Washington, DC – A Consumer Action and Consumer Federation of America analysis of recent credit card industry practices found that card issuers are using a variety of costly, unfair tactics that will not be eliminated under an impending new law. These expensive and exploitive practices demonstrate the need for ongoing oversight of the credit card industry by a new consumer agency. Card issuers are also hitting consumers with charges that will be forbidden under the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act, which takes effect in February, 2010.
“The ink was barely dry on President Obama’s signature of the CARD Act when banks started hitting consumers with higher fees and charges,” said Travis Plunkett, Legislative Director of the Consumer Federation of America. “Congress can’t write laws fast enough to keep up with these tricks and traps. That’s why we need a Consumer Financial Protection Agency to monitor new developments in the credit card marketplace and take strong action to protect consumers.”
President Obama has proposed creating a Consumer Financial Protection Agency, which would streamline enforcement of consumer financial protections currently scattered among seven different federal agencies. Chairman Barney Frank of the House Financial Services Committee and Chairman Christopher Dodd of the Senate Banking Committee support the creation of this agency. The House Financial Services Committee will vote on the bill next month.
“These arbitrary rate increases are the result of creditors’ efforts to rake in extra cash using questionable practices not covered by the new credit card law,” said Ruth Susswein, Deputy Director, National Priorities, at Consumer Action. “While the CARD Act will effectively take issuers’ hands out of people’s pockets – based on old balances – there is nothing to stop lenders from unjustifiably raising rates and fees on future purchases. Congress can’t be expected to pass new laws to block each new trap. Let’s create an agency with the dedicated mission to monitor and rein in unsavory practices by financial services firms.”
Consumer Action and Consumer Federation of America found that credit card issuers are using a long list of questionable practices prior to the implementation of the new law, including:
- Arbitrary Interest Rate Increases – companies are indiscriminately raising interest rates on existing and future credit card balances, often for no apparent reason.
- Unreasonable Fee Hikes – annual fees and balance transfer fees are just two of the fees that have increased to replace lost interest income.
- Universal Default – Banks continue to use this discredited practice by increasing interest rates on borrowers because of a supposed problem with another creditor, even though the cardholder has a perfect payment history with their card issuer. Under the new law, card issuers will be allowed to use universal default for future rate increases.
- Cancellations without Notice – companies are canceling cards without warning, especially those with low usage.
- Higher Minimum Payments without Notice – banks have been raising minimum payments, often without notice.
- Credit Score Hits – banks are closing credit cards without warning, often to the detriment to the consumer’s credit score.
- Outdated Information – banks do not update their websites with current terms and conditions on their credit cards.
- Mandatory Arbitration – too many banks still require cardholders to accept binding mandatory arbitration.
- Muddy Opt Out Clauses – banks are not transparent about if and when consumers can opt-out of changes to the terms and conditions on their credit cards.