Credit Card Legislation to Be Implemented Early?

Credit Card Companies Accused

In the past few days, two U.S. senators have in effect accused credit card companies of gouging their customers. First up, last Thursday, was Senator Mark Udall (D-Colorado), and he was followed on Sunday by Senator Charles “Chuck” Ellis Schumer (D-New York).

Both spoke out in support of a new bill, the Expedited CARD Reform for Consumers Act, which was introduced by Mr. Udall, and which–if passed–would bring forward the date on which credit card regulation under the Credit Card Accountability, Responsibility, and Disclosure Act (Credit CARD Act) is going to become law.

Credit Card Legislation Failing Consumers

According to Senator Udall’s statement:

The Credit CARD Act was set to take effect in February of 2010 to give the credit card industry ample time to update their computer systems and implement the new, consumer friendly policies.

Instead, credit card companies have taken the time to game the system and get rate hikes in under the wire. As a result, millions of responsible credit consumers have been victimized by unfair rate increases and dishonest practices.

Credit Card Rates Up

In their remarks, the two senators both cited work carried out by the Pew Charitable Trusts’ Safe Credit Cards Project. Between December 2008 and July 2009, the Project monitored the deals advertised by America’s 12 biggest card companies, which between them account for some 90 percent of the nation’s credit card debt.

It found that the median annual percentage rate (APR) on offer in July was between 13 and 20 percent higher than that available in December.

Credit Card Terms Tougher

But higher credit card rates isn’t the only issue facing consumers according to the Pew Project. In evidence to a congressional subcommittee earlier this month, Nick Bourne, who manages the project, said:

Since passage of the Credit CARD Act, the situation has only become worse for cardholders. Americans remained exposed to widespread practices that the Federal Reserve deemed “unfair and deceptive,” and a variety of hefty penalty charges.

The Credit CARD Act of 2009 includes many important new consumer protections that are not currently scheduled to take effect until 2010. Until then, banks may continue to raise rates on outstanding balances, impose what the Federal Reserve called “hair trigger” penalty repricing, apply payments in a way that maximizes interest costs and charge unrestricted overlimit fees.
Our latest research shows that practices labeled “unfair or deceptive” by the Federal Reserve – practices at the core of the consumer protections provided in Title I of the Credit CARD Act – remain widespread, with some policies worsening since our December 2008 study.

Unreasonable Penalties

Among the least fair practices that Nick Bourne and his team uncovered were penalties for late payments and exceeding credit limits, which appear disproportionate.

This column plans to revisit those issues soon.