Credit Card Execs On The Hot Seat

(CBS/AP)  Credit card executives on Tuesday deflected congressional criticism of their practice of using falling credit scores to charge customers higher interest rates.

Industry critics say it's another example of abusive, confusing credit-card practices that can push consumers deeper into debt.

Sen. Carl Levin, D-Mich., chairman of a Senate Homeland Security and Governmental Affairs subcommittee, said customers who consistently pay on time are getting whacked by credit-card issuers that raise such rates without an adequate warning or a clear notice.

"The bottom line for me is this: when a credit card issuer promises to provide a cardholder with a specific interest rate if they meet their credit card obligations, and the cardholder holds up their end of the bargain, the credit-card issuer should have to do the same," he said Tuesday.

One purpose of today's hearing was to try to embarrass the companies into voluntarily changing their policies, reports CBS News correspondent Chip Reid. If they do not, some senators said they will try to change the law.

In part due to pressure from the Senate investigation, three big credit-card companies - Citibank, Chase and Capitol One - said they won't be raising interest rates for people who pay their bills on time, reports CBS News correspondent Bob Fuss.

But executives from Bank of America and Discover Financial Services told the subcommittee that a credit score is one of several factors in determining whether to increase a customer's interest rate.

"It's important criteria for how to manage risk and pricing," said Roger Hochschild, Discover's president and chief operating officer.

Bruce Hammonds, president of Bank of America Card Services, said his bank also considers customer behavior on an account and their debt to others, in addition to credit scores.

But it's the behavior of credit-card issuers that prompted several consumers to testify before Levin's subcommittee about not being informed when their rates were hiked.

Janet Hard of Freeland, Mich., said her Discover credit-card rate nearly tripled without adequate notice and that issuers send "deliberately misleading and confusing" information.

With Americans weighed down by some $900 billion in credit-card debt - an average $2,200 per household - practices of the very profitable industry have been ripe for scrutiny by the Democratic-controlled Congress.

Levin's subcommittee, which has been investigating the industry, looked at how credit-card issuers raise consumers' rates, to as high as 30 percent, when their so-called FICO credit scores decline - even if they've paid credit-card bills regularly and promptly. In many cases, consumers have little notice of the increased rate, which are automatically triggered by declines in FICO scores for reasons left unexplained, the subcommittee found.

In some cases, just opening another account, such as a department store credit card, could trigger the downgrade in credit score.

In one of the cases cited by the subcommittee, Marjorie Hancock of Arlington, Mass., wound up with interest rates on her four Bank of America credit cards of 8 percent, 14 percent, 19 percent and 27 percent, even though her credit risk is the same for all four.

Ken Clayton, managing director of card policy for the American Bankers Association, which represents the banking industry, said Monday: "Costs for nearly every product can change, be it because consumer's risk profiles change or because underlying costs change. Credit cards are no different."

Five big financial companies - Discover, Bank of America., Citigroup Inc., JPMorgan Chase & Co. and Capital One Financial Corp. - issue around 80 percent of U.S. credit cards, according to the subcommittee. A Capital One official also testified at Tuesday's hearing.

Citigroup, Chase and Capital One said they will discontinue the practice; Citigroup's change already is in place and Chase's will take effect in March. But Levin says legislation may still be needed to get other companies to do the same.

Larry DiRita, a spokesman for Bank of America, said its customers "have the right to say 'no' to an increase."

[enriquecaliente]

This is nothing, but a dog and pony show. Smoke and mirrors. Who do you think the government is in bed with....? You got it, the banks. There was a time that you could write off the interest rate on your card just like you do your home mortgage, but the government put a halt to that, why.? Bottom line, the banks and government want and need slaves. And guess how they put chains on you.?

[logicanada]

Want to know how and why banks and credit card co.s fix things in their favor?

Youtube; Corrupt Banking System- How Money is Created.
10 part series.

[kitone--2008]

I signed up for CARECREDIT at my vet''s recommendation when my pet suddenly became ill and needed surgery (nearly 6K). I was told I would have 12 months interest free to pay off the card. After 3 months I had all but 350.00 paid off. My bill suddenly included an erroneous interest ( should have been interest free for 9 more month) - for nearly 100.00! Yep. I was charged over 90.00 interest - erroneously yet - for my 350.00 balance. They said it was retroactive on the amount I had already paid off. Then they told me to go to the vet''s office to clear up the card terms. Then the vets office claimed the card was not like other cards (no kidding, they should have told me that in the first place). Terms are keyed in with each vet bill, and do not follow the card. They ultimately fixed the interest charge, but only after I paid the 350.00 in full that same day. I vowed to never use the card again. Consumers should beware of "CARE CREDIT"

[johnnye6]

"There''s no question that this is a time when corporations have taken over the basic process of governing." according to John Kenneth Galbraith on NPR shortly before he died.

[bobms111]

I WAS FACED WITH THE SAME SITUATION USING A CAPITAL ONE CREDIT CARD. i WAS NEVER LATE WITH A PAYMENT BUT i DID RING UP DEBT FROM A POOR BUSINESS DEAL WHICH WAS OBVIOUSLY REFLECTED IN MY CREDIT SCORE. MY INTEREST RATE WAS 7.9% AND OUT OF THE BLUE CAP ONE SENT ME A NOTICE THAT MY NEW RATE WOULD BE 23% i BELIEVE. MY OPTION WAS TO CLOSE THE ACCOUNT AND CONTINUE TO PAY AT THE 7.9% RATE WHICH I HAVE CONTRINUED TO DO ON TIME.
cAP ONE DID THREATEN HOWEVER THAT IF I WAS EVER LATE WITH A PAYMENT THEY WOULD RAISE THE RATE TO 23%. i AM SURE THE BANKERS ARE LICKING THEIR CHOPS WAITING FOR ME TO MAKE A PAYMENT LATE.

[walt1944-2009]

Anyone who has ever watched a "Star Trek" episode, knows who the Ferengi are. For those who haven''t, the Ferengi were a race of creatures whose only existence in life was profit, profit, PROFIT!!! They never gave anything away (charity was NOT in their nature unless their a handsome return on it) and their "Bible" was a book of laws called the "Rules of Acquisition", which listed rules on how a "good" Ferengi could be a shrewd business and especially a PROFITABLE one!

Once again, Gene Rodenberry got it right!

Sounds a lot like the political system and corporate America to me! This nation has become a nation of GREED and PROFIT at ANYONE''S expense just like the Roman Empire; and you can bet this country is going to end up just like the Roman Empire did!

SIG HEIL, BUSH!!!

[forthepeopl1]

can anyone tell me what bushes rate is on our countries credic card that he has spent up to 9 trillion dollars??????

[johnnye6]

I got one of those American Airline Citibank credit cards so I could build up frequent flyer miles. Right before I took my extended trip to Europe they added on a new foreign-exchange fee of 3%. So now any miles I earn by using it are offset by that fee so it''s not worth it anymore.

[darkstar864]

The whole thing is a scam! Bank One did this to me a couple of years ago. My credit score at the time was around 750 and they decided to raise my inerest to close to 20%! I started out with 0% mind you. I called to complain and they said I was carrying too much debt. After reminding them that I had been paying them THREE weeks early every month (and more than the minimum)... the rep became nasty and when I said to close my account, they couldn''t have cared less!! I am sticking with my Key Bank credit card. After 10 years, they have yet to play any such games.

[hkihega]

Oh yea, one more thing...FICO is not there for you it''s there for the Corporations! Proof is paying on time regardless of how much debt you have, your interest can still skyrocket! FICO is a joke.