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.

These are the Congressmen and Congresswomen that have been defending citizens against credit card abuse by banks, credit card issuers and lenders. We tip our hat and salute these representatives, because they have stood up against the powerful banking lobby to protect the rights of the credit card holders:

Carolyn B. Maloney (D-NY)

Barney Frank (D-MA)

Maurice D. Hinchey (D-NY)

Bennie G. Thompson (D-MS)

Jesse L. Jackson, Jr. (D-IL)

André Carson (D-IN)

Tammy Baldwin (D-WI)

Rubén Hinojosa (D-TX)

Robert E. Andrews (D-NJ)

Chaka Fattah (D-PA)

Steven R. Rothman (D-NJ)

Corrine Brown (D-FL)

John D. Dingell (D-MI)

Nita M. Lowey (D-NY)

David Wu (D-OR)

David R. Obey (D-WI)

Earl Blumenauer (D-OR)

Gene Taylor (D-MI)

James P. Moran (D-VA)

Brad Sherman (D-CA)

Gary L. Ackerman (D-NY)

Melvin L. Watt (D-NC)

Edolphus Towns (D-NY)

Jackie Speier (D-CA)

José E. Serrano (D-NY)

Eni F.H. Faleomavaega (D-AS)

Louise M. Slaughter (D-NY)

Howard L. Berman (D-CA)

Henry A. Waxman (D-CA)

Lynn Woolsey (D-CA)

Peter DeFazio (D-OR)

Edward J. Markey (D-MA)

Solomon P. Ortiz (D-TX)

William J. Jefferson (D-LA)

Betty Sutton (D-OH)

Michael M. Honda (D-CA)

Chris Van Hollen (D-MD)

Eddie Bernice Johnson (D-TX)

Ben Chandler (D-KY)

Neil Abercrombie (D-HI)

Michael E. Capuano (D-MA)

Raúl M. Grijalva (D-AZ)

Peter Welch (D-VT)

Mazie K. Hirono (D-HI)

Loretta Sanchez (D-CA)

Lois Capps (D-CA)

John Olver (D-MA)

Xavier Becerra (D-CA)

Christopher Shays (R-CT)

Tom Udall (D-NM)

Russ Carnahan (D-MO)

G.K. Butterfield (D-NC)

Janice D. Schakowsky (D-IL)

Brian Higgins (D-NY)

James P. McGovern (D-MA)

Mark Udall (D-CO)

Jim Langevin (D-RI)

Zoe Lofgren (D-CA)

Lloyd Doggett (D-TX)

Doris O. Matsui (D-CA)

Stephen F. Lynch (D-MA)

Henry Cuellar (D-TX)

William Lacy Clay, Jr. (D-MO)

Lincoln Davis (D-TN)

Luis Gutierrez (D-IL)

Yvette D. Clarke (D-NY)

Congresswoman Carolyn Maloney and her colleagues in the House of Representatives that support fair credit (card) legislation sent a letter to the Federal Trade Commission in support of a pending rule to address unfair and abusive practices by credit card issuers. The text of the letter is below:

Dear Chairman Bernanke, Director Reich and Chairwoman Johnson:

In issuing the proposed rule under the Federal Trade Commission Act to address unfair or deceptive credit card practices, the Federal Reserve, the Office of Thrift Supervision, and the National Credit Union Administration have together taken an important and necessary step towards fairness and shared responsibility in credit card contracts. The undersigned cosponsors of the Credit Cardholders’ Bill of Rights, H.R. 5244, applaud and support the proposed rule.

While the proposal deals with some practices slightly differently than H.R. 5244 does, it identifies as “unfair and deceptive” the same core abuses identified in our bill:

* Retroactive repricing, or raising rates on existing balances so as to instantly increase the cardholder’s debt;

* Universal default, or raising rates retroactively on cardholders who pay on time and don’t go over their limit;

* Double cycle billing, or charging interest on balances already paid off;

* Payment allocation to low rate balances, which prevents responsible cardholders from paying down their higher-rate balances; and

* Excessive fees charged for subprime cards.

We agree that these abuses are unacceptable and should be eliminated, and appreciate the careful factual and legal case the agencies have made in proposing these reforms. We are pleased that your agencies, which are responsible for the safety and soundness of our financial institutions, are now firmly on record that eliminating these abuses will benefit consumers, and will not pose a threat to safety and soundness or the health of the economy.

Thank you for your leadership in this area.

According to the plea agreement, from July 2006 through September 2007, URIBE committed wire fraud and aggravated identity theft. URIBE was a licensed mortgage broker in Florida and was able to originate mortgage loans. URIBE and others fraudulently submitted mortgage applications under false pretenses, obtaining and disbursing the proceeds of those loans, including directing portions of the proceeds to bank accounts in their control.

URIBE was one of the principals behind Bay General Contracting Services, LLC (herein after “Bay General”). Bay General was not a licensed contracting service in the State of Florida. On at least twenty separate real estate closings, monies were fraudulently disbursed to Bay General. Numerous Notices of Commencement were filed with the Clerks of Hillsborough, Pinellas, Pasco, and Citrus counties but no construction work was actually done. Despite the monies transferred and Notices of Commencement, BayGeneral did not have a single employee nor was there a single instance in which Bay General or anyone employed by Bay General actually performed any of the work related to the Notices. In reality, URIBE and others used Bay General to serve as a vehicle to improperly inflate the value of the properties in question, to strip actual and fraudulently created equity out of properties, and to serve as a vehicle for syphoning the proceeds from fraudulently obtained loans.

As a result of the scheme to defraud, URIBE and others caused lenders to fund more than thirty-two (32) loans for a total of more than $6 million in fraudulently obtained loans issued upon the false representations made by URIBE and others in the various loan applications and documents as well as in the providing of the false documents themselves.

With each of the major investment banks that had been part of the CSE program being reconstituted within a bank holding company, they will all be subject to statutory supervision by the Federal Reserve. Under the Bank Holding Company Act, the Federal Reserve has robust statutory authority to impose and enforce supervisory requirements on those entities. Thus, there is not currently a regulatory gap in this area.

The CSE program within the Division of Trading and Markets will now be ending.

Under the Memorandum of Understanding between the SEC and the Federal Reserve that was executed in July of this year, we will continue to work closely with the Fed, but focused even more clearly on our statutory obligation to regulate the broker-dealer subsidiaries of the banking conglomerates. The information from the bank holding company level that the SEC will continue to receive under the MOU will strengthen our ability to protect the customers of the broker-dealers and the integrity of the broker-dealer firms.

The Inspector General’s office also made 26 specific recommendations to improve the CSE program, which are comprehensive and worthy of support. Although the CSE program is ending, we will look closely at the applicability of those recommendations to other areas of the Commission’s work and move to aggressively implement them.

As we learned from the CSE experience, it is critical that Congress ensure there are no similar major gaps in our regulatory framework. Unfortunately, as I reported to Congress this week, a massive hole remains: the approximately $60 trillion credit default swap (CDS) market, which is regulated by no agency of government. Neither the SEC nor any regulator has authority even to require minimum disclosure. I urge Congress to take swift action to address this.

Finally, I would like to commend the extraordinary efforts of the SEC’s diligent staff, who for so many months have been working around the clock in the current market turmoil. Their dedication and commitment in behalf of investors and the American people are unequaled.

The FBI worked with the cooperation of other government agencies including the U.S. Postal Service, Internal Revenue Service and the Secret Service. The investigation has secured more than $60 million in assets.

Director Mueller stated that the FBI caseload of mortgage fraud cases has doubled from 1,400 a year ago. The FBI is committed to investigating mortgage fraud to protect the consumer and stabilize the economy.

Accounting fraud can strike any company, but small and medium size companies are especially vulnerable. Good accounting practices will help prevent the occurence of accounting fraud. Some basic guidelines for good practice that can be implemented by any size of business.

1. There is a greater risk for fraud when one person controls all aspects of the accounting. Owners should not let a direct hire accuntant be involved in every facet of the businesses accounting and financial activities such as handling the payroll, balancing receivables, preparing deposits, making payments to vendors, etc. This is a dangerous practice, even with a ‘trusted’ employee, and puts a company at risk for fraudulent activity.

2. Properly staff your accounting department so that work can be completed during normal working hours. A workaholic controller may seem like a ‘good employee’ to the owner of a medium size business, but working alone long after employees have gone home gives an employee opportunities to change/modify/create entries and commit fraud.

3. This is an extension of the workaholic controller idea presented in #2 above. Encourage all employees, including accounting employees, to take their vacation and holiday time. This provides an opportunity for another employee to perform their job duties and provides a set of ‘objective eyes’ that may notice if something is not in accordance with the company’s policies and procedures.

4. Don’t let a domineering controller or accountant take over and handle all activities without assistance from others. Be sure that more than one person participates in all meetings with third parties such as banks and consultants.

5. Be sure that document filing is always neat, orderly, current and up to date. This is a big one for many small companies. Many small companies are growing fast and are always under staffed. Disorderly records, stacks of vendor invoices, payroll records, expense reports, etc. are an open invitation for accounting fraud, because key documents can ‘disappear’.

6. Conduct internal audits. Audits are not just for big corporations. Just because everyone at a small company knows each other on a first name basis and goes to lunch together, doesn’t eliminate the need for audits. Procedures must be followed to prevent the chance of accounting fraud, and the best way to be sure that procedures are being followed is to perform internal audits on a regular basis.

7. Have an eagle eye for income and deposits. Better yet put procedures in place to verify income and deposits. Income is the life blood of the company and easily skimmed or otherwise manipulated. A heart surgeon recently discovered that an employee in his office was skimming about $150,000 per year. I guess he had a profitable practice!

8. Be vigilant and make occasion changes. Cross train employees to work in other areas. Bring in an accounting consultant for a complete audit of procedures. Use a good accounting software package. Have written procedures and be sure that all accounting employees follow the company procedures. Do not let employees work practices ‘go around’ or use ’shortcuts’ and insist that they follow the procedures.

Accounting fraud can strike any company and the most ‘trusted’ employees can be the culprit. While it’s not necessary to lose trust of employees, it’s necessary to develop tight procedures with built in safeguards to prevent an employee from being tempted. The Golder Rule is that it’s easier to prevent accounting fraud than it is to detect it after it’s happened.

A friend told me that he signed up for bank overdraft protection with a major bank. The overdraft protection was explained to him in simple terms. If his account was overdrawn, the bank would transfer money to his bank account and charge it to his credit card and he would be charged $30.00 each time. So, he signed up for overdraft protection. It seemed like a good idea.

The friend’s bank account was never overdrawn for several years, but then within a couple of weeks it happened twice. Including transfer amounts and fees, about $500 was charged on his credit card. His credit card already had a balance of approximately $2,500 for items that he had purchased and the new balance was $3,000.

He continued to make payments on the credit card and several months went before he noticed that the interest every month seemed higher than usual. He called the bank to check into it and was told that the overdraft protection was considered a cash advance and the interest rate is 31%. OMG! he thought. I’ve got to pay that off!

He asked the customer service representative what should he do to make sure that his monthly payments were applied to cash balance portion of his statement first. THE BANKS ANSWER: You can’t do that. You have to pay off your entire balance to pay off the cash portion.

This is the perfect example of why the Congress and Senate must step in to approve legislation to curb the abusive power of banks. What person wouldn’t expect to be able to pay of the 31% interest rate portion of the statement first. After all, the bank knows exactly how much the cash balance is, because they charge 31% interest on this amount each and every month. Wouldn’t any prudent person expect to be able to pay off the highest interest rate debt first? Wouldn’t any decent bank allow its customers to pay off the highest interest rate debt first? Of course! But banks aren’t decent.

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.