Wednesday, April 30, 2008
Legislation Would End the Most Abusive & Costly Credit Card Practices
WASHINGTON, D.C. – A coalition of consumer, labor and civil rights groups lauded tough new legislation to prohibit abusive and unfair credit card practices, introduced today by Senate Banking Committee Chairman Chris Dodd. In a letter of support for the legislation, the groups noted that “as the U.S. economy tightens, financially vulnerable families need the protections of the Credit CARD Act more than ever.”
“This legislation stands for the basic principle of fair dealing that every American expects card companies to abide by―a deal should be a deal.” said Jeannine Kenney, senior policy analyst with Consumers Union. “The Credit CARD Act requires card companies to finally play by that simple rule.”
The Credit Card Accountability, Responsibility and Disclosure Act targets the most abusive practices used by credit card issuers, including:
Eliminating unjustified interest rate hikes and unfair “any-time/any-reason” contract clauses. During the life of the card, card issuers could not raise rates for any reason other than a change in the index for variable rate cards, the expiration of a teaser rate, or default relating to the card account, ending the practice of raising rates even for card holders in good standing. Rate hikes resulting from default on the card could not be applied to the prior balance.
Requiring honest, fair penalty rates. Under the Act, if the issuer does impose a penalty rate, it must tell the consumer exactly why, and limit the penalty to six months if the consumer commits no further violations.
Limiting excessive and growing penalty fees. The Credit CARD Act would require that penalty fees be reasonably related to the costs that credit card issuers incur because of a late payment or over-limit transactions and prohibit card issuers from charging interest on penalty fees.
Prohibiting late fees for on-time payments. The Act would prohibit late fees upon proof of mailing seven days prior to the due date, and require card issuers to mail cardholders’ statements within 21 days of the due date.
Giving cardholders greater choice. The bill would empower consumers to instruct card issuers not to allow transactions that would trigger over-limit fees, require more advance notice when interest rates are raised, and give consumers the absolute right to cancel cards when rates are hiked.
Eliminating abusive and hidden finance charges. Credit card issuers would be prohibited from imposing finance charges repaid during the grace period (so-called double-cycle billing) and would be required to allocate payments to the highest rate balance first when consumers hold balances at different interest rates on the same card. Today, card companies apply payments to lower-rate balances first, resulting in unfair and excessive finance charges.
Limiting aggressive marketing, and irresponsible lending, to young consumers without the ability to repay debt. Credit card issuers would be unable to provide credit cards to consumers under age 21 unless the consumer has a responsible cosigner, can demonstrate ability to repay, or takes a certified financial literacy or financial education course.
For a copy of the letter sent by the groups to Congress in support of the Credit CARD Act, click here.
Jeannine Kenney – Consumers Union, 202-238-9249
Travis Plunkett – CFA, 202-387-6121, x.105
Josh Nassar, Ctr. for Resp. Lending, 202-349-1865
Linda Sherry, Consumer Action, 202-544-3088
Ed Mierzwinski, US PIRG, 202-546-9707
Lauren Saunders, Nat’l Cons. Law Ctr, 202-452-6252
Laura Anduze, Nat’l Council of La Raza, 202-776-7568