Relief for Credit Card Users?

As chairwoman of the House Financial Institutions and Consumer Credit Subcommittee, which has jurisdiction over the country's banking system, Rep. Carolyn B. Maloney has been an outspoken advocate for consumer rights. Last month she introduced the Credit Cardholder's Bill of Rights Act, which calls for comprehensive credit card reform. The bill would protect cardholders from arbitrary rate increases and excessive fees, among other provisions. Similar legislation has been introduced before and stalled. NEWSWEEK's Matthew Link spoke to Maloney about the prospects for this bill, the role of government regulation, and the reaction from the credit card industry. Excerpts:

NEWSWEEK: Why introduce this bill now?
Carolyn B. Maloney:
I've been working with Congressman Barney Frank [chairman of the House Committee on Financial Services] on the whole subprime mortgage problem, where people were getting in debt over their heads. But I was getting more complaints in my office about credit cards. Many economists feel the next shoe to drop is going to be the whole credit card situation, where, like the subprime, people are being led into credit over their heads. My bill tries to balance the contract between the credit card companies and the credit card holders. In recent years it's become very lopsided … We try to level the playing field and allow consumers to make decisions on their credit limits, and on their interest rates, and on the agreements that they go into.

What kinds of problems are you hearing about from credit card holders?
I was just told by Congressman Peter Welsh of Vermont that he had a credit card meeting with his constituents, who were irate. He had one woman—I think this is just such a classic example—who had always paid her credit cards on time, and she had an interest rate of roughly 6 percent. Then she turned around and it's jumped to 30 percent, without the [card issuer] telling her. They have her in a contract that [states that] they can raise her rate at any time for any reason. So they said because you were late on a utility bill you are now more of a credit risk, so we are jumping your rate to 30 percent. And it's retroactive on her balance! That could be a huge amount of money. This is totally unfair, but it happens all the time.

There's also the issue of changing the due dates on cards.
That happened to me one time. I was just used to having a certain number of days [to pay the balance], then all of a sudden it changed and I was late! It's this gotcha game where the [card issuer] keeps changing terms and sort of trying to catch you in a mistake, so that one month you pay in 14 days, then the next month it's 10 days, and then you might be late because you didn't realize it. We're saying in the contract to have a set number of days and that's it for the term of that contract. So you know you've got 25 days to pay your bill. This set-payment-date concept has support from both sides of the aisle.

How would the bill help consumers?
Right now most credit card companies can raise the interest rate anytime for any reason. Some of them don't even tell you. Those who do give you 15 days, and your only option is to pay off everything right then and there, and then go to another credit card. That's not much of an option. What this bill does is require a 45-day notice period … then we give [consumers] three billing cycles to make that decision, and during that time they can look around and see if they can find better terms for them. And it allows them to pay off their balance at the existing interest rate with the existing terms. In other words, it allows them to stick to the contract that they went into. Another thing that consumers are concerned about is when you have an introductory offer, and they'll say for a year you can have a rate with 0-percent interest, and at the end of a year you go up to a higher rate. So when it goes up to the higher rate what happens is when you make your payment, they make it come off the [portion of the balance with the] lower rate. My bill says it comes evenly off both pockets of money so it's easier for the consumer to pay off their debt. It also allows the consumer to set the credit limit. It basically gives more control and tools to the consumer to make decisions about their own credit.

Is there a lot of pushback by the credit card companies on this bill?
Yes, unbelievable. The legislative process is always messy, and it will be fully debated. But I believe a credit card bill will pass, because the abuses are unfair. I think members of Congress will be hearing from their constituents in support. And I really want to show how very supportive I am to credit cards. They're an important employer, they provide access to credit, they certainly help the retail business in the district I represent. They're really an important tool of our financial community at this point. But we're just saying let's be fair and have the terms mean what the terms say.

What about the critics who say the government shouldn't get involved in this kind of regulation of credit?
Many people are very critical of the Federal Reserve and Congress for not acting earlier on the subprime mortgage crisis. I think part of the government's role is to have some regulation and balance in our system. These are common-sense fair practices for credit cards. They are absolutely free-market. There are no price controls, no fee controls. We don't interfere with the credit card companies' business model. We're just saying that they have to tell the consumer what their contract is saying. And live by the terms of that contract. [Federal Reserve Chairman] Ben Bernanke said the bill wouldn't restrict credit or harm the economy. He said credit cards work best when cardholders know what they're signing up for. He is in support of substantive regulation.

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