Congress eyes tougher credit card laws

Credit cards


Tess Vigeland: This week anyone who uses a credit card -- and that would be most of us -- got a little closer to getting some respect from card issuers. A congressional subcommittee approved a version of a credit card bill of rights. If it becomes law, consumers would get more protection from some types of abusive billing practices.

Also this week the Pew Charitable Trust released a scathing look at credit card companies and their methods.

Nick Bourke is with the organization and Nick, it looked like there was one particular gotcha that most of these companies seemed to have. Would you explain that for us?

Nick Bourke: Credit cards are interesting because they can have multiple lines of credit associated with them. You might have a purchase balance earning 15 percent interest for the issuer, and then you might have a low rate promotional balance that you've transferred in from somewhere else, and that's maybe at zero percent or 5 percent. These look great to consumers and they respond to those offers, but what they don't understand is, on the back end, the issuer is applying all of the incoming payments to that lowest interest rate balance. Meanwhile, anything that you've purchased, any cash advances you've taken out, are accruing full interest at that higher rate.

Vigeland: So it's not even proportional. They're simply taking your payment and applying it to the part of your bill that has the lowest interest payment?

Bourke: That's correct.

Vigeland: One thing that's been happening to a lot of consumers just over the last several months during the credit crunch, the economic crisis, is that credit card companies are changing the terms willy-nilly it seems. And no matter kind of what your credit score is, how good a customer you've been, you can still find your interest rate changes drastically, credit lines are cut. What kinds of trends did you find along those lines in your study?

Bourke: We found that 93 percent of the cards that we looked at gave the issuer the right to basically rewrite the contract at any time. If you and I, Tess, were to make a deal, and say I were to buy a motorcycle from you. Maybe I'd say, "OK, I'll give you $1,000." And if you responded to me, and said, "I'll take that $1,000, but if I need more money next week, I'm going to charge you another $500." I wouldn't take that deal.

Vigeland: And you would be wise not to.

Bourke: But that's what the credit card companies are doing right now. And for a variety of reasons or for no reason at all.

Vigeland: What do you think is the most pressing issue to deal with for consumers in terms of credit cards?

Bourke: Clearly everybody involved needs to be responsible. There's no question that consumers who are using credit cards have a responsibility to not go beyond their means. But likewise, credit card companies have a responsibility to be up-front with what the price of these products are and how they behave, and how they might change over time. So the most pressing need here, really, is for Congress to step in at this point and pass the laws that they're talking about passing to ensure that credit card contracts are behaving like real contracts.

Vigeland: You know, I wonder how much of this does fall on the credit card user to know what they're getting into and to read the fine print?

Bourke: Well, as I said, consumers have a responsibility to know what they're getting into and to use their cards in a manner which isn't going beyond their means. However, when you have products that, in our analysis, are dangerous in a sense because they can be changed in unpredictable ways. When you are trying to educate a consumer about what can happen when you have a credit card account and then the issuer can decide to tack on 20 percentage points later on, it's not a matter of information. It's about a matter of product design.

Vigeland: Nick Bourke is the manger of the Safe Credit Cards Project at the Pew Charitable Trust. Thanks so much.

Bourke: Thanks, Tess.

About the author

Tess Vigeland is the host of Marketplace Money, where she takes a deep dive into why we do what we do with our money.


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