Credit customers need a bill of rights

Congress is talking about writing a new bill of rights, this one for credit card holders. It can't come too soon. Banks that once used any excuse to sock it to credit card customers aren't even waiting for a reason to increase interest rates and fees.

Richard Davis, an insurance agent from Virginia, found out the hard way. Although he had always made timely payments on his Chase Visa card, the bank tripled his interest rate from 8 percent to 24 percent without warning, the Washington Post reported. And that's not an isolated case.

Despite a decline in interest rates overall, more banks are making up for losses in their mortgage lending by raising rates on credit cards, even for customers who play by the rules. Last month, Bank of America sent some of its card holders letters notifying them of rate increases as high as 28 percent without providing a reason, BusinessWeek reported. The only way to keep the old rate was for customers to send an opt-out letter and no longer use their cards.

In the past, such interest rate decisions were usually based on a decline in the card holder's credit rating (or FICO score). No longer, and the change could hurt not only families that carry credit card balances but also the overall economy, which is already facing a crisis linked to subprime mortgages and the slumping housing market.

Abuses by the largely unregulated credit card industry need to end. A good start would be for Congress to pass the Credit Cardholders' Bill of Rights, filed by Rep. Carolyn Maloney, D-N.Y., and a similar bill in the Senate.

"A credit card agreement is supposed to be a contract, but in recent years cardholders have lost the ability to say no to unfair interest rate hikes and fees," Maloney said.

The bill would stop arbitrary interest rate increases and protect cardholders with good payment records from being penalized. It would also end some of the worst abuses, such as misleading terms and gimmicks that lead to excessive fees.

It would be nice if every American could pay off his or her credit card balance at the end of each month, but that's not financial reality. Congress needs to clean up the credit card industry before it becomes the next shock to the economy.

[Last modified February 17, 2008, 21:46:05]