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Credit Card Billing Charges
There may be a "bill" to govern credit card bills. A bill authored by Sens. Carl Levin, chairman of the Homeland Security and Governmental Affairs Committee's investigative panel, and Claire McCaskill, would ban interest from being charged on any portion of a credit card debt that the consumer paid on time during a grace period.
It also would limit so called penalty increases in interest rates, which are imposed when a payment is made after the due date, to a maximum 7 percentage points above the current rate.
The legislation was heralded by consumer groups. Many lawmakers, however, have expressed reluctance to impose mandates on how banks do business.
Sen. Christopher Dodd, who heads the Senate Banking Committee, which has jurisdiction on the issue, said he will examine the proposal "in a careful and thoughtful fashion."
The banking industry opposes such legislation. "We worry about micro-managing the pricing of financial products in a way that may ultimately hurt consumers," said Ken Clayton, managing director of credit card policy at the American Bankers Association.
Heightened scrutiny of credit card practices has come from the new Democratic-controlled Congress, which has put a number of consumer issues on its legislative agenda. With Americans weighed down by some $850 billion in consumer debt, the practices of the robustly profitable credit card industry are a compelling subject for scrutiny.
Amid the congressional focus, several major banks recently began to eliminate or temper some of the practices.
An investigation by Levin's subcommittee found abusive and confusing practices, and repeated penalties imposed by credit card issuers that are said to amplify the financial woes of many Americans while bringing in tens of millions of dollars for the companies.
The bill also would:
- Require increased interest rates to apply only to future debt on a credit card account, not to debt incurred prior to the increase.
- Prohibit charging of interest on credit card account fees, such as late payment fees and fees for going over the credit limit.
- Prohibit charging of repeated over limit fees for a single instance of exceeding a credit limit, and allow the fees to be charged only when the consumer's action, rather than a penalty, causes the limit to be exceeded.
- Ban so called "pay to pay" fees, often charged when consumers make payments on their accounts by telephone. Such fees would be prohibited for any form of payment, including mail or electronic transfer.
- Require payments to be applied first to the portion of the account balance with the highest interest rate.
- Ban the practice known as "universal default," in which credit card issuers raise interest rates for customers because they're late on payments to other creditors separate from the account in question.
The Federal Reserve proposes these changes to credit card statements, to make interest rates and fees more prominently displayed and understood.
Instead of densely worded notices on separate inserts:
- A table summarizing changes prominently at top of the statement, above the list of credit transactions.
- Interest and fee charges itemized.
- More detailed information on the effect of making only the minimum payment, including examples of how long it would take to pay off a balance in full.
- Key information in larger print; rates and fees in bold.
- 45 days' notice before a change in credit card terms, including increased interest rates, instead of the current 15 days.
Lenders and retailers offering credit cards and other forms of open-ended credit would have to give consumers more straightforward information about interest rates and fees, and 45 days' notice before raising rates under a new proposal.
In its first major rewrite of Truth in Lending rules in 26 years, the Federal Reserve on Wednesday laid out proposed changes for credit card advertising, billing and consumer updates. The Fed mantra: simpler, clearer.
"If information is put out, and it's not consumer-friendly, it has absolutely no value," Fed Governor Frederic Mishkin said at a meeting in the central bank's ornate boardroom.
The proposals, based on extensive use of consumer focus groups, respond to the increasing complexity of credit products. The Fed also plans a new look at mortgage and home-equity financing. Further, the action comes as Democrats, now the majority in Congress, are pushing regulators to take a more activist role.
Among elements of the proposed rules, which now go out for a 120-day comment period and could be modified before being issued in final form:
- Financial institutions and retailers offering credit cards and other products could advertise that they offer fixed interest rates only if they clearly state how long the rate is set and that the rate is not allowed to rise during that period. If no time period is specified, the rate cannot increase while the card or loan is in effect. Ads mentioning minimum payments would have to state how long it would take to pay off a balance making just minimum payments.
- Creditors would have to provide 45 days' notice instead of 15 before changing credit terms or raising an interest rate due to consumer delinquency or default.
- Creditors would have to present more information in larger-type, easy-to-read boxes. Consumer focus groups revealed many card holders toss out fine-print inserts without reading them, even though they contain important notices. Rates and interest charges would be broken down for specific transactions such as balance transfers, cash advances and penalties.
- Companies would have to expand disclosure on products for subprime borrowers, people with less-than-stellar credit who generally pay higher rates and fees. Consumers taking out subprime credit cards, for example, may not realize account setup and other fees will be billed on their initial statement, whittling their allowable line of credit.
American Bankers Association President Edward Yingling said competition has reduced interest rates and increased access to credit. But credit card features and payment options are increasingly complex. "Clearly, the challenge is finding a way to make disclosures simple, clear and understandable," Yingling said.
Two options of dealing with credit card bills, is to seek nonprofit credit counseling or debt settlement.
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