The good news is the federal government is finally taking action to limit certain actions by credit card issuers.
The bad news is relief may not kick in for a year and a half.
Many of the firms that issue the plastic most of us can’t live without have been raising interest rates. We expect that (after the low-rate enticement period is over), it’s the other increases that irk us.
Companies such as Bank of America, Discover and others have hiked fees for customers who have never missed a payment. Those increases have been routinely applied to existing balances on consumers’ credit cards. Resulting rates in some cases are as high as 32 percent.
Why have they done this?
It’s like the old line about climbing a mountain because it’s there. Federal law until now has allowed credit card companies to raise card rates “at any time, for any reason.” So they have.
The consumer group Consumer Action surveyed 22 credit card issuers earlier this year. Of that number, 17 said their policies allow them to change customers’ annual percentage rate, the APR, or change their terms at any time for any reason.
In some cases, the companies have raised rates for reasons that have little or nothing to do with their customers’ credit card use. Some customers’ credit scores have dropped; some have taken on more debt. Virtually all of them have seen their credit card rates go up as a result. Some financial observers say the real reasons may have more to do with the companies’ changing risk picture than with cardholders’ behavior.
On Thursday of last week, the Federal Reserve said, enough.
It all started back in May, when Fed chairman Ben Bernanke made public a plan to “establish a new baseline of fairness.” It was hailed by consumer groups as the biggest pro-consumer revision of rules on credit cards in decades.
Credit card companies tried to weaken any new rules, voicing fears that any restrictions would hurt their ability to manage risk. Consumer advocates say that will not be the case, and that the major impact will be to prevent the piling of higher interest rates onto existing account balances. Issuers also will be barred from charging interest on debt already paid off.
Also, consumers who have both high- and lower-rate debts have usually seen their payments apply mostly to the lower-rate debt. The new rules say companies will have to apply payments either to the higher rate or proportionately.
Under the new rules, companies will still be able to increase rates going forward or raise credit limits. And they will have 18 months to fully implement the changes. During that time, we’d like to see the new Congress go further.
Lawmakers, please do away with universal default, which allows issuers to raise rates for reasons unrelated to credit card use. Also, please banish those unreasonable and sometimes excessive fees, and stop the any time, any reason juggling of rates. While you’re at it, tell the issuers to stop targeting consumers under age 21; consider their ability to pay back loans and let them decide whether they want the solicitations in the first place.
Oh, and please be as prompt in dealing with consumers’ concerns as you were with major banks awhile ago.
Consumer Forum is a collaboration of the Bangor Daily News and Northeast CONTACT, Maine’s membership-funded, nonprofit consumer organization. Individual and business memberships are available at modest rates. For assistance with consumer-related issues, including consumer fraud and identity theft, or for information, write: Consumer Forum, P.O. Box 486, Brewer 04412, or e-mail firstname.lastname@example.org.