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“Maryland PIRG commends the Senate on overwhelming passage of the Credit Card Accountability, Responsibility and Disclosure (CARD) Act, S 414, as introduced by Senator Chris Dodd, Chair of the Senate Banking Committee. While the House has already passed a similar Credit Cardholders Bill of Rights, we expect that the House will simply pass the identical Senate bill so Congress can send a final bill for the President to sign before Memorial Day. Both Sens. Mikulski and Cardin supported the measure.
For too long, owning a credit card company has been a license to steal. Over the last few years, the banks increased their use of abusive tactics, such as changing due dates so they could trick consumers into paying late. Worse, they charged a double whammy—a high late fee first and then tripled interest rates to 36% APR or more. Second, they started charging good customers higher rates because they supposedly paid some other creditor late (universal default). But that wasn’t enough, so they started raising the rates of customers who’d been late to no creditor, for no reason at all. That was their biggest mistake. Gouging everyone caused thousands and thousands of Americans who just want a fair deal to contact Congress and even the Federal Reserve.
The Credit Card Act bans nearly all retroactive rate increases on current balances, it prohibits universal default in the first year and it protects college students from unfair marketing of credit cards.
Due to abusive practices by credit card companies, we are now on the verge of historic credit card reform. Is it everything we want? No, we should also ban raising rates going forward, not just retroactively, and we should ban forced arbitration clauses in credit card contracts and reinstate usury ceilings. But final passage of this historic credit card reform legislation will stop big credit card companies, many of which are feeding at the TARP taxpayer trough, from cheating Americans out of their hard-earned money. That will help working families so that they can become part of our economic recovery, not lurch on a credit card debt treadmill. It’s about time.”
The Credit CARD Act substitute targets the most abusive practices used by credit card issuers, many of which are not addressed at all or in full by recent credit card rules finalized by federal regulators. Unfair and deceptive practices targeted by the bill include:
- Unjustified and retroactive interest charges. Card companies could not hike interest rates retroactively on balances accrued before a rate increase takes effect (with minor exceptions) unless the cardholder is more than 60 days late in paying a bill. If such interest rate increases occur, card issuers must lower the rate after six months of on-time payments following the increase. Card companies would not be able to raise interest rates in the first year after a card account is opened.
- Universal default on existing balances. Credit card issuers could not increase a cardholder’s interest rate on existing balances based on adverse information not related to card behavior.
- Excessive and growing penalty fees. Penalty fees would have to be reasonable and proportional to the late or over-limit violation. Card issuers could not charge over-limit fees unless the cardholder has affirmatively agreed to allow over-limit transactions.
- Deceptive and costly payment application methods. Card companies would have to apply payments in excess of the minimum amount to the credit card balance with the highest rate of interest.
- Unfair billing practices. Card companies could not use “double-cycle” billing or impose interest charges on any portion of a balance that is paid by the due date.
- Pay-to-Pay. Card companies could not charge a fee for any payment method that is allowed, except for expedited service provided by a service representative.
- Irresponsible lending and aggressive marketing to young consumers who do not have the ability to repay debt. Credit card issuers could not extend credit to consumers under the age of 21 unless the person has an independent means to repay the loan, or there is a cosigner who has such ability. Consumers under the age of 21 could choose whether to receive credit card solicitations.
These and other key provisions of the Credit CARD Act substitute restore fairness to the credit card marketplace and will do significantly more to eliminate abusive practices than rules that were recently finalized by federal regulators. We look forward to working with you to see the Credit CARD Act enacted into law and implemented as quickly as possible.
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