Congress to rein in credit card industry
Monday, June 08, 2009
With credit card penalties and late fees high as banks seek to recoup their losses tied to mortgage problems, there has been public outcry of what is perceived as excessive charges by banks.
These charges or penalties include some or all of the following: no grace period, charges for making payment by phone, excessive late fees, penalty interest rates that approach or may even exceed 30 percent and universal default, the practice of increasing the interest rate on a credit card, even if you are current and paying as agreed, if you are delinquent on another.
The credit card industry collects roughly $15 billion each year in late penalties and fees making up about 10 percent of its total revenue. Also, about one-fifth of all credit card users pay in excess of 20 percent interest.
Congress is working on what will eventually be known as the Credit Card Accountability and Disclosure Act of 2009, which will go through some give and take between the House and Senate before an agreed upon draft is presented to the president to sign into law.
In general, the bills address ample notice to the consumer before increasing rates, slowing down the process of universal default and being able to restoring pre-delinquency rates.
Both the House and Senate agree that: 1) credit card statements have to be mailed 21 days before the due date; 2) credit card companies must provide 45 days notice before instituting a rate hike, and 3) there should be no fee charged for paying by phone or the Internet.
The Senate version stipulates that universal default cannot be triggered until a consumer is more than 60 days late on an account. Then the consumer could be subject to a higher rate on another account even if they are current on that one.
This is in contrast to triggering universal default immediately. However, if the consumer makes at least six months of the minimum payment on the defaulted card, the universal default would be lifted.
In an effort to prevent young people from becoming debt-ridden, the Senate version wants to prohibit credit cards from being issued to those under 21 without a co-signer while the House version wants to set a strict upper limit to those under 21.
What was dropped from both versions was a hard interest rate ceiling, or cap, on all consumer loans of 36 percent. So the market will continue to establish interest rates freely.
While this is good news to consumers on many fronts, I suspect that projected lost fees to the credit card industry will have to be made up in some way. Don't be surprised to see credit card fees make a comeback across the board and higher interest rates on cards in general somewhere down the road. Also, credit card companies that are banks too might consider charging some fees on checking accounts and other services.
Source:http://www.nj.com/columns/jjournal/index.ssf?/base/columns-
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