Help May Be on the Way for Credit Cardholders

If some legislators have their way, credit card companies will no longer be able to gouge consumers with exorbitant fees resulting from unfair practices such as double-cycle billing, surreptitiously changing payment due-dates, charging repeated fees for over-limit violation, and raising interest rates at any time for any reason. These were among the numerous "tricks and traps," as one congressional witness put it, used by credit card companies that were discussed during hearings held in Washington by the Subcommittee on Financial Institutions and Consumer Credit on Thursday, March 13^th.

"In recent years, the playing field between card companies and cardholders has become very one-sided," stated Subcommittee Chairwoman Carolyn B. Maloney (D-NY) who introduced the consumer protection bill, along with Barney Frank (D-MA), dubbed H.R.5244 - "The Credit Cardholder's Bill of Rights: Providing New Protections for Consumers." Maloney's legislation aims to end abusive credit card industry practices and provide important consumer protections to credit cardholders.

During the four-hour long hearings on Thursday, the subcommittee heard from various house representatives, legal and economic experts, and credit card industry representatives. Consumers who showed up to testify at the hearings were, at the last minute, not allowed to do so, however, due to "fairness concerns," - specifically that the consumers had not signed waivers that would have allowed the credit card companies they were prepared to testify against to publicly respond. Maloney wrote in a press release after the hearings on Thursday: "I am disappointed that we were not able to hear from our consumer witnesses today. These are regular people who, like so many of their fellow Americans, have an important story to tell about problems they have encountered with their credit cards." Maloney intends to bring the consumer witnesses back at a later date. "It is my hope that we will be able to work things out between now and our next hearing, and bring our consumer witnesses back to testify. These good people deserve to have their voices heard on this issue, and I believe it is imperative that this Committee hear real world examples of how this credit card bill would help consumers."

Nonetheless, those who did testify in favor of the bill, such as Elizabeth Warren, Professor of Law Harvard Law School, renounced the "unfair, often devious, sometimes legally deceptive" practices by credit card companies that burden Americans, miring them in an unending cycle of debt, creating financial hardship, and often financial ruin. "Without careful regulation to support prudent lending, the risk increases that a credit card bubble will further destabilize both families and the larger economy," she stated.

With the sub-prime mortgage crisis recently requiring the federal government to step in and offer financial assistance to millions of Americans whose homes are facing foreclosure, many experts predict the next crisis that looms on its heels is a consumer credit card debt implosion. Indeed, some experts theorize that the unscrupulous tactics of credit card lenders played a hand in home foreclosures as many consumers, when forced to choose, scrambled to pay their high credit card balances, many resulting from unfair and unanticipated exorbitant interest rates, rather than their house payments.

If the Credit Cardholder's bill is passed, changes credit card companies would be forced to make would include ending practices that mislead customers such as: requiring payment before noon or using fine print to shorten the due date for long-time customers; and double-cycle billing, which is used to collect interest on money that the customer has already repaid. Other requirements under the new law would include: eliminating universal default (using a cardholder's information with other credit card companies to justify re-pricing his or her interest rate); any-time, any-reason re-pricing; requiring advance notice of rate increases; making sure that terms such as "fixed rate" and "prime rate" carry their ordinary, English meaning; and limiting the issuer's ability to change the credit limits without the consent of the customer.

Representatives from three major credit card companies showing up to testify at the hearings against the bill included Capital One, Chase, and Bank of America. More than one predicted that if the law passed they would be forced to increase fees and that credit would no longer be widely available to the average consumer. When pressed three different times by Maloney why someone with three cards from the same company would have a different interest rate on each one, none of the representatives was able to give a satisfactory answer, even though they all claim that interest rates are set for each consumer on an individual risk basis.

One of the most colorful moments of the hearings was when Congressman Gary Ackerman (NY) held up a stack of credit card offers that he had received in the past year and announced, "This is a mess." He then challenged any of the three representatives tfrom the credit card companies to take one of the offers and, after reading the jumble of terms, accurately calculate what the customer would have to pay back if borrowing a certain amount. None of them took the challenge.

Chase, Bank of America, and Capital One claim that they have begun to voluntarily make changes in their questionable practices, perhaps due to increased scrutiny by congress over the past year. Capital One is unique in that it has never engaged in universal default practices.

To view the entire archived Webcast of the hearings (which, frankly, I found quite gripping and more entertaining than this week's My Name Is Earl episode) go to www.house.gov. You can even sign up for updates on future hearings.

With an estimated 115 million Americans who carry monthly credit card debt, only half of which are able to pay of their cards each month, and bankruptcies climbing to over one million per year, Americans may find future hearings on the pending Credit Card Bill Of Rights, which no doubt will include numerous horror stories by debt-ridden consumers, to be some of the most watched, and the most relevant, ever.