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Report advises credit card industry changes

Summary

A National Consumer Law Center report contends the credit card industry pushes consumers to borrow beyond their means, and recommends new regulations.

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A report released by the National Consumer Law Center in Boston contends that the credit card industry is structured to enable consumers to borrow beyond their means and recommends new regulations to modify some industry practices.  The report notes that in some circumstances the credit card industry’s practices can potentially have negative impact elderly Americans who have fewer resources to help themselves get out of debt.

The National Consumer Law Center report explains that with about 2.3 general-use credit cards in circulation for every man, woman, and child in the U.S., credit cards are everywhere.

The main issue is that the industry is structured to make the most profit from consumers who pay over time, which unfortunately includes those consumers who get into trouble with credit cards, the report explained.  The report also highlighting such things as penalty fees, punitive interest rates, so called “deceptive” marketing, and minimum payment terms allowed cardholders to get stuck in a cycle of debt.

In order to curb credit card debt, the report recommended a series of steps, including prohibiting the certain credit card practices and requiring more open disclosures regarding terms, fees and interest rates.  Additionally, the National Consumer Law Center suggested promoting debit card use as an alternative, but only if consumer protections against fraud are strengthened to match those of credit cards and if banks stop allowing customers to overdraw their accounts.

Its recommendations could result in convenience credit card users, or those who pay off their monthly balances in full, paying higher fees in the future, the report said.  It also might mean consumers with bad or no credit histories will have a tougher time getting credit.  Still, the report stated, both may be acceptable trade offs.

Among the other recommendations provided by the report were:

  • Prohibit late charges if the payment is postmarked no later than the due date.  This restriction would take aim at credit card companies that set weekend or holiday due dates or early-morning cutoff times for posting payments in an effort to trigger added late fees.
  • Prohibit over-limit fees if the card issuer allows the credit limit to be surpassed.
  • Limit creditors to charging a single over-limit fee when a consumer exceeds the limit as opposed to a fee each month the consumers remains over the limit.
  • Prohibit credit card companies from increasing interest rates retroactively and ban universal default policies, which let issuers raise the APR when customers are late with payments to other creditors.
  • Prohibit mandatory arbitration clauses for settling disputes, the use of which the report described as “a tremendous barrier for consumers seeking redress for credit card abuses.”
  • Prohibit issuers from unilaterally altering credit card terms.

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