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New York Times

August 6, 2008


Listen to the 56,000

When the Federal Reserve asked for comments on its proposed rules on abusive credit card practices, an astonishing 56,000 poured in. Most were from outraged consumers. They told of interest rates skyrocketing when they paid an unrelated bill late. They complained of unwarranted late fees and pushed-up due dates. One Pennsylvania customer fumed: “I’m fed up with credit card company tricks that drive us deeper in debt.”

This anguished deluge should send a clear message to leaders in Washington. The Federal Reserve should swiftly adopt its proposed rules against unfair or deceptive credit card practices. But the real burden to curb these abuses falls on Congress.

For too long, members of Congress have shirked the responsibility to ensure fair lending to credit card customers and have listened more intently to the banking lobbyists. A low point came in 2005, when Congress passed a bankruptcy law that was badly tilted against borrowers. It gave extra protections to lenders against unscrupulous debtors. But it also made it much harder for people to declare bankruptcy, even when the economic crisis was caused by sickness or family tragedy.

Ronald Mann, a Columbia Law School professor, has argued that the law creates a “sweat box of credit card debt.” As borrowers become “distressed,” the credit card issuer has more time to pile on interest charges and fees until the client actually goes bankrupt. As heartless as that bankruptcy law has been for beleaguered consumers, the Democrats, who have controlled Congress since 2006, have not fixed it.

They did take one step forward last week. By a 39-to-27 vote, the House Financial Services Committee approved a cardholders’ bill of rights that was sponsored by Representative Carolyn Maloney, Democrat of New York. It would stop credit card companies from raising interest rates on balances incurred under an old rate. It would let consumers pay off loans with higher interest rates first. And it would stop unfair late fees and “universal default,” the practice of raising interest rates on accounts in good standing when a borrower falls behind on other bills. This borrowers’ bill of rights should move quickly to the House floor, and Christopher Dodd, the Democratic chairman of the Senate Banking Committee, should support similar legislation in his chamber.

The banks are openly fighting both the Maloney bill and the Federal Reserve rules. They warn of unintended consequences, mainly that less credit would be available to consumers. They also argue that most cardholders are happy and that the complaints are just “anecdotal.”

The huge file of comments at the Federal Reserve contains plenty of anecdotes, and there are surely many more where those came from. Congress should give consumers what they need and deserve — fair and clear lending rules for credit cards.

Frederick News Post

Charge it

Originally published August 06, 2008
A comprehensive credit card reform bill was introduced in the U.S. House of Representatives last week, and Marylanders should be interested in its provisions.

Why Marylanders? Because Maryland is among the top five states when it comes to credit card debt. According to a recently released report by the group Americans for Fairness in Lending, Maryland ranked fourth among all states for highest median credit card debt per borrower for year-end 2006.

The figure for Maryland was $2,042, and because that's the median, half of all these folks have even higher debt. We also suspect that these numbers may be worse now than they were seven months ago, with more and more cardholders turning to plastic to help them deal with the economic downturn and/or price of staples such as gas and food.
Marylanders, then, perhaps more than most other states' residents, will be interested in the Credit Cardholders' Bill of Rights Act of 2008. The legislation, which is being billed on the website of Rep. Carolyn B. Maloney, D-NY, who introduced it, as "comprehensive credit card reform legislation aimed at leveling the playing field between credit card companies and consumers."
According to Maloney, "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."
She goes on to say that her bill seeks no rate caps, fees or price controls.
So what will it do for credit cardholders? A lot.
Among its more important provisions are:

— protecting cardholders against arbitrary interest rate hikes;

— preventing cardholders who pay on time from being unfairly penalized; and
— protecting cardholders from payment due-date gimmicks.
It has a number of additional provisions, but the three mentioned above are at the top of the list of complaints that cardholders have been grousing about recently — and rightfully so.
Credit cards can be a blessing or a curse, depending on how their holders use them — and how companies who issue them treat their customers.
We've heard a lot of horror stories lately about just how some of these companies are doing business, including raising interest rate levels dramatically, even for their best customers — those who faithfully make their payments on time.
For those interested in reading the fine print of the bill, go to: and check it out.
Having and using credit cards responsibly is a chore for many folks to begin with. Being on a level playing field with the companies that issue them is only fair and right.

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Detroit Free Press


No small change for credit cards

Americans would save billions if Congress writes strong checks on industry abuses

August 3, 2008

As they continue to aggressively market the wonders of plastic, the nation's credit card companies have invited further regulation by their unwillingness to change billing and interest practices that range from confusing to deceptive and downright abusive. Official Washington is moving on several fronts: Bills have been introduced in the House and Senate, and the Federal Reserve Board has proposed new rules.

None of these efforts can stop people from getting too deep in debt. None of them should absolve debtors from paying their bills.

But the terms should be clear and fair; consumers have a right to know their obligations before the bills get out of control.
Last week, the House Judiciary Committee voted to move forward with the Credit Card Fair Fee Act, aimed at "interchange fees," the charge of 2% or so banks or credit card companies levy for the use of their plastic. Retailers estimate that the average family unknowingly pays $427 a year in added costs because of transaction fees built into retail prices. That generates $48 billion a year for the credit card companies.
The legislation would require them to negotiate these fees based on costs, rather than just impose them.
Also before the House is the Credit Card Bill of Rights, which, among other provisions, would stop credit card companies from slapping higher interest charges on debts incurred at a lower rate or requiring consumers to pay off lower-rate balances before payments are applied to debts incurred at higher interest.
Meantime, the Fed Board has issued a 162-page proposal for changes in the credit card industry. These include prohibitions on banks imposing fees for such things as a hold being placed on credit or for paying off an overdraft. A number of the Fed's other proposals are aimed at the fees banks seem to charge for every kind of credit card hang-up, whether there's a cost to the bank or not.
U.S. Sen. Carl Levin of Michigan, who began calling attention to credit industry practices through his investigations subcommittee two years ago, is cosponsoring, with Sen. Chris Dodd of Connecticut, a bill that addresses billing, marketing and disclosure by credit card companies.
Among provisions of their Credit Card Accountability, Responsibility and Disclosure Act (or CARD Act):

• No interest on any portion of debt paid on time or on fees; no retroactive interest rates on unpaid debt; no more "any time, any reason" interest rate boosts.

• No increase in interest rates based on the cardholder's use of another company's card.
• Restrictions on fees for exceeding a credit limit; no pay-to-pay fees for making a payment by a certain method.
• Require that debt payments be applied first to the card balance with the highest interest rate.
• Require that cardholders be offered the option of a fixed credit limit that cannot be exceeded.
• Require bills to be sent out 21 days before payments are due.
• Require card issuers to disclose how long and how much it will take to pay off a bill if only minimum payments are being made.
There's more, but you get the drift.
If all the proposed reforms were enacted, Elizabeth Warren, Leo Gottlieb Professor of Law at Harvard Law School, says "the CARD Act could save families more than $1 billion each year by cutting out the most unfair of the penalty fees and sky-high interest rates. Families need this help."
Credit card companies are, predictably, digging in for a fight, but this is a situation largely of their own making. They have sold their products as essentials, even to the point of declaring you should be embarrassed if you hold up the line to pay cash. If your product is such a utility item, it ought to be regulated like one.
"As Americans try to get out of credit card debt, the credit card companies are tilting the playing field in their favor," says U.S. Sen. Claire McCaskill, D-Mo. "Common industry practices take advantage of consumers by hiking interest rates for things like taking out a new credit card or spending close to your credit limit. If we're not careful, credit card debt could very easily become the next subprime mortgage crisis."
And one of those is more than enough.

Minneapolis Star-Tribune

Editorial: Credit card reforms are long overdue

July 26, 2008
At the same time the federal government is bailing out a banking industry reeling from the real estate collapse, it's also taking some less-heralded but significant consumer protection steps aimed at the industry's cash cow: credit cards.
Over the past decade, consumers have been increasingly subject to questionable billing practices that made credit card companies billions while keeping cardholders in hock for perpetuity. Among them is something called "universal default," which allows card companies to raise interest rates if you paid your bill on time but were late with a different firm. Other issues of concern include billing practices designed to increase late fees and so-called double-cycle billings that allowed card companies to charge interest on something that was paid off.
Help is long overdue, but the good news is that strong protective measures are under consideration in two places with the clout to really make a difference -- the Federal Reserve and Congress.
The Federal Reserve sets banking practice rules. And while its past consumer protection measures have essentially resulted in cardholders receiving more incomprehensible paperwork under the guise of disclosure, these proposed new rules have some welcome teeth. Banks, except under limited circumstances, can't raise the interest rate on preexisting balances. Double-cycle billing is forbidden. There are provisions to prevent late fees and universal default interest rate increases. If there is a late payment, banks also could not raise your interest rate on existing balances until the account is 30 days past due.

Congress, which took up credit card reform when it came back from the July 4th break, is also weighing similar protective steps with the Credit Cardholders' Bill of Rights, which has been championed by Minnesota's Fifth District congressman, Democrat Keith Ellison. The bill has wide support from consumer advocacy groups and is expected to be voted on by the House financial services committee this next week.

The timing of these protective steps could not be better. The economy is ailing, and Americans are struggling with massive amounts of consumer debt -- $2.56 trillion nationally. Since 2000, the amount of credit card debt carried by the average household has risen 15 percent to about $8,500. All those late fees and mysterious tweaks in interest rate calculations add up to a lot of money. It's easy to see why the banking industry is fiercely lobbying to maintain the status quo. Among its arguments: Why take away a moneymaker when the industry is struggling?
Consumers still have time to make their voices heard. The Fed is accepting public comment about its proposed rules until Aug. 4. Letters and e-mails to congressional representatives will also help push this much-needed legislation through. Banks may be hurting, but so are consumers. Regardless of the economy, cardholders deserve fair treatment and billing practices that aren't designed to keep them in debt. In other words, they deserve better than what they're currently getting.
© 2008 Star Tribune. All rights reserved.

Leveling playing field for U. S. consumers

Tuesday, August 05, 2008


Staten Island Advance
STATEN ISLAND, N.Y. -- Last week, landmark legislation popularly known as the Credit Cardholders' Bill of Rights successfully cleared the House Financial Services Committee. Introduced by Congresswoman Carolyn B. Maloney (D-NY), the proposed law would impose critically needed reforms on an industry that has ruthlessly exploited consumers for years.

While today's tough economic times may accentuate their pain, the truth is that consumers have always been at a distinct disadvantage in the marketplace. This is because large corporations and other organized business entities, thoroughly versed in the psychology of sales, routinely use deceptive practices to squeeze as much money as they can out of unwary shoppers.

Walk into any department store and you will be greeted with a bevy of signs trumpeting sales on what seems like half the store. Check out those signs closely, however, and you will notice that the great majority of the touted discounts are off the "original price."
What the stores don't tell you is that the "original price" is phony, an artificially high number for which the item may never have been offered to the public. Its real purpose is to con buyers into thinking that they are getting the item at a deep discount when, in fact, they are paying either the regular price or something very close to it.
Supermarkets play games with consumers all the time. An item tagged as a "managers special" might actually be offered at its regular price or even higher. Food shoppers also have to contend with the phenomenon of the incredible shrinking package, a sleight of hand by which a price hike is effected not by raising the price per se, but by reducing the quantity of the item in the container. In an effort to deceive consumers, manufacturers strive to make the smaller container look very much like the larger one that it replaced.
Consumers in need of home repairs or other major improvements are apt to find businesses offering coupons for large discounts. However, these seemingly impressive savings invariably require the consumer to present the coupon at the time that an estimate is given. This allows the estimator to raise the price quoted to a number that offsets the coupon's value.
Retail car sales present a veritable minefield for consumers. As with all businesses, there are certainly some honorable dealerships. However, the gimmicks employed by the disreputable ones put consumers at risk of being scammed during every single stage of the car-buying process.

Maloney's bill is an example of the kind of bold action that legislators must take to level the playing field for American consumers. As introduced, it targets many of the worst abuses of a predatory industry that easily ranks number one in scamming consumers.

These include the so-called "universal default clause" under which a credit cardholder can be declared in default and, hence, subject to higher interest rates for being late in any payment owed to any other creditor or to an entity such as the gas or electric company. It's but one of many outrageous financial time bombs that credit card companies have inserted in their pages of very small print.
Another common clause similarly camouflaged permits credit card companies to increase the interest rate that it charges at any time, for any reason, or for no reason at all. Maloney's legislation would require companies to specify in writing the circumstances under which a raise in interest rates may be effected.
This reform is simply a matter of common sense. If credit card agreements are contracts, as they purport to be, then neither party should have the right to change the terms unilaterally.
Maloney's bill would also put an end to so-called "double-cycle billing", yet another shocking abuse whereby consumers are charged interest on credit card balances that they've already paid off.
Unaddressed by Maloney's legislation is the ability of credit card companies to exploit a loophole in the law to circumvent state usury laws and charge interest rates that would cause professional loan sharks to blush. Still, it is one of the most important consumer protection measures to be introduced in years and deserves swift passage by Congress.
A cold, hard look at American business practices in general leads to two conclusions. The first is that what we have been conditioned to accept as "business as usual" is good for businesses but bad for everybody else. The second is that it's time to junk a business model predicated on "Let the buyer beware" and replace it with one that would "Make the seller be honest".

To that end, it should be clearly underscored that a seller is not being honest when essential information that consumers need to make informed judgments is buried in small print that few can read and even fewer can understand.

Daniel Leddy's On The Law column appears each Tuesday on the Advance Op-Ed Page. His e-mail address is

©2008 SI Advance

© 2008 All Rights Reserved.

The Miami Herald

Also printed in The Record (NJ)

June 30, 2008

HEADLINE: The credit card trap



MORE AND MORE Americans are turning to their credit cards to help pay bills, buy groceries and simply make ends meet in this troubled economy. As a result, consumer credit card debt is now closing in on the $1 trillion mark - double the amount held in 1996. This trillion-dollar tower of unsecured debt is looming large above our troubled economy and threatening to worsen an already perilous credit crisis.

Recent news reports show that even as the Federal Reserve has cut interest rates to try and boost our economy, credit card companies have raised rates on cardholders - even those who pay on time - in an effort to try and plug losses they've suffered in other areas of their business. That's because the playing field between credit card companies and credit cardholders has become very one-sided in recent years.

It's probably no surprise that it's average American cardholders, and not the big credit card companies, who are getting the short end of the stick.

The winds of change appear to be blowing, however. In a historic move, the Federal Reserve recently acknowledged that there are unfair and deceptive practices in the credit card industry, and proposed regulatory rules for doing away with many of them.

Some of the practices the Fed identified as unfair and deceptive are the same ones that we have proposed curbing in new legislation, the Credit Cardholders' Bill of Rights (H-5244): raising interest rates on existing balances - and doing so even to good cardholders who pay on time and never go over their credit limit - charging interest on balances that have already been paid off, unfairly allocating payments to make it difficult for cardholders to pay off higher interest rate balances, and marketing fee-heavy "subprime" credit cards to unsuspecting customers.

It's encouraging that the Fed clearly agrees with the need for these solid and balanced credit card reforms.

Watering down protections

By the time the Fed gets around to finalizing its regulatory proposals, however, they may be watered down and come too little, too late for struggling consumers who need help now. Just as we couldn't wait for the regulators to get around to helping the millions of Americans facing foreclosure, we can't count on them now to act quickly and help the millions of Americans being driven deeper into credit card debt.

The mortgage reform regulations the Fed proposed more than a year ago still have not been enacted. And what is done by regulation can easily be undone by regulation. Legislation is the only solid and lasting solution.

It's probably no surprise that some in the banking industry oppose our bill and the Fed's new regulatory proposals. These opponents are pushing for zero intervention into the escalating credit crisis, just as they argued for a hands-off approach to the subprime crisis.

The plain truth is that the Fed is the federal agency responsible for steering our economy and ensuring the safety and soundness of our financial institutions, and it has affirmed what many in Congress have been saying all along: There are unfair and deceptive credit card industry practices that should be eliminated.

Bill of rights

We are on the verge of cracking down on credit card industry abuses for the first time in decades. The Fed's recent action only adds to the incredible momentum for legislative reform that has been building.

The Credit Cardholders' Bill of Rights now has the support of leading consumer advocates, and groups as diverse as the National Small Business Association and the Service Employees International Union.

It also has the support of 145 co-sponsors from different parts of the political spectrum. We may not agree on everything, but we do agree that American consumers deserve a level playing field.

Instead of waiting for the Fed to act or for the next shoe to drop in the credit crisis, Congress should take swift action to reform major credit card industry abuses and improve consumer protections for cardholders.

Rep. Carolyn B. Malone, D-N.Y., chairs the House Financial Institutions and Consumer Credit Subcommittee. Reps. Lincoln Davis, D-Tenn., and Keith Ellison, D-Minn., are members of the House Financial Institutions and Consumer Credit Subcommittee.

The Philadelphia Inquirer

June 15, 2008 Sunday

Women & Money: Fed's credit-card proposals offer needed protections

BYLINE: By Suze Orman; Inquirer Columnist

SECTION: IMAGE; Inq Col Suze Orman; Pg. M02

LENGTH: 607 words

In early May, the Federal Reserve issued a series of new proposals designed to curtail some of the more egregious practices of the credit-card industry, while also requiring card companies to better disclose their rules to customers.

Currently in the United States, there is more than $900 billion in outstanding debt, much of it accruing interest at rates well above 15 percent and susceptible to arcane rules and practices that generate major fee revenue for the credit-card companies.

But I suppose we'll have to be grateful for this better-late-than-never approach. And the Fed's proposed rule changes do offer some solid consumer protections:

Credit-card issuers wouldn't be able to arbitrarily increase the interest rate on your card. There would have to be a concrete reason for raising the rate, such as failure to make the minimum payment by the due date, or a change in the underlying index that's used to set the interest rate.

Statements would have to be mailed at least 21 days before the payment is due rather than the current minimum of 14 days. This is intended to make it less likely that credit-card issuers can catch cardholders off-guard by moving up a due date, so the cardholder ends up making a late payment. With late fees averaging $39, it's easy to see why card companies have been happy to push customers into being late.

Card issuers would be prohibited from using your payments to pay down only your balances with the lowest interest rate. This practice has been a credit-card company favorite: Lure new customers in with a low introductory rate for a balance transfer, then impose a high interest rate on new charges or cash advances. Then, when the cardholder makes a payment, it's credited to the low-rate balance rather than the higher-rate debt. The new regulations would require that at least a portion of every payment be credited to your high-rate debt.

The two-cycle billing system would be abolished. This practice, used by many card issuers, creates a higher balance due for cardholders who have an unpaid balance only from time to time.

A year ago, Congress held hearings to learn more about credit-card billing practices. No legislation ever came out of those hearings. A few of the major credit-card issuers called to the Hill to testify tried to play nice by voluntarily rescinding their use of Universal Default. That's the system whereby you can pay your credit-card bill on time, yet still see your interest rate skyrocket if the card issuer happens to notice you didn't pay one of your other bills - completely unrelated to your credit card - on time.

At the end of April, Sen. Christopher J. Dodd (D., Conn.) introduced the Credit Card Accountability, Responsibility and Disclosure Act.

I was especially interested in a few new items in Dodd's bill that the Fed didn't address:

Require card companies to show account holders the total time and total expense they'll incur if they choose to pay only the minimum balance due each month. I would have liked it if this proposal went one step further: Show by how much both the time and total payment would decrease if the cardholder paid 1 percent, 2 percent and 3 percent more than the minimum amount due each month. Showing those figures side by side with what happens if you pay just the minimum is motivation for paying more each month.

Curtail credit-card companies from pushing credit-card offers on consumers under age 21. Under the new bill, these young adults would have to initiate contact with the card company to apply for a card.

Suze Orman is a best-selling author and an Emmy Award-winning TV host. Contact her at

Full article, from her website:

Is Washington Finally Serious About Credit Card Reform?

In early May the Federal Reserve issued a series of new proposals designed to curtail some of the more egregious credit card industry practices, while also requiring card companies to better disclose their rules to customers.

As Federal Chairman Ben Bernanke stated, the proposed new regulations are “intended to establish a new baseline for fairness in how credit card plans operate. Consumers relying on credit cards should be better able to predict how their decisions and actions will affect their costs.”


Of course, the Fed’s new proposed regs would have been a lot more helpful if they came long before we got to our current national credit card crunch: More than $900 billion in outstanding card debt, much of it accruing interest at rates well above 15% and susceptible to arcane rules and practices that generate major fee revenue for the card companies.

But I suppose we will have to be grateful for “better late, than never.” And the Fed’s proposed rule changes do indeed offer some solid consumer protections:

  • Credit card issuers will not be able to arbitrarily increase a the interest rate on your card. There would have to be a concrete reason for raising the rate, such as the cardholder to make a minimum payment by the due date, or a change in the underlying index used that is used to set the interest rate.
  • Speaking of due dates; statements will have to be mailed at least 21 days before payment is due, rather than the current 14-day minimum. This is designed to make it less likely that credit card issuers can catch cardholders off guard by moving up a due date so the cardholder ends up making a late payment. At an average $39 per late fee, it’s easy to see why card companies have been happy to push customers into being late.

  • Card issuers would be prohibited from using your payments to only pay down your balances with the lowest interest rate. This practice has been a credit card company favorite: Lure new customers in with a low intro rate for a balance transfer, but then impose a high interest rate on new charges or cash advances. Then when the cardholder makes a payment, it is credited to the low-rate balance, rather than having any of the payment used to pay down the higher-rate debt. In other words, the card company just keeps charging you more and more on your growing high-rate debt. The new reg would require that at least a portion of every payment be credited to your high-rate debt.

  • The two-cycle billing system would be abolished. This practice, used by many card issuers, creates a higher balance due for cardholders who only have an unpaid balance from time to time.

Congress Takes Hold of Card Problems

More action on credit card disclosure and practices may come from Capitol Hill where two bills in the House and Senate are focused on boosting consumer protections. Granted, this is just the sort of topic that scores well in an election year; but let’s cross our fingers and hope this is more than vote-pandering.

I was beginning to give up on Congress. A year ago it held hearings to learn more about credit card billing practices. No legislation ever came out of those hearings. The only small victory was that a few of the major credit card issuers hauled before Congress to testify tried to play nice by voluntarily rescinding their use of Universal Default. That’s the system whereby you can pay your credit card bill on time, yet still see your interest rate skyrocket if the card issuer happened to notice you didn’t pay any of your other bills-completely unrelated to your card company-on time. It looked like the credit card industry had succeeded in throwing this one bone to Congress and consumers to avert any more substantive changes to how the credit card industry is allowed to operate.

Then this past February, Representative Carolyn Maloney introduced the Credit Cardholders’ Bill of Rights Act of 2008. And then at the end of April Senator Christopher Dodd introduced the Credit Card Accountability, Responsibility and Disclosure Act (the C.A.R.D. Act). These bills include some provisions that are echoed in the proposed Fed regulations. Consumer advocates believe it important to build on the Fed’s regulations by having actual law in place that mandates consumer protections. (Laws are harder to change than regulations.)

I was especially interested in a few new items in the Senator’s bill that the Fed did not address.

  • Require card companies to show accountholders the total time and total expense they will incur if they choose to only pay the minimum balance due each month. I think putting those figures front and center would wake up a fair amount of people. I would have liked it if this proposal went one step further: show how much both the time and total payment would decrease if the cardholder paid 1%, 2% and 3% more than the minimum amount due each month. Show those figures side by side with what happens if you pay just the minimum and you have an easy-to-see motivation for paying more each month.

  • Curtail credit card companies from proactively pushing credit card offers on consumers under the age of 21. Under the new bill, those young adults would have to initiate contact with the card company to apply for a card.

Again, I encourage anyone who wants better disclosure of credit card fees and a push for a more level playing field to contact your Washington representatives and tell them what you think of both of these bills. This isn’t just a matter of telling your representatives you are annoyed with something; you have specific bills you can refer to, and ask their position on. Wouldn’t you like to know where your Representative and Senators stand on credit card reform?

San Gabriel Valley Tribune (California)

June 13, 2008 Friday

Fed's new credit rules make sense


LENGTH: 379 words

CREDIT cards may be the most competitive business in America. Anyone with decent credit - and a lot of people without it - finds his mailbox stuffed with come-ons touting "low introductory rates!" and "big rewards!"

That mailbox battle keeps prices down on the front end. But once you've signed up, many credit card banks find lots of ways to ding you with higher interest charges.

Federal bank regulators may put limits on those practices this summer, and it's about time.

Among the tricks of the card trade is "double-cycle" billing, in which banks charge interest on debt you paid off a couple of weeks ago.

They also can apply your payments to low-interest portions of your balance (such as money transferred from another credit card) while letting interest pile up on your high-interest debt.

Then there's the old-standby of the credit card game: hiking the interest rate.

Take a hit on your credit score or make a late payment, and up go your interest charges. The average "penalty" interest rate last year was 25 percent.

Not all banks practice such strategies, but enough do to prompt a low rumbling in Congress about the need for reform.

This month, the Federal Reserve and other bank regulators proposed rules to end several abusive practices. The rules would take effect this summer unless regulators decide to change them after hearing public comments.

Gone would be double-cycle billing and the practice of allocating payments to low-interest debt. Fees would be limited on cards offered to people with bad credit.

But on the biggest issue - whether card companies should be allowed to continue hiking interest rates when credit scores fall - regulators split the difference. The Fed will allow higher rates on new debt, but not on existing balances.

That gives customers an easy option if they don't want to pay the higher rates: They simply can stop using the credit card.

Banks still would be able to raise rates on existing balances if a customer is 30 days late on a payment for that bank's card.

The Fed's willingness to tighten credit card rules is a good sign.

The mortgage industry is in crisis in part because regulators sat back and watched as consumers buried themselves in debt they couldn't repay. Regulators may have learned their lesson.

Sun-Sentinel (Fort Lauderdale, Florida)

June 3, 2008 Tuesday
Broward Metro Edition


LENGTH: 725 words


BYLINE: James L. Martin


The Federal Reserve just put forward a plan to clamp down on unfair and deceptive practices in the credit card industry.

This is good news for consumers, and certainly for seniors, often budget-squeezed and on fixed incomes. In recent years, lenders have devised increasingly devious ways of bilking cardholders out of their money, like raising interest rates on old debt and shortening billing cycles. The Fed's proposals would go a long way to restrict these kinds of abuses. But no amount of regulatory intervention will completely solve the country's credit problems. A full turnaround requires that individual Americans take responsibility for their own financial well-being. And one of the best ways is to use cash.

Relying on dollars makes it much easier to stick to a budget. You don't spend money that you don't have. Minor expenses won't ever balloon into crushing debt.

With credit cards, it's the exact opposite. Credit card companies want people to build debt. And they structure payment requirements to achieve that goal - the average monthly minimum has dropped to just 2 to 2.5 percent. Even worse, they often raise interest rates arbitrarily. Customers wind up taking on debt thinking it will cost them significantly less than it actually does.

At a recent congressional hearing, one man recounted how his card provider had increased his rate by 6 percent, and then informed him of the change with only a "small, loose billing insert." He went on to describe the change as "unilateral," and said that "no reason or explanation was given."

Of course, American consumers, and all too many senior citizens, have willingly taken the bait. The median amount of credit card debt is over $6,500, according to a 2007 survey from Less than a third of cardholders pay their balances when they're supposed to.

The Consumer Federation of America recently reported that the total amount of credit card debt nationally is around $850 billion, up four-fold from 1990. The average debt for families that don't pay off their balances each month is $17,000.

Unfortunately, America's love affair with credit cards shows no signs of waning. And more and more people are pulling out the plastic for minor expenses, like their daily cup of coffee and their lunchtime turkey sandwich. As Christopher Mammone, an analyst at Deutsche Bank AG,  explained, "The consumer...continues to move an even greater portion of their everyday purchases onto cards."

Swiping your card at Starbucks every morning is bad economics - for both consumers and merchants. For consumers, it amounts to taking out a single-digit loan that could easily morph into a triple-digit debt within a year.

Meanwhile, merchants suffer because they have to pay a fee to the credit-card company every time a purchase is made with plastic. By law, merchants are barred from recouping this cost by charging more for charge-card purchases. So prices go up for everyone - and ultimately cash users end up subsidizing credit-card users.

This year alone, credit card companies will make at least $30 billion in these fees. That's a hidden tax that takes billions of dollars directly out of consumers' pockets.

Credit card companies make even more money when their users are financially irresponsible. So it's no wonder that while most of the economy is in a nosedive, they've been flying high. Visa's profits rose 28 percent last quarter. MasterCard's stock price has increased 520 percent since the company went public in 2006.

The best way to avoid debt is simply not to take it on in the first place. That's why using cash as often as possible is such a good idea.

It makes it much easier to stay on budget and track personal finances. It's a great deal more convenient - businesses don't post "Credit Cards Only" signs. Even more importantly, once you make a purchase with cash, it's over. You'll never get stuck with a giant bill at the end of the month.

Little by little, Americans have been building up debt that will haunt them for a lifetime. It's good to see that regulators have finally drummed up the political courage necessary to take on the credit card industry. But to fully right the ship, people need to take control of their own finances - and that means returning to the good old greenback.

The Boston Globe

May 31, 3008 Saturday


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