Credit card swipe gets new meaning

By A TIMES EDITORIAL
Published August 4, 2007

The tactics used by credit card companies to wangle more of your money in fees, interest and penalties keep getting more creative and more shameful. Tougher laws are needed to stop them from taking advantage of their unsuspecting customers who haven't read all of the fine print.

Legislation offered by Sen. Carl Levin, chairman of the Senate Permanent Subcommittee on Investigations, S. 1395, would be a good start. Levin's Stop Unfair Practices in Credit Cards Act responds to findings in congressional hearings and a report by the nonpartisan Government Accountability Office illuminating the deceptive tricks and traps that are standard practice in today's credit card industry.

One of the practices that no longer would be allowed if Levin's bill were passed is the way credit card companies charge interest on debts paid on time. If a consumer with a $1,000 credit card bill pays $900 within the grace period, he would expect that his next bill would include the $100 balance plus interest on that sum. But credit card companies instead charge interest on the entire prior bill - all $1,000 - for the entire grace period.

Another part of Levin's bill would eliminate the practice of companies unilaterally hiking interest rates for consumers who abide by the terms of the credit card. Instead, no increases in interest charges could occur without the consumer agreeing to the change in writing.

The legislation also would cap increases in penalty interest rates to no more than 7 percent above the interest rate in effect before the penalty. Now, a cardholder who pays late or exceeds the card limits has been known to face usurious penalty interest increases of 30 percent or more.

One of the worst industry practices is the way it purposely socks cardholders with more interest by applying payments to the balances with the lowest interest rates. The bill would reverse this and force companies to apply payments first to those balances bearing the highest interest rates.

Last year, the bank credit card industry made a profit of $37.5-billion. It can afford to do business in a more ethical way so that consumers who miss one payment or who make one over-the-limit charge are not sucked into a spiral of unreasonable fees and penalties. Congress has not been paying enough attention to the shenanigans of this industry, and the game has been rigged against consumers. It's time for Congress to make the industry play fair.

[Last modified August 3, 2007, 22:34:01]