WASHINGTON, May 3, 2008
Fed Cracks Down On "Unfair" Credit Cards
Politicians Praise Biggest Industry Clampdown In Decades, Others Wonder If It Goes Far Enough
-
Play CBS Video
Video
Curbing The Credit Crisis
Americans are drowning in 850 billion dollars of credit card debt, and creditors are doing all they can to raise interest rates. But new proposed rules could put a stop to that. Nancy Cordes reports.
-
Photo
(AP / CBS)
-
Timeline
Credit Crunch
Feeling the squeeze? Here's a look at actions and statements from key players in Washington.
The proposed rules would be the biggest clampdown on the industry in decades, aiming at protecting people from credit card companies that arbitrarily raise interest rates or don't give borrowers adequate time to pay their bills.
The proposals would also restrict such lender practices as allocating all payments to balances with lower interest rates when a borrower has balances with different rates. The Fed board voted Friday to approve the recommendations.
Federal Reserve Chairman Ben Bernanke said the proposed rules "are intended to establish a new baseline for fairness in how credit card plans operate." Consumers using credit cards "should be better able to predict how their decisions and actions will affect their costs," he said.
"For markets to work, people have to understand what it is they're buying and paying for and if they do they can make better choices and the market will work better," Bernanke said.
The new rules would ban unfair or deceptive tactics, like mailing out bills less than 3 weeks before the due date so there's not enough time to pay, or jacking up the interest rate even for people who pay on time - and then applying that interest to the pre-existing balance.
That's exactly what happened to Dennis English. A trucker in Augusta, Georgia whose rate on his $10,000 balance suddenly jumped.
"It started out at 9.9 percent interest rate and last month when I went to pay my bill I happened to notice that it went up to 32.99 percent," English told CBS News Correspondent Nancy Cordes.
"I explained to them that I have never been late on a payment, I have never missed a payment, I never have been overdrawn on the account," English told CBS News. "And they said, unfortunately, they was nothing they could do about it."
Lawmakers who have demanded tougher controls on the credit card industry were generally positive about the proposed rules, as were consumer groups. But some questioned whether the changes would be strong enough and soon enough to help the millions of households struggling with credit card debt.
The Fed drew considerable criticism for its slow response to abuses that contributed to the subprime mortgage crisis.
"These steps are a significant improvement," said Sen. Charles Schumer, D-N.Y., a member of the Banking Committee and a leader in legislative efforts to make credit card companies more forthcoming about the interest rates they charge. "While they can still go further, the Fed deserves credit for acting, particularly for banning some awful practices rather than relying solely on disclosure."
Last year the Fed proposed rules that would make credit card bills and solicitations easier to understand, but Friday's proposals go well beyond those in tightening interactions between the industry and consumers.
"At first blush, this does seem to be good news for credit card holders," said Sen. Robert Menendez, D-N.J., author of pending legislation addressing some of the same credit card abuse issues. "However, it remains to be seen if these proposals will go far enough."
"The problems are mounting and the last thing consumers need is to have credit card companies ripping them off with late fees and charges through no fault of the consumer at all," said Senate Banking Committee Chairman Christopher Dodd, D-Conn., who is also pushing reform legislation.
The banking industry opposes the changes, and says they could lead to higher interest rates. The rules could be finalized by the end of the year.
The proposed new rules would prohibit:
- Placing unfair time constraints on payments. A payment could not be deemed late unless the borrower is given a reasonable period of time, such as 21 days, to pay;
- Unfairly allocating payments among balances with different interest rates, with lenders crediting payments to balances with lower rates so they can continue to charge interest for balances at higher rates;
- Retroactively raising interest rates on pre-existing balances;
- Placing too-high fees for exceeding the credit limit solely because of a hold placed on the account;
- Unfairly computing balances in a computing tactic known as double-cycle billing;
- Unfairly adding security deposits and fees for issuing credit or making credit available;
- Making deceptive offers of credit.
So are the new rules going to help? Travis Plunkett, Legislative Director of the Consumer Federation of America, says yes.
"It's going to help because some of these practices - we call them traps and tricks, hidden traps and tricks - drive up the amount of money that people owe their credit card companies, often very suddenly," Plubkett told CBS Early Show anchor Susan Koeppen. "You haven't budgeted for these payments, and then you wake up one day, you open your credit card bill, and your interest rate has tripled."
One of the biggest unfair practices that Plunkett accuses credit card companies of using is universal default. "What that means is that you're paying your bill on time, you are paying at least the minimum payment, you are meeting your obligations, and your credit card company decides that you are a higher credit risk and sharply increases your interest rate because of the supposed problem with another creditor," Plunkett said. "Many people don't think it's fair. It's simply not fair. It's not even fair from a business point of view, because in many cases the credit risk, as they say, for these people has not increased at all."
© MMVIII, CBS Interactive Inc. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. The Associated Press contributed to this report.
- 1
- 2
- 3
- next
See all 137 CommentsAND FOR BLACKWATER, ANYONE THATS WANTS TO GET PAID TO KILL AMERICANS SHOULD BE SHOT THEMSELVES, THEY WORK FOR CHENENY AND CHENENY ONLY. WAIT UNTIL THEY USE THEM TOWARD AMERICANS WHEN THEY DECLAIR A STATE OF EMERGANCY JUST BEFORE THEY STRIKE IRAN
go ahead ... raise the rates ... that will be the next thing to limit ... say ... a few points over the prime rate?
This sounds good, but is it enforceable? Wheres the teeth to enforce these proposals? It would be nice to see part of my 15.24 % APR card payment go to the 21.24% APR portion of my bill, considering it has doubled since it appeared on my statements. And if you are wondering how that happened, it was simple (for them). I used one of Chase%u2019s checks to consolidate a balance to their card for both (at the time) lower APR , and to be able to write only one check. What I didn%u2019t know at the time is that this was considered a CASH transaction and carried the higher APR, or that it would only be paid on AFTER any and all other balances were paid off.
She then proceeded to tell this long story about how over the last few decades credit card companies were able to lobby succesfully for changes in the law so they can get as much from their customers as they can.
The sad thing about all this is that when someone like Ralph Nader appears and says, "You know guys, I''ve been warning you all these years about these companies", many people react angrily against him!
It''s amazing how instead of praising this man, or any other man who cares about people more than corporations they''re ridiculed no matter how right they were.
The story told by the Harvard professor involved both Democrats and Republicans working on behalf of the credit card companies.
Nader has been saying for years there''s hardly a difference between these two parties and no one would believe him.
Do you now know what he means when he says we need a third and honest party as an alternative to these two monsters running our government?
I hope you do, I truly do.
Faith that the lobbyists will insert enough money into congresscritters pockets to insert enough loopholes to make the rules worthless.
Posted by RandyNason
----
I''m getting all giddy at the thought of Chase getting put on a leash.
Maybe because so many bank presidents are "Bornagain" Christians??
Typical goverment. Bunch of crooks that stick together with the other crooks & theives who continually rape the American public / consumer. Must be some higher paying special interest group involved here or the government is looking for someone else to blame for their screw-ups.
You are now firmly in the uneducated white racist column who has taken all of reverand Wrights comments "out of "context" so welcome aboard. LOL The next thing they will says is that you are a racist who would have never voted for him anyway.
Oh, that''s right, this is about credit cards. Well,,,they suck too.
And they have one rate for the rest of us.
That rate is around 30%.
Do the math.
Don''t forget, it was the banking/credit card industry that the GOP-led Congress let rewrite bankruptcy laws in 2005 to favor themselves over consumers. The banking industry already bought out government. This new talk isn''t fooling anyone.
Posted by my2centss at 09:56 PM
More like 7 years past due and $9.4 trillion too short.
Posted by labombaOH at 09:38 PM
Or post on web sites. Off with you.
Posted by gkc99
***************************************************
The bankruptcy laws were changed under Bush. The subprime credit market happened under Bush. Some day people will run out of things to try and blame on the Clintons. I''m surprised they haven''t been blamed for the Titanic sinking.
You have three choices:
1. Pay off your entire credit card bill monthly.
2. Don''t charge so much!
3. Change credit card companies.
You have noone to blame but yourself. Quit trying to blame everyone else for problems that you created.
10 to 1 this story is still here on Sunday morning.
1. The late fees cause the consumer with a $300.00 limit to go over the limit. It was late due to the date change.
2. The credit card company continues to charge these fees until approx. $2,000.00 worth of over the limit fees and late fees. Then they seek judgment against you in the Court of Law who then favors those who have their contract with fine printing.
3. The credit card companies buy and sell each other''s credit card division until they are 7 deep from the original business that you had the dispute with.
4. The credit card companies completely forget any payments you made over the years and the dispute that you made in regards to the over the limit fees / late fee. %u201CMr. know it all%u201D says if you just paid the fees you would have no issues! %u201CMr. Know it All%u201D says this even though the company caused you to go over the limit with the late fees in the first place. The due date changes from month to month just like the cell phone companies. It is a moving target. As usual Mr. know all resorts to name calling at someone else''s expense.
All my cards are grace accounts, have no annual fees, give me at least 2 to 4% back on purchases, and give me zero interest for 6 months on any balance transfers.
I don''t have any problems with credit card companies.
Posted by erlindab
There is no excuse for late payments, you have a MONTH almost to pay the bill, secondly you should be paying with electronic payments NOT mailing a check! The first time that check gets lost in the mail you are skrewed- use your head and save the postage!
My card is PayPal/Washington Mutual www.wamu.com Not only have I had zero problems of any kind with them but I pay the bill thru the account on their web site, no matter what I have the electronic record of the payment SCHEDULED to deduct from my 2nd checking acct, if something happens its their fault as the payment is scheduled and activated on the date I specify.
If everyone did this,,they would be out of business. It''s just that simple.
If everyone did this,,they would be out of business. It''''s just that simple.
--------------------------------------------------------------------------------
Posted by slim1h2o at 04:10 AM : May 03, 2008
- You are so right. I only have one. I was glad I had it when my father passed away, to pay for his funeral and such, while I waited to be reimbursed from the estate. However, I think people would agree this was an ''emergency'' need. I also use it on occasion to take advantage of the guarantees on purchases like auto repair, but I do not ever, ever put silly purchases on my card.
There are times that I wished I still had a credit card, but they''re far and few between,,but what you have described, seems prudent to me.
There are times that cash will not do, but not many!
Isn''t it a little too late now? Too little too late! The damage is done!
Do you suppose they figure they''ve fleeced us for as much as they can?
She then proceeded to tell this long story about how over the last few decades credit card companies were able to lobby succesfully for changes in the law so they can get as much from their customers as they can.
The sad thing about all this is that when someone like Ralph Nader appears and says, "You know guys, I''ve been warning you all these years about these companies", many people react angrily against him!
It''s amazing how instead of praising this man, or any other man who cares about people more than corporations they''re ridiculed no matter how right they were.
The story told by the Harvard professor involved both Democrats and Republicans working on behalf of the credit card companies.
Nader has been saying for years there''s hardly a difference between these two parties and no one would believe him.
Do you now know what he means when he says we need a third and honest party as an alternative to these two monsters running our government?
I hope you do, I truly do.
"Nothing to see here folks, move along..."
- 1
- 2
- 3
- next
See all 137 Comments