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Senate Bill Would Curb Abusive Credit Card Practices

By Martin H. Bosworth
ConsumerAffairs.com

May 16, 2007

• Credit Tips And Tricks • Get Control of What You Owe • No Easy Way Out Of Credit Card Debt • Penalty Fees, Interest Rate Hikes, and Misleading Contracts Await Credit Card Shoppers • "Convenience Checks" Carry a Heavy Price Tag • Understanding Credit • Credit Bureaus: Who You're Dealing With • Reading Your Credit Report • Credit Scoring: The Fickleness of FICO • Credit Knowledge: A Long, Hard, Struggle --- News • New Credit Card Protections Can Help Level Mountain of Debt • Consumers: Know Your New Credit Card Rights • New Credit Card Rules Take Effect February 22 • Credit Card Direct Mail Back on the Rise • FTC Urged To Place Tighter Controls On 'Free' Credit Reports • Attorneys General Warn of 'Free' Credit Report Confusion • Retailers: Hidden Credit Card Fees Cost Jobs • Interchange Fees Fleecing Consumers, Retailers Say • Minnesota Sues Clinic For Credit Card Fraud • Retailers Applaud GAO Report On Interchange Fees • Schumer Moves to Clean Up Credit Reporting Ads --- • More about credit cards

Two Democratic Senators have introduced legislation that they say would rein in the most abusive practices of the credit card industry by limiting interest rate hikes and curbing punitive fees that can prevent consumers from ever paying off their debt.

The "Stop Unfair Practices In Credit Cards Act" was introduced on May 15 by Senators Carl Levin (D-MI) and Claire McCaskill (D-MO).

“Credit card issuers too often sock consumers with sky-high interest rates and excessive fees, making it harder and harder for families to climb out of debt,” Levin said. “The goal of this legislation is to put an end to unfair and abusive credit card practices that outrage so many American families."

"We have to fight for those who have not hired dozens of lobbyists to make sure that American consumers are not getting ripped off and are fully informed of how these companies are manipulating their financial security," McCaskill said.

The act's provisions include:

• Prohibiting interest charges on any portion of a credit card debt which the card holder paid on time during a grace period.

• Prohibiting added "trailing interest" charges on credit card debt which the card holder paid on time and in full.

• Preventing the charging of interest on credit card transaction fees, such as late fees and over-the-limit fees.

• Restricting the charging of repeated overlimit fees for a single instance of exceeding a credit card limit.

The bill also requires that cardholder payments be automatically directed to the credit line with the highest balance, and prevents fees from being levied if a payment was late due to a card issuer's action.

The Consumer Federation of America's Travis Plunkett called the act “important legislation will stop credit card companies from using a variety of traps and tricks that harm consumers and illegitimately pump up profits.”

“Owning a credit card company is often a license to steal," said Ed Mierzwinski of U.S. PIRG, "But Senator Levin’s legislation makes him the new sheriff in town. His bill bans some of the most unfair credit card company practices that strip money out of consumer pocketbooks and wallets.”

Levin chairs the Permanent Investigations Subcommittee, which McCaskill serves on, and held hearings earlier in the year blasting banks and credit card issuers for inscrutable agreements, cryptic practices, and sky-high interest rates.

Representatives from Bank of America and JP Morgan Chase were thoroughly grilled on their business practices during the hearing, with many promising to end practices such as "universal default" in order to avoid regulatory action.

Levin had earlier requested a report from the Government Accountability Office (GAO) on credit card fees and disclosure statements. The GAO report found that penalty fees for credit cards had nearly doubled from $13 in 1995 to $34 in 2005, and that credit card disclosures were written at a level much higher than the average American could understand, with important information often buried deep in agreements that readers would miss.

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