Bill would keep credit card companies honest

Herb Weisbaum • Profile • E-mail

Could it be? Is Congress really ready to put an end to the credit card industry’s most abusive practices? A bill introduced a few weeks ago by Rep. Carolyn Maloney (D-NY), would change the way most credit card companies do business and provide significant consumer protection for every cardholder.

“In recent years the playing field between credit card companies and credit cardholders has become very one-sided,” Maloney said. “A credit card agreement is supposed to be a contract, but what good is a contract when only one party has the power to make decisions?”

The Credit Cardholders’ Bill of Rights Act of 2008, known as H.R. 5244, would protect cardholders from arbitrary interest rate increases and unfair fees. Maloney, who chairs the House Financial Institutions and Consumer Credit Subcommittee, is quick to point out that her bill does not have any price controls. It does not cap rates or fees.

“I firmly believe the free market works best when consumers are empowered to make their own choices,” she says. “This bill helps foster fair competition and free market values.”

The banking industry says it is committed to consumer protection and responsible lending, yet it opposes many of the provisions in the bill. In a statement, Edward Yingling, president of the American Bankers Association, says he has “serious concerns” that certain aspects of this legislation “would have unintended consequences such as more expensive and less accessible credit.”

Consumer groups are rallying behind the bill. On Thursday, they delivered more than 120,000 postcards to Congress signed by people who want credit card reform. “We’re seeing a groundswell of consumer outrage about credit card practices,” says Jeannine Kenney, senior policy analyst at Consumers Union. “People are fed up.”

The rules keep changing
Chances are the contract you have with your credit card company gives it the right to change the terms of the deal at any time and for any reason with just 15 days written notice. That includes increasing your interest rate.

Credit Cardholders’ Bill of Rights — Protects cardholders against arbitrary interest rate increases — Prevents cardholders who pay on time from being unfairly penalized — Protects cardholders from due date gimmicks — Shields cardholders from misleading terms — Empowers cardholders to set limits on their credit — Requires card companies to fairly credit and allocate payments — Prohibits card companies from imposing excessive fees on cardholders — Prevents card companies from giving subprime credit cards to people who can’t afford them — Requires Congress to provide better oversight of the credit card industry — Contains no rate caps, fee setting, or price controls One-page summary Read the bill Source: Representative Carolyn Maloney

Consumer groups have long argued that it’s blatantly unfair for credit card companies to boost the interest rate without clearly telling customers — in advance — what will trigger a rate hike.

The Credit Cardholders’ Bill of Rights would prohibit credit card companies from arbitrarily changing their contract with a cardholder. “They’d need a specific reason to change my interest rate and that specific reason would need to be written into the contract when I get the card,” explains Ruth Susswein, deputy director of national priorities at Consumer Action.

The credit card company would also be required to give you 45 days notice in writing that your rate was going to change. Then you would have three billing cycles to say no to the new terms. This would give you time to look for another card.

Changes in how interest is charged
You can have a perfect payment record with your credit card company and still see your interest rate skyrocket — as high as 32 percent in some cases — if your credit score drops for any reason. This could be caused by a layoff, big medical bills, or a late payment to another card.

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