Government pushes end to “hostage-taking” by credit card issuers

fightclub-doppleganger

The club we're in

In February credit card companies will have to adhere to new regulations meant to rein in predatory practices against consumers. Until then, however, they have been rampantly raising interest rates and fees, and cutting credit limits — even for those who pay their bills on time. The House responded by submitting legislation to make regulations come into play as early as December. Indulge the doppelganger within.

In May, lawmakers decided to limit interest rates hikes, eliminate “universal default” (raising interest as a penalty to struggling customers), give consumers more time to pay bills, eliminate arbitrary deadlines, limit overdraft fees, and more.

Some of those regulations would not have gone into effect until August 2010, but in preparation for February’s doomsday, credit card companies have raised interest rates to the highest levels in history (up to 30%). A study by The Pew Charitable Trusts, found the median interest rate advertised by most credit card companies in July 2009 was 13 to 23 percent higher than rates in December 2008.

Rep. Barney Frank (D-MA), one of the sponsors of the bill along with Representative Carolyn Maloney (D-NY) said, “when customers fully comply with credit card terms, companies should not be allowed to raise their interest rates. It is the single most unfair economic act I can think of that does not involve a pistol. This is not risk management, this is hostage-taking.”

Proponents of the bill fear it will not pass in the Senate, where more conservative politicians are concerned that card companies would respond by cutting the number of credit cards they issue. In that, the long-term fear is decreased consumer spending, which is needed to revive the economy. Card companies say they need the increased rates to cover losses incurred during the recession, but the recession may resurge if people can’t afford to spend. Await the ransom.

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