Freeze credit card rates

Check those harmless looking letters from your credit card companies. They're raising rates to the 30% max before February's law takes effect., after taking the bailout money and paying themselves high bonuses... all "in the interest of continuing to provide you with credit" Even if your credit rating is excellent.

The Miami Herald editorial, October 29, 2009

When Congress passed the Credit Cardholders' Bill of Rights last May, we called it a long overdue response to the abuses of predatory credit-card issuers who have used every trick in the book to extract money from cardholders. As it turns out, we underestimated the greed and craftiness of the credit-card industry.

In a well-meaning effort to give issuers time to adjust their practices, Congress set a compliance deadline of next February. Instead of seeing the law as a clear signal that consumers are fed up with abusive practices, however, leading bank card issuers used the time to squeeze more money from the public.

Not only have they done next to nothing to stop practices deemed unfair by the new law, but some of the practices that hurt consumers the most have become more widespread.

According to a report issued Wednesday by the Pew Charitable Trusts, ``credit card interest rates rose an average of 20 percent in the first two quarters of 2009, even as banks' cost of lending declined.'' Every credit card offered online by leading bank card issuers was tied to rules and conditions that will be outlawed once the compliance date arrives, Pew said.

Among other things, nearly all of the bank cards allowed issuers to increase interest rates on outstanding balances and permitted issuers to apply payments in a way the Federal Reserve found likely to cause substantial financial injury to consumers.

Punitive charges

Although arbitrary rate changes will no longer be allowed once the law takes effect, the higher rates that consumers are being hit with before then will remain in place. Many consumers with good credit scores and a history of paying their bills on time are shocked to discover that they are on the receiving end of this sort of treatment. Instead of being rewarded for handling their finances sensibly, they are being treated like deadbeats and smacked with rates that were once deemed strictly punitive.

Damage to credit scores

Increased rates that reach 29.99 percent have been widely reported in the case of some Citibank customers, for example. It has also been reported that Bank of America and Citibank were introducing new fees on consumers who don't use their cards enough or don't carry minimum balances.

Spokesmen for the banking industry say consumers always have the option of refusing the higher rates,. But if they do, they run the risk of having their card revoked, either immediately or when the expiration date arrives. First of all, this is an inconvenience, especially for card users with a good record. Secondly, abandoning a credit card for any reason can have a negative effect on credit scores. For the consumer, it's a losing proposition either way.

The Pew Report recommends that the Federal Reserve, which is developing detailed rules for credit card issuers, ensure that there will be no unreasonable or disproportionate penalties in the future, including penalty rate increases.

Congress should go one step further to stop this last-minute effort to milk consumers before the remaining provisions of the law take effect by freezing rates as soon as possible, as Sen. Chris Dodd, the chairman of the Senate Banking Committee, has proposed.

Given the traditional deference shown to the banking industry in the Senate, his proposal is unlikely to make headway unless consumers contact their representatives in Congress. It's their money that's at risk.