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Senate considers credit card industry reforms

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The Senate Banking Committee panel, led by Democrat Christopher Dodd of Connecticut, has been shining a bright spotlight on the disclosure, marketing and billing practices of the U.S. credit card industry in recent months, as consumer advocates pressure Congress to restrict the rates and fees that credit card companies can levy on consumers.  Although its last formal hearing on the matter was in February of this year, the implications of potential legislative action continue to motivate pre-emptive policy changes among the ranks of the nation's largest credit card issuers.

Compare Low Interest Credit CardsIn prepared testimony for the Senate Banking Committee hearing, the legislative director of the Consumer Federation of America charged that no American industry is more deserving of Congressional oversight that the credit card industry.  Consumer advocates believe that the credit card industry's tactics are burying many Americans in debt.

Meanwhile, a Homeland Security and Government Affairs subcommittee launched an investigation into misleading credit card practices.  Subcommittee head Sen. Carl Levin of Michigan requested a study from the Government Accountability Office that recently highlighted a spike in the number of consumers facing interest rates above 25 percent, large increases in average fees for late payments or exceeding a limit and sizable exceptions in how fees are reported to consumers.

Since the credit card industry experienced favorable treatment under Republican control of Congress, the surge in movement represents a major change.  Now that Democrats have control, the focus is on the way in which credit card terms from banks and associations can weigh on consumers. 

According to critics, some credit card issuers employ practices that punish lower-income households with a surprise increase in their credit card interest rates or additional fees due to a fall in their credit scores.  At the same time, wealthier American can pay off their balances each month and enjoy the perks provided by reward credit cards.

Both the Consumer Federation of America and the National Consumer Law Center recommended that senators help safeguard consumers by limiting rates and fees imposed by credit card issuers.  The National Consumer Law Center stated the basis for the problems lies in the fact that U.S. credit card transactions are currently unregulated -- something that needs to change.

However, credit card companies rose to defense of the industry.  Among them, Capital One noted that it does not make use of universal default, under which credit card interest rates can increase if a consumer is late with another credit card payment, a utility bill, or other bill.  Capital One said that the only way a customer could experience default pricing is if they are more than three days late with a payment twice in a 12-month period.

Also, credit card industry officials reported that many card organizations have already begun to distance themselves from practices that upset consumer groups, adding that cardholders are enjoying numerous benefits as competition in the market place grows.  Washington-based trade group the American Bankers Association noted some positive developments for consumers, saying that interest rates have fallen, credit is more widely available, and consumers dictate whether they end up paying fees.

In fact, the GAO report showed the average interest rate on many credit cards it looked at was notably lower than in earlier periods and that not every fee is increasing.  Mr. Dodd himself and his colleague acknowledged the important and expanding role credit cards play in the economy, adding that credit cards usually provide consumers with zero liability and other fraud protections not afforded to those who make purchases with cash, checks, and certain debit cards.

Still, credit card industry supporters and critics are both in agreement about the importance of making rates, terms, and fees more clear to consumers.

Published: January 25, 2007


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