Curbing Credit Card Predators

NY Times Editorial

Federal regulators are finally doing something about the unfair and deceptive credit card practices that have helped to keep millions of Americans permanently mired in debt. New rules issued last week will limit or prohibit some of the most blatant abuses. But the next Congress must do more if Americans are to get fair, clear credit card rules that allow them to make informed spending decisions.

In recent years, credit card companies have stealthily adopted a variety of billing strategies that are designed to maximize penalties and fees, meanwhile driving up interest rates to 25 percent or higher. The companies hook cardholders with attractively low teaser interest rates — while reserving the right to raise those rates at any time and for any reason.

To make matters worse, credit card contracts are often 30 pages long and written in language even lawyers find hard to understand.

The billing strategies are designed to lure cardholders into the debt trap and keep them there. Under a strategy known as universal default, for example, rates can be raised — even retroactively, on old purchases — when cardholders fail to pay bills not related to the credit card account. Congress, which is considering several bills to curtail unfairness, should outlaw this.

The new rules don’t forbid universal default. But they would at least prohibit retroactive rate increases, unless the cardholder is more than 30 days late on the credit card payment itself. Another change announced last week prohibits the widespread practice of charging cardholders interest on debts they have already paid.

Another important change limits the usurious fees that companies often charge to cardholders simply because they have poor credit histories. These fees, consumer advocates say, can amount to half of the credit these cardholders are offered.

The new rules do not take effect until 2010. That’s not soon enough. Congress could make these and other changes immediate by promptly passing a credit card reform package.