Star Tribune Editorial: Credit Card Reforms are Long Overdue

Op-Ed

Star Tribune Editorial: Credit card reforms are long overdue

At the same time the federal government is bailing out a banking industry reeling from the real estate collapse, it's also taking some less-heralded but significant consumer protection steps aimed at the industry's cash cow: credit cards.

Over the past decade, consumers have been increasingly subject to questionable billing practices that made credit card companies billions while keeping cardholders in hock for perpetuity. Among them is something called "universal default," which allows card companies to raise interest rates if you paid your bill on time but were late with a different firm. Other issues of concern include billing practices designed to increase late fees and so-called double-cycle billings that allowed card companies to charge interest on something that was paid off.

Help is long overdue, but the good news is that strong protective measures are under consideration in two places with the clout to really make a difference -- the Federal Reserve and Congress.The Federal Reserve sets banking practice rules. And while its past consumer protection measures have essentially resulted in cardholders receiving more incomprehensible paperwork under the guise of disclosure, these proposed new rules have some welcome teeth. Banks, except under limited circumstances, can't raise the interest rate on preexisting balances. Double-cycle billing is forbidden. There are provisions to prevent late fees and universal default interest rate increases. If there is a late payment, banks also could not raise your interest rate on existing balances until the account is 30 days past due.

Congress, which took up credit card reform when it came back from the July 4th break, is also weighing similar protective steps with the Credit Cardholders' Bill of Rights, which has been championed by Minnesota's Fifth District congressman, Democrat Keith Ellison. The bill has wide support from consumer advocacy groups and is expected to be voted on by the House financial services committee this next week.

The timing of these protective steps could not be better. The economy is ailing, and Americans are struggling with massive amounts of consumer debt -- $2.56 trillion nationally. Since 2000, the amount of credit card debt carried by the average household has risen 15 percent to about $8,500. All those late fees and mysterious tweaks in interest rate calculations add up to a lot of money. It's easy to see why the banking industry is fiercely lobbying to maintain the status quo. Among its arguments: Why take away a moneymaker when the industry is struggling?

Consumers still have time to make their voices heard. The Fed is accepting public comment about its proposed rules until Aug. 4. Letters and e-mails to congressional representatives will also help push this much-needed legislation through. Banks may be hurting, but so are consumers. Regardless of the economy, cardholders deserve fair treatment and billing practices that aren't designed to keep them in debt. In other words, they deserve better than what they're currently getting.

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