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Pressure Builds For Credit Card Changes

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By CARRIE JOHNSON, The Washington Post

Published: December 2, 2007

WASHINGTON - Senior Democrats on Capitol Hill want to ban excessive credit card fees. Bank regulators are on the verge of forcing companies to give more notice before raising interest rates. And New York's attorney general, whose investigations transformed the student loan industry, now has his eye on conflicts of interest in the credit card sector.

After years of complaints about abusive practices that trap borrowers in an endless debt cycle, federal and state officials are shining light on the most controversial practices and preparing changes that would make card companies' policies more consumer-friendly.

The fight between consumer advocates and the banks that issue credit cards has been simmering for decades. But a rise in cardholder complaints and the ascension of Democrats in the House and Senate is pushing companies to engage in pre-emptive damage control and is setting the stage for what could be the most significant changes to the industry in more than two decades.

Sen. Carl Levin, D-Mich., said he will hold a hearing this week focused on card companies that raise interest rates for consumers who comply with the terms of their original agreement. "It is becoming increasingly difficult for the credit card industry to defend this type of unfair interest rate increase," he said.

In the face of the hearing, major card issuer J.P. Morgan backtracked on the practice, which includes using data-profiling to raise interest rates for customers who pay their card bills on time but fall behind on other expenses, such as utilities.

"This is a huge issue to the public because credit cards have become a way of life," said Rep. Carolyn Maloney, D-N.Y., who is drafting legislation that would strengthen disclosure requirements for rates and fees. Americans use credit to finance about $2 trillion in purchases each year. Households have an average of five cards and $2,200 in debt, according to industry research. Their situation is compounded by rising interest rates and an abundance of fees. Many consumers experience a double whammy - high fees and spikes in interest rates.

Under the current setup, the average customer who misses a payment often ends up paying a late fee on top of a fee for exceeding their credit limit and still another fee for using the telephone to settle their account. Some card companies also charge interest on those fees.

Card companies and banks are spending millions of dollars to hire well-connected lobbyists to argue their case. They say card issuers need flexibility to assess the risks posed by customers who may be on the verge of defaulting - and taking card companies along with them.

Separately, the Federal Reserve is moving ahead with a plan that would require card companies to give customers at least 45 days' notice of a rate increase and to present fee information more clearly. The Fed change is designed to respond to criticism that important data are buried in fine print or lost amid inserts. The new rule is due next year, a spokeswoman said.

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