Cracking down on credit card craziness

Elisa Rizzo of Seattle just got her credit card statement. Her “fixed” interest rate nearly doubled, from 7.99 percent to 14.99 percent, even though she always pays her bill on time and has a good credit score. Why? The bank told her it had to charge the higher rate because of the downturn in the economy. Rizzo says she is “appalled at this action” and wants something done to “stop this madness ASAP!”

Let’s cut to the chase. For years, banks have taken advantage of their credit card customers with excessive fees and unexpected interest rate hikes. People who can barely make their monthly payment are devastated when it doubles overnight. “It is literally in some cases pushing them over the edge,” says credit counselor Renee Chamkunthod.

Help is on the way. In December, the Federal Reserve Board issued regulations to stop what it called “certain unfair acts or practices” that hurt cardholders. Among other things, the new rules will limit unexpected interest charges, prohibit an interest rate hike on pre-existing balances and require a reasonable amount of time for customers to make their payments.

Consumer groups like the new rules. But they say the Fed gave banks way too long – until July 2010 – to implement the changes. Consumer groups want Congress to stop the pain now.

“The Federal Reserve said these are abusive and deceptive practices,” notes Travis Plunkett, legislative director at the Consumer Federation of America. “It’s unfathomable that they would wait a year and a half and let the credit card companies continue to use them.”

Linda Sherry, director of national priorities at Consumer Action, believes the credit card companies “will continue to take advantage of consumers to boost their profits until these rules go into effect.”

Congress is already on the case. Last week, Congresswoman Carolyn Maloney (D-N.Y.) introduced her Credit Cardholders’ Bill of Rights Act of 2009.

“This bill will allow consumers to manage their credit and not get interest rate increases unfairly put on them,” Rep. Maloney says. “They will know the information that is given to them is accurate.”

Know your rights Credit Cardholders' Bill of Rights Act of 2009 The bill does not contain any rate caps, price controls or set fees. It would prevent: — Arbitrary interest rate increases — Excessive fees — Misleading terms — Due date gimmicks — What are considered abusive ways of calculating interest — Giving subprime credit cards to people who cannot afford them The new bill is the same as the one passed by the House last session, with the new provision of taking effect within 90 days of being signed into law. Read more about the bill (.pdf)

Senators Charles Schumer (D-NY) and Mark Udall (D-CO) are co-sponsoring similar legislation in the Senate. “It’s time to give the power back to the consumer,” Schumer says. The bill will do that, he says by outlawing “predatory practices” and banning “unannounced, unfair and deceptive fees and rate increases.”

The Credit Cardholders’ Bill of Rights would do many of the same things the Federal Reserve Board’s rules will do, but much faster. It takes effect 90 days after being signed into law. Rep. Maloney tells me she believes Congress will pass the bill “because the public is demanding it.”

It could happen to you!
Karen Reid is a horse breeder on Fox Island, Wash. She calls what happened to her “absolutely criminal.” Her credit card had a “7.99 percent fixed APR.” The ad states that in several places. But last August, her interest rate jumped from 7.99 percent to 20.39 percent on both her existing balance and new charges.