Thursday, May 14, 2009
When the economy first started to crumble and banks were failing right and left, there was a lot of talk about shifting policies in the credit card industry. I caught an NPR segment on the “financial profiling” of consumers, which led me to second-guess every purchase I made on my credit card. If you’re buying groceries, it will make you seem risky, they said. If you buy the cheaper set of tires, it will say to them that you’re one hardship away from financial ruin. Paranoia ensued. And really, it turned out to make no difference at all. I received a letter from my credit card company last week, containing an increase of 6 percentage points. I’ve been a customer since 2005 and have always paid my bill on time. What’s a girl to do? (except to close her account, which is exactly what I did.)
Although the financial struggles of working class families have taken a couple of blows in the Senate with a failed plan to allow bankruptcy judges to restructure mortgages, and a cap on credit card interest rates losing out, things are looking good for legislation that’s being dubbed the “Credit Card Holders' Bill of Rights. It passed the house last week by an overwhelming margin, and will more than likely be voted on in the Senate by the end of the week.
Though not one Senator has stepped up to defend the credit card industry, Rep. Jeb Hensarling, R-Texas said several weeks ago,"I haven't heard any evidence that the competitive market isn't working. In the absence of that, why are you attacking risk-based pricing?" Perhaps Rep Hensarling was taking a little snooze while Wesley Wannemacher told congress about his dealings with Chase Bank. Wannemacher exceeded the limit on his card 3 times (for a total of $200), but was then charged 47 over-limit fees totaling $1,500. And there are thousands more stories like Wannemachers out there.
Lobbying groups that represent the credit card companies argue that the legislation would limit their ability to manage risk. “We know in the end they are going to pass very tough legislation,” said Edward L. Yingling, president of the American Bankers Association. “We just hope they don’t go overboard.” I’ll tell you what seems overboard to me: the fact that, as Senator Bernie Sanders reported on the Senate floor, one-third of credit card holders are paying more than 20 percent interest and sometimes as high as 41 percent on their accounts! A cap on interest rates was thrown out of the proposed legislation, because it was feared that the bill would not pass if it was included. Though a cap seems necessary in order for consumers to recover from debt in this challenging economy, it’s true that we have more pressing matters when it comes to credit card industry policies. Here are a few of the more egregious practices that the Credit Card Holders' Bill of Rights is seeking to abolish:
•If a consumer has any balance owing on a card from the prior month, there is no grace period on new purchases -- every purchase racks up interest charges from day one.
•Under the policy of "universal default," companies will sometimes raise a cardholder’s interest rate when the cardholder is late making a payment on an unrelated debt.
•Here’s the kicker: Companies sometimes charge late fees if they’re late in processing a payment.
The "Stop Unfair Practices In Credit Cards Act" goes a long way to fix the injustices doled out by the industry, but in my opinion it doesn’t do enough. If working families are going to recover from the financial turmoil that the current state of our economy has caused, we’re going to have to find every way possible to fight unfair lending practices, including the amount of interest that a credit card company is allowed to charge its customers.