In 2005, Americans holding an average of 5 credit cards per household utilized almost 700 million credit cards to purchase products and services totaling $1.8 trillion. To protect consumers from abusive and unfair credit card practices and ensure arms-length treatment by credit card companies, Senators Claire McCaskill (D- MO) and Carl Levin (D-MI) introduced this month the “Stop Unfair Practices in Credit Cards Act”, a broad bill that was immediately hailed by national consumer groups.
Among those who applauded the move was Travis B. Plunkett, Plunkett, the Consumer Federation of America’s Legislative Director, who stated that the groundbreaking legislation “will stop credit card companies from using a variety of traps and tricks that harm consumers and illegitimately pump up profits”. Norma P. Garcia, an attorney for the Consumers Union, echoed this sentiment by holding that, absent these reforms, “consumers are helpless to defend themselves against currently legal but abusive credit card practices that trap consumers into spiraling debt.”
The Stop Unfair Practices in Credit Cards Act contains numerous sections aimed at curbing or banning lending abuses on the part of credit card companies. The bill’s most significant provisions are as follows:
1. Interest rate increases would only be applied to future debt:
The bill would make interest rate hikes applicable solely to credit card debt incurred in the future. Credit card companies would be prohibited from charging the higher interest rate on debt incurred before the rate increase took effect.
2. Outrageous, non-consensual hikes in interest rates would be prohibited:
Pursuant to the bill, credit card issuers would be prohibited from unilaterally raising the interest rates of card holders who comply with the terms of their credit card contract. Credit card companies will also be subject to a 7% cap on penalty interest rate increases if the card holder fails, for example, to make a timely payment.
3. Over-the-limit fees would be restricted:
A card issuer who grants a credit extension permitting the consumer to surpass the card’s credit limit will be allowed to impose only one over-the-limit fee. The credit card company would be authorized to impose the fee only if the balance exceeds the credit limit at the termination of the billing cycle. Furthermore, such a fee can only be imposed if an action on the part of the consumer, not by the credit card company, caused the credit to go beyond the established limit.
4. Unfair practices relating to fees would be targeted:
The bill would prohibit credit card companies from charging customers interest on fees imposed on them and fees for bill payment.
5. Interest charges for debt paid timely and in full would be prohibited:
Issuers would be prohibited from charging interest on debt that a card holder paid in full and on time.
6. Currency exchange fees would be regulated:
The new legislation will require credit card companies to charge a foreign currency exchange fee that is proportional to the cost involved in performing the currency exchange.
7. Credit card payments would have to be handled equitably:
Issuers will be required to first apply credit card payments towards the balance with the highest interest rate and then proceed to balances with the next highest rate. This will ensure that interest charges or fees are imposed only when strictly necessary.
8. Data collection would be enhanced:
Credit card data gathering efforts will be improved under the new bill.
Considering the detrimental effect of credit card abuse on American households and the overall economy, Congress should enact this pro-consumer bill which will undeniably make it an even-playing field that benefits all honest players.