Credit card companies come under attack

Herb Weisbaum • Profile • E-mail

We love our credit cards. Buy now, pay later is mighty convenient. And yet, many cardholders are unhappy with the way they’re being treated by their credit card issuers.

Steve, a businessman in Texas, tells me he had a “stellar credit history” until last year. One month, due to what he calls a “misunderstanding,” he paid less than the minimum payment.

Steve says the bank never contacted him. They just boosted his interest rate to 29.99 percent. He says his minimum monthly credit card payment is now higher than his house payment. And because of this, he’s now had the credit limit on one of his other cards drastically reduced.

Steve is outraged. He calls the bank’s action “unconscionable, calculated and predatory.”

Consumer advocates say Steve is just one example of why Congress needs to pass some tough laws regulating credit card issuers.

They’ve targeted a number of practices which they consider abusive, including unlimited over-limit fees, charging for telephone or online payments, and retroactive interest — applying a penalty rate to the entire outstanding balance, including purchases made under the previous lower rate.

“Owning a credit card company is a license to steal,” says Ed Mierzwinksi, Consumer Program director at U.S. PIRG, because the law allows you to change the rules at any time for any reason, including no reason.”

Credit card survey Between Oct. 9, 2006 and March 2, 2007, Consumer Action, a California consumer group, surveyed 83 credit cards from 20 banks, including the top 10 U.S. credit card issuers. Here are the results: Late Fee * Average: $28 * Highest: $39 Penalty Rate * Average:  24.51% * Highest:  32.24% Average Grace Period * 22 days Annual Fee * Average: $44.74 (Fewer cards now have them) Source: 2007 Credit Card Survey

What about the customer?
You don’t have to be a deadbeat to get treated like one. Just make one late payment — even a day late — and you could get socked with a huge penalty or see your interest rate skyrocket — or both!

“The fundamental problem is credit card companies have forgotten how to treat consumers fairly,” says Chi Chi Wu, Staff Attorney at the National Consumer Law Center in Boston. “The industry has developed all sorts of tactics to trip-up consumers and get as many fees out of them as possible."

Wu says most cardholders would probably be surprised to learn that there are virtually no limits on the fees or interest rate banks can charge them.

The American Bankers Association says penalty fees are not an issue for the majority of cardholders — people who pay on time and don’t go over their limit. But what if you do slip up?

“Does the punishment fits the nature of the crime?” asks Linda Sherry, Director of National Priorities with the California group Consumer Action. “If you are one day late does it really warrant a 20 percent interest rate hike?”

Consumer groups push for strong legislation
Last month, Sen. Carl Levin (D-Mich.) and Sen. Claire McCaskill (D-Mo.) introduced the “Stop Unfair Practices in Credit Cards Act.”

“Credit card companies must be stopped from preying on the most vulnerable Americans with unfair and confusing practices,” Sen. Levin said in a statement.

He believes these practices are “too entrenched and too profitable” for the credit card companies to change them on their own.

One of the most abusive practices the Levin-McCaskill bill would prohibit is retroactive interest. Did you know that the interest on your outstanding balance can be changed at any time?

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