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Congress eyes tougher credit card laws
Credit cards
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TEXT OF INTERVIEW
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. Follow Tess on Twitter @radiotess
these people in my view are greatly responsible for the recession we are in.Back in 1999 i recieved a bank of america account for 15000 at a guaranteed fixed rate as the big block letters stated.it wasnt even an account to cover my expenses my step dad had agent orange.well shortly after paying his bills with the account they jacked my rate up to 20+ percent when i questioned them they stated I wasnt old enough to recieve the originally agreed upon rate.to make the story short he died the bill went to a collections agency because i was unable to meet their demands cavalry portfolio services picked up the account i disputed it.then paid it off only to have them file another law suit against me for yet the whole amount all over again they conviently served papers to a minor not even related to me at the wrong address the court found in their favor cause they claimed i did not dispute the amount owed,wa la once again screwed out of another 15000+ dollars cause when i was notified of the default judgement i got a lawyer he cost me another 5000.00 and the higher courts found the judgement to be fine and dandy by their standards.stupid me i got another credit card from chase 3 months ago I got my bill for 960.and some change I sent 1000.00 to close and settle all amounts owed and actually wrote on the check for final payment of and here we are 3 months later with them sending me a bill for 350.00 claiming late fees plus interest on money which i dont even owe them..I will be paying cash only from now on to include the purchase of my next home if the govt doesnt like us using cash they can stop printing it.
Thank you for reporting on this. I have a Bank of America Amex which just changed my terms and almost doubled my interest. Citi more than doubled my interest (from 6%-15%), Chase attempted to tack on a $120 annual fee on my card until Attorney General Andrew Cuomo became involved and was able to stop Chase's extortion attempts. All of these banks are receiving bail out funds. I've never been late on a payment, but I'm being punished severely, it's so upsetting.
<i>"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."</i>
So much for being a country of laws and not changing contracts once entered into, as AIG insisted in the bonus debacle. Sort of depends on whose ox is being gored now, doesn't it?
This article does not even scratch the surface of the abuse of power by credit card issuers. Al Capone once is alleged to have remarked that a man in a pen striped suit could always steal far more money than a man with a gun. Congress has given the banking and lending industry the green light to legally steal from the consumer for some time now. The consumer has been lulled into complacency with all the "purchasing power" they felt the credit card gave them. I have on many occasions written to my Senator on this and related issues without any sign of even being heard. My solution was simple. I simply stopped using any form of credit five years ago and will never go back. I don't have the time to even try the sucker's game of trying to keep up with the credit card, escrow and banking scams authorized by our own elected officials. Its a crooked game and, according to my reading of history,it always has been a form of legal theft. Thanks but no thanks!!
