As consumers have been hit with huge interest rate hikes and increases in their minimum monthly payments, complaints about Americas credit card industry are reverberating through the halls of Congress.
CitiGroup, Bank of America and Capital One have all, in recent days, began raising customers interest rates, in many cases saying it has nothing to do with the customers performance and everything to do with making up for losses before new laws and regulations tie their hands early next year.
Chase has singled out its customers with the lowest interest rates, raising the minimum monthly payment from two percent of the balance to five percent. In many cases this action turns the credit card payment into the size of a home mortgage.
"This is what many of us feared about a law that didn't take effect right away," Sen. Chuck Schumer (D-NY) told The Washington Post.. "It was never going to take this long for the credit card companies to get ready for the new reforms. Instead, issuers are using the delay in the effective date to wring more dollars out of their customers. It is against the spirit of the law, and it is just plain wrong."
Rep. Carolyn Maloney (D-NY) authored the Credit Card Holder Bill of Rights legislation signed into law in May. She has been besieged with complaints from angry consumers.
Rate hikes on existing balances being reported by news media and consumers, even when consumers pay on time and follow the rules, are unfair and deceptive and must be stopped, she said. Capricious actions like these are why Congress overwhelmingly passed, and President Obama signed, my credit card reform bill: to level the playing field on behalf of consumers.
Maloneys protests not withstanding, Congress is pretty much powerless to stop credit card companies from raising rates and adjusting minimum payments, because they are allowed to do so under current laws and regulations. The changes do not take effect until February 2010.
Maloney notes that in another few weeks, one new rule will take effect requiring banks to provide a 45-day notice of any rate hikes. She and other Democrats on the Hill are using the consumer outcry over credit card company behavior to press for still more legislation.
All of this flurry of news is another example of why we need President Obamas Consumer Financial Products Safety Commission-- which the House will be considering in the weeks ahead, Maloney said.
In the Senate, Banking Committee Chairman Christopher Dodd (D-CT) also threw his support behind creation of the Consumer Financial Products Safety Commission.
The Administration is addressing the colossal failures that led to the economic crisis with a bold and aggressive plan, said Dodd. Creating an independent agency whose sole focus is protecting consumers - be it credit card holders, anyone with a bank account, or families with mortgages or student loans is really the key to creating the foundations for a stronger economy.
Dodd said banks that harm consumers with their policies do so at their own peril.
It is unbelievable that some of the same irresponsible actors that helped create the current financial mess would argue that we are doing too much for consumers, he said. Dont they realize that they need a healthy customer base if they want to continue to be successful?
But he American Bankers Association essentially says I told you so, noting the passage of the Credit Card Holders Bill of Rights in May is bringing about these changes.
The new legislation restricts the ability of credit card companies to price based on the individual risk of the customer, the ABA says in a statement. As a result, the system becomes a one-size-fits-all model, meaning that interest rates will likely increase for nearly everyone, including those with a good credit history, as those who successfully manage their credit will be subsidizing those who have not.
In this new environment, the bankers say, card limits will be lowered since lenders will be limited in managing risk going forward. Even customers that have a good credit score or have never missed a payment will likely see less credit available to them.
