Will Senate Hearings Lead to More Credit Card Changes ?

Will Senate Hearings Lead to More Credit Card Changes ?

Today, the Senate Permanent Subcommittee on Investigations
again turns its investigative attention to the practices of
the credit card industry. This time it is focusing on unfair
interest rate increases. Consumers are complaining that
issuers unfairly raise interest rates after a slight drop in
the credit score, even if they have a good payment history.
The investigations are working. Acting in advance of this
hearing, last week Chase announced that it will eliminate
this practice of repricing. This change is effective on
March 1, 2008.

In March 2007, this subcommittee examined practices related
to credit card grace periods, excessive fees and interest
charges assessed against debt that was paid on time. As a
result, Chase ended its two- cycle billing policy and it no
longer charges over-the-credit-limit fees for customers who
have been in a "chronic overlimit position" for over 90
days. Citi ended its universal default policy and its "any
time for any reason" rate increases.

Despite the hearings, government attention and even actions
by the Federal Reserve to lower interest rates, issuers
continue to find ways to raise rates and fees.

Here are a few examples of recent rate and fee increases:

* Discover dropped the intro rate for purchases from 12
months to 6 months, effective December 1

* Capital One made a number of changes which all went into
effect on December 3. They raised the interest rate on
consumer cards by .5%; increased its cash advance fee from
19.3% to 22.9%; and increased the fees by shrinking the
tiers for late payment fees and eliminating the tiers for
over the limit fees.

* Bank of America recently announced that it will no longer
cap balance transfer fees, effective March 2008
"The credit card industry is a big business, not a charity,
and the issuers are in business to make money from their
cardholders. They also take risks by lending money and
should be compensated for that," says Bill Hardekopf, CEO of
LowCards.com. "But some of these their practices are very
unfair.

"Cardholders do have the power to call and ask for lower
rates. If this doesn't work the first time, pay your bills
on time, then ask again in a few months. If persistence and
good payment history don't get a lower rate, then it is time
to shop around for a new credit card."

Here are some additional changes that the Senate should
investigate to help consumers:

1) Apply monthly payments to highest rate balances first.
"If Congress was really serious about helping consumers,
they would change the way credit card issuers apply monthly
payments to the outstanding balance. Applying the monthly
payment to the balance with the highest interest rates would
save cardholders a lot of money on interest charges and help
them get out of debt much faster," says Hardekopf.
Currently, the monthly payment is applied to the lowest rate
balance first before paying off the balance with the highest
interest rate. That means the balance will continue to
accrue unpaid interest as long as you use the card to make
purchases. This practice keeps you paying on your balance
with the highest interest rate until the moment you pay off
your total balance.

2) Make the Terms and Conditions easy to understand. "We
hope that Congress is able to encourage or force the
industry into making the terms and conditions easier to
understand. If you don't read the fine print and only judge
the card by the sometimes misleading large print in the
promotions, you may be surprised by the card you actually
get," says Hardekopf. For example, the Chase Business Cash
Rewards card promotes "up to 5% cash back," but that 5% is
only on $500 worth of purchases made each month after you
have spent $2000 during that month.
This also applies to notifications about rate and fee
increases. "It is interesting that the letters describing
new debt opportunities are easy to read, but the
notification of rate increases or changes in the terms of
your card are so difficult to understand that they almost
require a visit to your lawyer to find out what they mean
for you. The notifications are also sent in a plain white
envelope that is easy to miss."

3) More protection for consumers against rate increases.
"Credit card issuers say in their terms and conditions that
they can increase your rate at any time for any reason. If
they decline your request for a lower rate, you can close
your account, but there is nothing else you can do about it.
The rate increase may spread to your other loans because
your other creditors can check your credit report, see the
increase as an indication of increased risk and increase
your rate with other loans as well," says Hardekopf. "All
credit issuers should drop the penalizing practice of
universal default."

4) Re-institute the cap on balance transfer fee. Until the
past year, most issuers did not charge a fee for balance
transfers; it was an enticement to encourage you to switch
from another card. Last year, they started adding the
balance transfer fee with a cap; now a number of issuers
have dropped the cap completely and charge 3% on the entire
balance that you transfer.

5) Pay balance transfer fees up front out of the amount
transferred. Issuers roll the fees into the loan, so you not
only pay the fee, but you will also pay interest on that fee
until you pay off the loan.

6) Lengthen the grace period. Over the years, issuers have
reduced the grace period from 30 days to 25 days and now,
many have lowered it to 20 days. It varies by issuer and it
is now very easy for anyone, regardless of income or payment
history, to miss a payment. "The grace period adds to the
confusion because it varies by issuer. It would be nice to
have a standard 25 day grace period."

7) Regulate the fees charged for subprime cards. A subprime
card does not benefit the cardholder if most of the payment
goes to fees, leaving very little for credit. These cards do
not report to credit bureaus and offer no help in building
up credit history. "Subprime credit card offers are just
quicksand for those who are already struggling with debt,"
says Hardekopf.

8) Stop the practice of convenience checks. Credit card
issuers aggressively promote the use of convenience checks,
making the checks very easy to use without clearly stating
what the user is signing up for. "They send a letter that
tells of the exciting things you can buy, or the debt you
can easily consolidate by using the checks. However, what
they don't tell you in the big print is that consumers are
assessed an additional fee of 2% to 5% of the transaction
just for using these checks," says Hardekopf.

LowCards.com ( http://www.lowcards.com ) is a free,
independent website that helps consumers easily compare
credit cards in a variety of categories such as lowest
rates, rewards/rebates, balance transfers and lowest
introductory rates. It also gives an unbiased ranking and
review for each card, making it easy for consumers to
compare more than 150 credit card offers and apply securely
online. It also provides advice about credit card and debt
issues, news, and credit card updates. Created by Hampton &
Associates, the company has been analyzing the credit card
industry and supplying objective websites on various
consumer expenses for over seven years.