absent as usual.