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.

Popularity: 6% [?]

Banks have so much power over consumers that the industry can develop wildly abusive credit card policies. AND, consumers can’t do anything about it. The banking credit card industry is collecting millions in fees with the abusive credit card policies. Here are the details of a shocking bank policy and an excellent reason why Senator Menendez and others in the Senate and Congress should pass credit card reform.

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.

Popularity: 94% [?]

Senator Menendez announced the Credit Card Reform Act (S. 2753) that will end some of the practices of credit card companies that lure consumers into financial traps such as excessive late fees, retroactive rate increases, unilateral default, unilateral changes to credit card terms and credit offers to consumers that cannot afford to pay. Consider why these actions by credit card companies are so egregious:

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.

Popularity: 100% [?]