The credit card companies have shortened the amount of time allowed to make payments, hit cardholders with punitive fees when late, increased percentage rates when borrowers were late, made rate increases retroactive and many more abusive practices. Since the cardholders don’t have any voice and no power to negotiate a fair credit card contract, the Congress has passed the Credit Cardholder Bill of Rights with the leadership of Congresswoman Carolyn Maloney . This is sweeping legislation that will restrict the credit card companies from abusive practices. Some of the practices that will be curtailed are:

Ends unfair, arbitrary interest rate increases

Stops excessive over-the-limit fees.

Ends unfair penalties for cardholders that pay on time

Stops credit card companies from making cardholders pay off low interest balance before the higher interest balance

Prohibits short due dates and requires credit card companies to allow 25 days for payment

Establishes definitions for common terms like “fixed rate” to prevent misleading advertising

Sets guidelines on fees for sub-prime credit cards

Prohibits adding fees and interest charges on interest only balances remaining after a credit card balance is paid in full

This is a major and sweeping piece of legislation designed to clean up abusive credit card lender practices. Anyone who looks at this will agree that these practices are mean-spirited, greedy and unfair. This is important legislation, but it still must pass the Senate.

Excessive Late Fees

Consider a low income consumer that charges $50 and is late with their payment. Most credit card companies charge a late fee between $39 and $50. That is a tremendous return if that is an annual return. An annual return of $50 on $50 is, of course, 100%. But, lets assume for a moment that the consumer is two weeks late with their payment . . . the real rate of return for the two weeks is 1,300%.

Retroactive Rate Increases

A prudent consumer gets an offer in the mail for a 9% annual percentage rate credit card and accepts the card. Assume that the payments are due in 20 days and the consumer is late with three times with payments by a few days, but always makes payments. The credit card company raises the interest on the balance on the card to 29%.

Offering credit cards to consumers that cannot afford to make payments

Credit card companies routinely make offers to consumers that cannot make payments. The reason is that the ‘real loot’ that the credit card companies are seeking is the excessive late fees and high interest rate on balances described above. Many say that the consumer shouldn’t accept the card, but the people that say this have probably never been desperate to feed their family or fix their car so they can get to work to feed their family. But, if that is too much for some to accept, lets take college students for an example. College students are buried with an avalanche of credit card offers. When the credit card companies are asked about it, they slyly reply that it’s ethical to send them credit cards, because they will make a good wage when they graduate. Well, what about the four years before they graduate. How do they make the payments when due? They don’t and remember the credit card companies are not counting on them making the payments on time. The real loot is the excessive late fees and retroactive high interest rates.

Senator Menendez and the co-sponsors are on the right track with this.