Credit Companies Exploit Law’s Delay
To dodge tougher restrictions , some card issuers have been busy boosting interest rates, imposing annual fees and making overdrafts even more expensive.
There was much for consumers to like in a credit-card reform measure approved by Congress in May. Companies must mail statements at least three weeks before the payment-due date, for instance. And 45 days’ notice must be given before interest rates can be increased.
But the legislation contained visible flaws, too — notably effective dates of February and August 2010 for many of the changes. The extended deadlines were intended to give card issuers ample time to prepare for the new regulations.
And, oh, how they’ve prepared. To dodge tougher restrictions , some card issuers have been busy boosting interest rates, imposing annual fees and making overdrafts even more expensive.
Even customers who pay off monthly balances on time — dubbed “deadbeats” by the industry because they generate little or no revenue — are getting dinged in the rush to beat the deadline.
The flurry of activity recently prompted the chairman of the Senate Finance Committee, Connecticut Democrat Christopher Dodd, to call for a freeze on credit-card rates. He also wants to move the legislation’s effective date to Dec. 1.
“At a time when families are struggling to make ends meet, jacked-up rates can quickly create crushing debt,” he said. “People need to be responsible with their money, but they shouldn’t be taken to the cleaners by outrageous fees.”
Much of the damage has been done, but perhaps Congress can clean up some of the mess it helped create.
Special attention should be given to fees levied when customers spend more money than they have in their checking accounts or exceed credit limits.
Obviously, it’s the cardholders who are chiefly at fault in such transactions. If they overspend, they should expect consequences. But something appears to be amiss. The amount collected this year has hit $26.6 billion, more than double five years ago, according to the Center for Responsible Lending.
Some of the increase is attributable to the recession. Laid-off workers can slip as they use debit and credit cards to manage new expenses and old debt.
But Congress and regulators should delve into how the fees are being applied. Some customers have complained that transactions have been posted out of sequence, in a way that enables card issuers to maximize penalties. If that’s true, even stricter limits are warranted.
Ideally, the credit-card morass will sort itself out as market competition forces banks to offer better deals.
At the moment, though, it appears some banks are competing to see who can rack up the most money in arbitrary fees and rate increases before stricter regulations take effect.
Some customers can afford to fight back by severing their ties with card issuers. But others, on the hook for debt in a tough economy, may need additional protections.
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