April 17, 2008
Cardholders’ Bill of Rights Good First Step
WASHINGTON, D.C. – Consumer Federation of America and Consumers Union called on Congress to end abusive credit card lending practices in testimony today before the U.S. House Subcommittee on Financial Institutions and Consumer Credit.
“The tricks and traps that credit card companies use to increase interest rates and fees are having a devastating impact on consumers as this country slides into recession,” said Travis Plunkett, Legislative Director of Consumer Federation of America. “The Credit Cardholders’ Bill of Rights Act curbs some of the most abusive credit card practices that trap consumers in an unending cycle of costly debt, such as sharply escalating ‘universal default’ interest rates that can double some cardholders monthly payments overnight. Moderate income families with little flexibility in their budgets are particularly hard hit if they have to pay more in unjustifiable fees and credit card interest,” testified Plunkett.
Consumer Federation of America and Consumers Union endorsed Subcommittee Chairwoman Maloney’s Credit Card Bill of Rights Act (H.R. 5244) as a good first step toward eliminating the most abusive credit card lending practices.
The consumer groups support these important measures:
1. Ending Bait and Switch Contract Clauses. Prohibit credit card companies from changing interest rates at “any time, for any reason,” and instead requires that they disclose the specific reasons for which they will increase interest rates.
2. Limiting Retroactive Application of Rate Hikes for Consumers in Good Standing. Prohibit card issuers from applying interest rate hikes to prior to balances borrowed at a lower rate when the increase was based on reasons unrelated to the account and the consumer has not paid late or gone over their credit limit.
3. Preventing Credit Card Companies from Gaming Consumer Payments. Prevent card companies from charging unfair finance charges to consumers holding balances on a single card with different rates. The bill requires card companies to apply consumer payments equally to both balances, rather than require consumers to pay off low-rate balances first a practice that causes consumers to incur unwarranted finance charges and accrue costly high-interest balances.
4. Prohibiting Unfair and Hidden Interest Rate Charges on Balances Repaid During the Grace Period. Prohibit credit card companies from using “double-cycle billing” to charge interest on balances repaid during the grace period.
5. Ending Unfair Late Fees for On-Time Payments. Issuers would be required to mail credit card bills 25 days before the bill is due, instead of the current 14 days, to help ensure that consumers will have enough time to pay, and prevents issuers from charging late fees to consumers who demonstrate that they’ve paid 7 days before the due date.
Jeannine Kenney, CU
Travis Plunkett, CFA