CAPITOL Board wants to hear credit card miseries BY JASON SUBIK Gazette Reporter Reach Gazette reporter Jason Subik at 395-3198 or jsubik@dailygazette.net.
The New York Consumer Protection Board is looking for “credit card horror stories” to help bolster its lobbying campaign to get the federal government to mandate simplified credit card disclosure forms. Many credit card companies issue tiny disclosure booklets containing dense black text written in college-level English, all of which may be contributing factors to widespread credit card delinquency, according to a U.S. Government Accountability Office report issued in September. The GAO deployed “usability experts” to review the forms and consumers interaction with them. The report stated that the largest credit card companies often used forms written at “well above the eighth-grade level at which about half of U.S. adults read.” “It’s more like the graduate school level,” said Mindy Bockstein, chairwoman and chief executive of the New York state Consumer Protection Board. “It’s the quality [of the] disclosure [that] needs to be updated. If you look at your disclosure now it’s kind of confusing. It’s not clear in terms of all of the practices that are now invading the industry.” According to the GAO report, most forms did not correspond to usability and readability best practices. “The disclosures buried important information in text, failed to group and label related material, and used small typefaces.” NYCPB has posted a credit card survey on its Web site. The survey went online Monday to commemorate “International Juggling Day,” which is meant to draw attention to how many consumers struggle daily with credit card debt. NYCPB officials said about 150 consumers have submitted surveys so far. “We hope that consumers will take a moment to complete this survey because it will give us a clearer picture of what is really going on in the industry and what consumers are experiencing,” Bockstein. The survey asks how consumers chose their credit cards; whether they are satisfi ed with the customer service; and whether they have been assessed any penalties or higher interest rates while using a particular card. Troy resident Karren Bergland filled out the NYCPB form. She said she has received late fees on her credit cards because some of her mail was stolen. She said she refused to pay the late fees, which have been added to her credit card balances plus accumulating interest, on the grounds that a police investigation into the stolen mail should have been sufficient to clear her of late charges or at least freeze the companies from adding more. “I am livid . . . mostly because it has adversely affected my credit score,” Bergland said. Bergland’s problem falls under the category of “trailing interest,” the practice of adding late fees onto the balance due on a credit card account if a payment is missed. Interest is then applied to the late fee, and will continue to be applied and accumulated until the balance is entirely paid off without another missed payment, which would start the process over again. As of the latest data compiled by the GAO, about 35 percent of all active U.S. credit card accounts were assessed late fees in 2005 and 13 percent were assessed over-the-limit charges. The six largest credit card companies reported to the GAO that unpaid credit card interest represented about 10 percent of the balances owed by bankrupt cardholders, but were unable to provide data on penalty charges paid by cardholders prior to bankruptcy. Bockstein said the credit card survey will help the NYCPB communicate to New York’s congressional delegation issues that still need to be addressed regarding protecting consumers from credit card problems.
Feds planning crackdown on plastic issuers BY JIM ABRAMS The Associated Press
WASHINGTON — The Federal Reserve and other regulators initiated steps Friday to end “unfair and deceptive” credit card industry practices assailing consumers who are already struggling to cope. The proposed rules would be the biggest clampdown on the industry in decades, aiming at protecting people from credit card companies that arbitrarily raise interest rates or don’t give borrowers adequate time to pay their bills. The proposals would also restrict such lender practices as allocating all payments to balances with lower interest rates when a borrower has balances with different rates. The Fed board voted Friday to approve the recommendations. Federal Reserve Chairman Ben Bernanke said the proposed rules “are intended to establish a new baseline for fairness in how credit card plans operate.” Consumers using credit cards “should be better able to predict how their decisions and actions will affect their costs,” he said. Lawmakers who have demanded tougher controls on the credit card industry were generally positive about the proposed rules, as were consumer groups. But some questioned whether the changes would be strong enough and soon enough to help the millions of households struggling with credit card debt. The Fed drew considerable criticism for its slow response to abuses that contributed to the subprime mortgage crisis. “These steps are a significant improvement,” said Sen. Charles Schumer, D-N.Y., a member of the Banking Committee and a leader in legislative efforts to make credit card companies more forthcoming about the interest rates they charge. “While they can still go further, the Fed deserves credit for acting, particularly for banning some awful practices rather than relying solely on disclosure.” Last year, the Fed proposed rules that would make credit card bills and solicitations easier to understand, but Friday’s proposals go well beyond those in tightening interactions between the industry and consumers. “At first blush, this does seem to be good news for credit card holders,” said Sen. Robert Menendez, DN.J., author of pending legislation addressing some of the same credit card abuse issues. “However, it remains to be seen if these proposals will go far enough.” “The problems are mounting, and the last thing consumers need is to have credit card companies ripping them off with late fees and charges through no fault of the consumer at all,” said Senate Banking Committee Chairman Christopher Dodd, D-Conn., who is also pushing reform legislation. The banking industry opposes the changes and says they could lead to higher interest rates. Proposed rules would prohibit: Placing unfair time constraints on payments. A payment could not be deemed late unless the borrower is given a reasonable period of time, such as 21 days, to pay; Unfairly allocating payments among balances with different interest rates, with lenders crediting payments to balances with lower rates so they can continue to charge interest for balances at higher rates; Retroactively raising interest rates on pre-existing balances; Placing too-high fees for exceeding the credit limit solely because of a hold placed on the account; Unfairly computing balances in a computing tactic known as double-cycle billing; Unfairly adding security deposits and fees; The agencies said the proposed rules also would require federal credit unions to give consumers a chance to opt out of an overdraft protection program. And they would prohibit those institutions from charging a fee for an overdraft caused by a hold placed on consumers’ funds when a person uses a debit card. Ken Clayton, senior vice president of card policy for the American Bankers Association, described the proposed changes as “aggressive regulatory intervention in the marketplace that will result in higher prices and less consumer credit.” “It’s unfortunate that the industry continues to buck the immense groundswell of support that is building for credit card reform,” said Rep. Carolyn Maloney, D-N.Y., who has introduced consumer protection legislation in the House. She said the Fed endorsement of provisions in her bill “puts to rest the credit card companies’ assertion that reform will somehow harm consumers or the economy.”
Regs proposed to end unfair credit card practices On the Money BY EILEEN ALT POWELL The Associated Press
NEW YORK — Consumers may soon get a break from high penalty fees and retroactive rate increases on their credit cards. The Federal Reserve and other banking regulators last week proposed new regulations designed to end unfair and deceptive credit card practices that have cost consumers billions of dollars. As Fed Chairman Ben Bernanke put it, the rules “are intended to establish a new baseline for fairness in how credit card plans operate.” Consumer advocates hail the proposed regulations, which are expected to be finalized by the end of the year, as a good first step, but argue that more reforms are necessary to protect the unwary. Gail Hillebrand, senior attorney with Consumers Union, the nonprofit publisher of Consumer Reports magazine, said the most important change is that card issuers will be prohibited from boosting the interest rate on outstanding balances, unless an account is delinquent. Delinquent, as defined by the regulators, means the minimum payment hasn’t been received within 30 days of the due date. “I get letters all the time from people who paid one day late, two days late and got bumped into penalty interest — to 29 percent, say, from 12 or 14 percent,” she said. “The new regulations mean that they [card issuers] can’t raise the rate on money already borrowed for no reason or a flimsy reason.” Another proposed rule will end a problem involving “teaser” rates, such as the zero-percent offers on balance transfers. Currently, credit card companies will take a consumer’s payment and apply it to the balance with a zero-percent rate and not to the balance reflecting new purchases at a higher rate. Under the new regulations, the payment will have to be divided among the various categories. Card issuers have complained that this is the equivalent of forcing them to provide consumers with a free loan. “Yes it is, because that’s what you promised,” Hillebrand responds. “Now the person actually will have to get the benefit of the promotional rate they signed up for.” Other proposed changes would prohibit companies from charging late fees if their bills haven’t been mailed at least 21 days before the payment due date and would ban so-called double-cycle billing, which can result in consumers paying interest on a previous month’s balance that already has been paid. Card issuers say they’re worried that adoption of the rules could have unintended consequences. Ken Clayton, senior vice president of card policy for the American Bankers Association trade group in Washington, D.C., said the regulations as proposed would make it harder for card issuers to price their products to account for risky customers. “Right now, people who manage credit well get lower interest and pay lower costs … and that’s the majority of Americans out there,” he said. “Unfortunately, some of the proposals may keep us from imposing higher costs on those with higher risk, so we would have to impose higher costs on everyone, including those who weren’t so risky, and that’s unfair.” He said the most important issue was “disclosure,” or making sure consumers know what the rules are. “There are issues beyond disclosure, but the industry is listening — and making changes and providing consumers with choices,” Clayton said. Travis B. Plunkett, legislative director of the nonprofit Consumer Federation of America in Washington, D.C., said consumer groups have long argued that the Fed needed to go beyond ordering more disclosure and actually ban many credit card practices. “We said, if these practices are unfair, it doesn’t do a lot of good telling consumers about them. It’s like telling them, ‘You’re about to get mugged.’ But, in fact, it’s not fair to mug them,” he said. Plunkett pointed out that there are a number of bills currently pending in Congress that would go beyond the proposed rules, most endorsed by consumer groups. Among the reforms: Greater controls on how card companies market to college students and others under 21. Tighter limits on late and overlimit fees. Putting a ceiling of 7 percent on “penalty” interest rate increases. Banning fees when consumers want to pay by telephone or over the Internet. Plunkett also believes the Fed proposals don’t go far enough to ban so-called “universal default,” under which a credit card issuer can raise the rate on an account that’s current if a consumer gets into trouble with another account, or if his or her credit score drops. Plunkett noted that such penalty rates can make it even harder for consumers to right themselves. “It’s often the people in the most vulnerable situation who are hit … and need these protections,” he said.
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