President Obama will host the Barons of Plastic today in the midst of a Congressional battle over giving beleaguered consumers more protections against wild interest rate hikes, unexpected fees and other common practices. The banks say the changes will restrict credit at a time when consumers and the economy need it most. Supporters of the bill say it’s time to level the playing field between credit card users and the banks.

The reforms are already set to take place July 1, 2010, regardless of Congressional action, because the Federal Reserve has adopted the rules administratively. But many in Congress think that’s not soon enough.

Many readers unhappy with their credit cards have turned to my far more savvy colleague, the Ka-Blogger Kara McGuire. But I have gotten the occasional gripe, such as this one from a reader in Eagan:

I had a small business credit card from [company A] and had always paid before the due date and always paid more than the minimum, and yet they increased my interest rate from 7.99% to 28% on a balance that I was carrying at what I thought would remain at a 7.99% rate. After doing some research, it seems to be their common practice to do this to their customers. I have since paid off the balance and closed my account with them.

This week, a bill creating a credit card holder “bill of rights” passed a House committee. Here’s the summary of what it would do, according to bill sponsor U.S. Rep. Carolyn Maloney, D-NY. My personal favorite part is the second to last provision, barring marketing of credit cards to children:

The “Credit Cardholders’ Bill of Rights,” provides crucial protections against unfair, but unfortunately common, credit card practices.

Ends Unfair, Arbitrary Interest Rate Increases.
• Prevents card companies from unfairly increasing interest rates on existing card balances – retroactive increases are permitted only if a cardholder is more than 30 days late, if a preagreed promotional rate expires, or if the rate adjusts as part of a variable rate.
• Requires card companies to give 45 days notice of all interest rate increases so consumers can pay off their balances and shop for a better deal.

Lets Consumers Set Hard Credit Limits, Stops Excessive “Over-the-Limit” Fees.
• Requires companies to let consumers set their own fixed credit limit.
• Prevents companies from charging “over-the-limit” fees when a cardholder has set a limit, or when a preauthorized credit “hold” pushes a consumer over their limit.
• Limits (to 3) the number of over-the-limit fees companies can charge for the same transaction – some issuers now charge virtually unlimited fees for a single limit violation.

Ends Unfair Penalties for Cardholders Who Pay on Time.
• Ends unfair “double cycle” billing – card companies couldn’t charge interest on debt consumers have already paid on time.
• If a cardholder pays on time and in full, the bill prevents card companies from piling additional fees on balances consisting solely of left-over interest.

Requires Fair Allocation of Consumer Payments.
• Many companies credit payments to a cardholder’s lowest interest rate balances first, making it impossible for the consumer to pay off high-rate debt. The bill bans this practice, generally requiring payments to be allocated proportionally to balances that have different rates.

Protects Cardholders from Due Date Gimmicks.
• Among other measures, requires card companies to mail billing statements 25 calendar days before the due date (up from the current 14 days), and to credit as “on time” payments made before 5 p.m. local time on the due date.

Prevents Companies from Using Misleading Terms and Damaging Consumers’ Credit Ratings.
• Establishes standard definitions of terms like “fixed rate” and “prime rate” so companies can’t mislead or deceive consumers in marketing and advertising.
• Gives consumers who are pre-approved for a card the right to reject that card prior to activation without negatively affecting their credit scores.

Protects Vulnerable Consumers From High-Fee Subprime Credit Cards.
• Prohibits issuers of subprime cards (where total yearly fixed fees exceed 25 percent of the credit limit) from charging those fees to the card itself. These cards are generally targeted to low-income consumers with weak credit histories.

Bars Issuing Credit Cards to Vulnerable Minors
• Prohibits card companies from knowingly issuing cards to individuals under 18 who are not emancipated minors.

Swift Implementation of Provisions
• Legislation would be implemented 3 months following the President signing the legislation into law.

If you want to complain about the behavior of your credit card company, the Federal Reserve has set up this site. Notice how fragmented the regulation is: depending on who issued your card, the responsibility for regulation is divided among six federal agencies.

This entry was posted on Thursday, April 23rd, 2009 at 11:59 am and is filed under Businesses in hot water, Buyer beware. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.