When the Federal Reserve asked for comments on its proposed rules on abusive credit card practices, an astonishing 56,000 poured in. Most were from outraged consumers. They told of interest rates skyrocketing when they paid an unrelated bill late. They complained of unwarranted late fees and pushed-up due dates. One Pennsylvania customer fumed: “I’m fed up with credit card company tricks that drive us deeper in debt.”
This anguished deluge should send a clear message to leaders in Washington. The Federal Reserve should swiftly adopt its proposed rules against unfair or deceptive credit card practices. But the real burden to curb these abuses falls on Congress.
For too long, members of Congress have shirked the responsibility to ensure fair lending to credit card customers and have listened more intently to the banking lobbyists. A low point came in 2005, when Congress passed a bankruptcy law that was badly tilted against borrowers. It gave extra protections to lenders against unscrupulous debtors. But it also made it much harder for people to declare bankruptcy, even when the economic crisis was caused by sickness or family tragedy.
Ronald Mann, a Columbia Law School professor, has argued that the law creates a “sweat box of credit card debt.” As borrowers become “distressed,” the credit card issuer has more time to pile on interest charges and fees until the client actually goes bankrupt. As heartless as that bankruptcy law has been for beleaguered consumers, the Democrats, who have controlled Congress since 2006, have not fixed it.
They did take one step forward last week. By a 39-to-27 vote, the House Financial Services Committee approved a cardholders’ bill of rights that was sponsored by Representative Carolyn Maloney, Democrat of New York. It would stop credit card companies from raising interest rates on balances incurred under an old rate. It would let consumers pay off loans with higher interest rates first. And it would stop unfair late fees and “universal default,” the practice of raising interest rates on accounts in good standing when a borrower falls behind on other bills. This borrowers’ bill of rights should move quickly to the House floor, and Christopher Dodd, the Democratic chairman of the Senate Banking Committee, should support similar legislation in his chamber.
The banks are openly fighting both the Maloney bill and the Federal Reserve rules. They warn of unintended consequences, mainly that less credit would be available to consumers. They also argue that most cardholders are happy and that the complaints are just “anecdotal.”
The huge file of comments at the Federal Reserve contains plenty of anecdotes, and there are surely many more where those came from. Congress should give consumers what they need and deserve — fair and clear lending rules for credit cards.
