Credit companies' shifty rules

Published March 18, 2007

Forget apple pie. Nothing is as American as credit card debt. We carry 640-million credit cards (more than two cards for every man, woman and child) and the average family is burdened with $9,300 in credit card debt. As anyone who has carried a credit card balance knows, that amount can quickly grow. It happened to Wesley Wannemacher, who charged $3,200 to pay for his wedding. Over six years he paid $10,700 in principal, interest and fees ... and still owed $4,400.

The Senate Permanent Subcommittee on Investigations is looking into such lending practices in hopes of reining in some of the excesses in the lightly regulated industry. Among the questionable tactics used by credit card companies are these:

- Universal default. A customer's interest rate is increased because of a missed payment on a different card or a drop in credit score.

- Junk fees. Sometimes hefty fees are assessed on a variety of credit card activities, including cash advance, balance transfer, wire transfer, currency conversion, late payment and over-limit transaction.

- Penalty rates. Interest rates are bumped up to 20, 30 or 40 percent and applied to existing balances after a customer makes a late payment or exceeds the card's credit limit.

- Change in terms. Terms agreed to by a cardholder, such as the maximum interest rate charged, can be changed by the card company with only 15 days notice.

Those and other practices always favor the card companies, leading to enormous profits. "The exorbitant interest rates and multiple fees charged to already overburdened consumers are breaking the proverbial backs of American families," said Alys Cohen, staff attorney for the National Consumer Law Center.

The Senate panel called the largest credit card issuers to testify, including J.P. Morgan Chase and Citigroup, hoping to pressure the industry into better self-policing. The tactic worked to some extent, with Citigroup saying it would drop universal default and Chase forgiving the ever-escalating charges on Wannemacher's bill.

Yet Congress can't count on the credit card industry to keep its hand out of the cookie jar. At some point, the personal tragedy of financial decline and bankruptcy becomes a national contagion that could threaten our economy, which relies too much on consumer spending.

Congress needs to write new regulations that force the industry to better inform consumers of the risks of credit cards, and to outlaw the mysterious fees and unilaterally malleable contracts that trap consumers in what is becoming the American nightmare.