Credit card companies come under attack

If for some reason you get hit with a penalty interest rate, that higher rate applies to both future purchases and your entire outstanding balance. This will increase both your total interest payments and your monthly minimum.

The bill would limit a penalty interest rate increase to 7 percent and prohibit that new rate from being applied to debt incurred before the increase.

Attacking credit card fees
Go over your credit limit and you’ll get dinged with an over-limit penalty fee. If your balance remains over the limit, even if you don’t make any other purchases, you’ll get charged that fee every month until you drop below your limit.

The “Stop Unfair Practices in Credit Cards Act” would prohibit banks from charging repeated over-limit fees for a single instance of exceeding the limit. And the penalty could only be charged when a cardholder’s action, not the penalty, causes the balance to be over the limit. The bill would also prohibit charging interest on penalty fees.

One way to prevent late fees is to pay your bill electronically — over the phone or online. But some banks now charge as much as $15 for doing this.

“We think these pay-to-pay fees are outrageous,” says Consumer Action’s Linda Sherry.

The Levin-McCaskill bill would prohibit charging a fee for paying a credit card bill.

Universal default
The Senate bill does not tackle what consumer groups consider to be one of the most egregious practices — universal default. That’s where the bank hits you with its highest interest rate because you are late paying some other creditor.

“Most consumers don’t even know that they could be charged an interest rate as high as 30 percent after they get their card,” says Travis Plunkett, Legislative Director at Consumer Federation of America. “They simply don’t know that it’s possible and that it could happen overnight, with no notice, with no warning.”

Your bank can invoke the “universal default” clause even if you have a perfect payment record with them. And the super-high rate will be applied to both your new purchases and unpaid balance.

“If you are current on your credit card, if you are making your payments on time, if you’re had no problems with your credit card company, they should not be jacking up your interest rate, period,” Plunkett says.

Earlier this year, Rep. Mark Udall (D-CO) and Emmanuel Cleaver (D-MO) introduced “The Credit Card Accountability, Responsibility and Disclosure Act of 2007.” It would ban universal default.

Banks say new laws are not needed
The banking industry will no doubt lobby hard against any new legislation.

“Currently, consumers have more choices and freedom than ever before,” says Edward Yingling, President and CEO of the American Bankers Association in a statement.

“Micromanaging the pricing of financial products,” he says, “could hurt consumers and the overall economy.”

Trying to head off congressional action, a number of big banks have recently taken steps to become more customer-friendly.

JPMorgan Chase eliminated double-cycle billing, which calculates interest on both the current and previous month’s purchases.

Citibank announced it would end “universal default.” The bank also says it would no longer reserve the right to change the terms on an account “at any time for any reason.” Rather, the bank will wait till the card’s expiration date.

Consumer groups applaud these changes, but they still want strong laws passed to protect consumers from credit card abuses. They say leaving the marketplace unregulated has already hurt millions of credit cardholders.

If you think Congress should act, now is the time to let your lawmakers know.

More Information

• The Stop Unfair Practices in Credit Cards Act
• Credit Card Accountability, Responsibility and Disclosure Act of 2007

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