Credit Card Companies Get a Gift–from Congress

The New York Times last Friday published one of those magisterial editorials that it does so well. The headline was “A Gift to Credit Card Companies,”and the content none too politely criticized issuers’ “deceptive predatory practices” during the grace period that they were given before the Credit Card Accountability, Responsibility, and Disclosure Act of 2009 (Credit CARD Act for short) comes fully into force.

And it went on to attack Senator Thad Cochran (R,MS) who, earlier in the week, had blocked a legislative attempt to freeze credit card rates immediately.

Credit Card Rates Too High

The day after the New York Times’s piece, the Boston Globe brought its guns to bear on the industry. It too criticized Congress for its handling of credit card regulation. And its attack on card issuers pulled no punches. The opening paragraph read:

When organized crime charged double-digit rates for credit, it was called loan-sharking, and polite society frowned on it. Today some of the nation’s biggest banks are imposing interest rates on credit cards that would turn Tony Soprano green with envy. And Congress has been looking the other way.

The Globe piece continued with a quote from Vikram Pandit, who is CEO of Citigroup. In what some in the industry might have perceived as friendly fire, he told Globe staff that the industry “needs clear rules of the road – whatever they are.”

The editorial conceded that imposing maximum credit card rates would dramatically reduce the number of new cards that the industry would be willing to issue, but concluded that–after the 2008 meltdown–that would be a price worth paying.

Consumers Union Joins Barrage

Also last week, the Consumers Union issued a statement on the subject. It called on the Federal Reserve Board (FRB) to stop credit card companies from continuing a range of “abusive practices.” These included:

• Forcing customers to accept interest rate increases that will soon be illegal
• Failing to advise customers of their right to opt-in for over-limit coverage
• Rigging some supposedly “variable” credit card rates so that they’re not truly variable
• Harming customers’ credit scores when changing card contracts
• Making it difficult for customers to earn their way out of penalty interest rates

Credit Card Regulation May Already Have Loopholes

The Credit CARD Act has provisions that are designed to limit issuers’ penalty options if a customer is less than 60 days delinquent on payments. However, the Consumers Union reveals that Citibank may have–with breathtaking creativity–already circumvented these.

Citibank has hiked its credit card rates to as much as 29.9 percent while offering to credit back 10 percent of the interest if the customer pays on time. So the bank hopes that it can in effect charge that eye-wateringly high penalty rate the instant a late payment arises, without having to wait for the cardholder to reach the 60-day delinquency that the Credit CARD Act provides for.

Credit Card Companies Make How Much from Penalties?!

Meanwhile, Saturday’s Denver Post reported that penalty fees alone are expected to generate revenues of $20.9 billion for credit card issuers this year.

No wonder banks are being so creative.

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