Weekly Credit Card Update March 18, 2010
THE FED’S RESPONSIBILITY
The Fed has a long history of putting the credit card industry first and consumers far behind, and a draft of the rules released this month is disturbingly weak.
The biggest flaw is that the proposed rules fail to regulate so-called “penalty interest” charges, under which interest rates can be doubled or even tripled for infractions like late payments. The Fed tries to defend this omission by arguing that the proportionality provision in the legislation does not specifically refer to penalty interest rates.
That’s a convenient interpretation if you own a credit card company. But the Fed, which has broad authority in these matters, is supposed to be working on behalf of consumers. Beyond that, the statute clearly states that any and all penalty fees and charges should be “reasonable and proportional,” which is to say not usurious.
In general, the credit card companies have proved that they will not respect this standard. That means the Fed will have to set clear limits on how interest penalties can be applied.
Editorial in the New York Times
BAD CREDIT IS BLOCKING MORE PEOPLE FROM GETTING JOBS
Employers’ use of credit histories to screen applicants is turning into one more barrier for the nation’s unemployed – about 15 million people – many of whom end up with tarnished credit when they lose a job and struggle to pay bills, credit cards and household expenses. Critics of the practice say it perpetuates a cycle of joblessness and hinders economic recovery.
That has stirred a movement, supported by consumer and worker advocacy groups, to clamp down on credit checks by employers. In Maryland, lawmakers are proposing legislation that would ban credit checks to hire or fire, though it would not apply to financial institutions or businesses required by law to check credit. It has been flagged as a priority by Senate Democrats.
Fifteen other states are considering similar laws, while legislation is pending in Congress that would ban employers from hiring and firing based on creditworthiness. Proponents say credit reports can contain errors and, even when accurate, can be an unfair and discriminatory judge of worker ability.
Story by Lorraine Mirabella for the Baltimore Sun
CREDIT CARD ISSUERS STILL FACING TOUGH TIMES
Monthly credit card data released Monday is a mixed bag for issuers. The data shows fewer consumers are significantly late on their credit card payments but major issuers are still having to write off extremely high percentages of their credit card loans.
Delinquency rates are the number of credit card consumers who are at least 30 days late on paying their bill. Of the six major credit card issuers, only Citibank showed a monthly increase in their February delinquency rates. Lower delinquency rates are good for issuers because this indicates they will have to write-off fewer bad loans in the future.
ZALES FACES CITIBANK PENALTY AFTER CREDIT CARD SALES FALL SHORT
Zales must pay Citibank a $6 million penalty for not having enough credit card sales or risk an early end to their credit card deal that provides financing for 40 percent of its U.S. purchases.
The company says that if it loses these sales that are financed by their Citi-backed credit cards “the adverse consequences would be material and would likely impact our ability to continue to operate.”
VERMONT BILL CRACKS DOWN ON CREDIT CARD FEES
Senate lawmakers in Vermont are attempting to crack down on fines and fees charged by credit card companies. They are also trying to help out small merchants struggling with tight card restrictions.
The bill, S.138, would place a cap on late fees that credit card companies can charge and would require them to alert customers in writing before they change fees, terms or other parts of a contract. Credit card companies could be fined up to $10,000 for breaking these terms.
The amendment announced by Senate leaders on Tuesday would extend some more protections to Vermont businesses, who they say are facing high fees and confusing contracts required by credit companies to use their cards.