Debt-strapped consumers vent their frustration with banks as they root for new rules to rein in card rates and fees
David Giantomasi says he vigilantly paid his credit-card bills each month. Even if he could only make the minimum payment, he made sure to get all his monthly payments squared away. So he was shocked when the interest rate on his Chase credit card suddenly jumped to 19.99% from 7.99%. When Giantomasi called the card issuer to demand an explanation, he was enraged. He was told that overall turmoil in the credit markets meant higher rates for a number of customers.
Chase won’t comment on individual cardholder accounts. “I felt completely helpless,” Giantomasi recalls. “These credit-card companies are beyond the law and should be more tightly regulated.”
New Rules on Rates
The proposed rules, which could be implemented as early as yearend, would represent the first time in over 20 years that a government agency has recommended banning certain credit-card industry practices. Regulation has been left largely to the card issuers, and the Fed and other banking regulators tended to stick to forcing card companies to disclose terms and conditions clearly to customers.
Under the proposed rules, though, banks would no longer be able to hike up interest rates on existing debt, as Giantomasi experienced. Card companies would have to split required monthly payments evenly between the high- and low-rate balances on a card. (Currently, card companies allocate payments to the lowest interest-rate balance first, which leaves a lot of cardholders unable to make a dent in balances at higher interest rates. That’s a recipe for rapidly accruing interest and a feeling of helplessness about managing debt, say cardholders.) And consumers would get a longer grace period before they’re slammed with penalty fees.
Many consumers say it’s about time. The rules were proposed just as the U.S. economy started to tank, when many card holders were falling further behind on their payments at the same time home equity lines of credit were drying up and jobs were disappearing. Regulatory agencies came under fire to act, and Senator Carl Levin (D-Mich.) held hearings this spring to examine card company billing practices.
The proposed regulations generated more than 56,000 comments from individuals, banks, credit unions, and industry associations. That’s a record number of submissions, says the Fed, beating the previous record of 45,000 submissions for a proposal that would have let financial firms assume the role of real estate brokers.