Senators Introduce Aggressive Credit Card Lender Legislation

Sen. Carl Levin, D-Mich., and Sen. Claire McCaskill, D-Mo., today introduced legislation to stop credit card practices that unfairly deepen or prolong credit card debt held by consumers. They’ve perfunctorily named the bill the Stop Unfair Practices in Credit Cards Act, and it follows an investigation and hearing by the Permanent Subcommittee on Investigations, which Levin chairs and on which McCaskill serves.

“Credit card issuers too often sock consumers with sky-high interest rates and excessive fees, making it harder and harder for families to climb out of debt,” Levin said. “The goal of this legislation is to put an end to unfair and abusive credit card practices that outrage so many American families. I’m afraid these practices have become too entrenched and too profitable to the credit card companies for the companies to change them on their own. Congress needs to enact pro-consumer legislation to put an end to these unfair practices.”

“Credit card companies must be stopped from preying on the most vulnerable Americans with unfair and confusing practices. We have to fight for those who have not hired dozens of lobbyists to make sure that American consumers are not getting ripped off and are fully informed of how these companies are manipulating their financial security,” McCaskill said.

In October 2006, Levin released a Government Accountability Office (GAO) report analyzing credit card fees, interest rates, and disclosure practices by major credit card issuers. Following the release of the GAO report, Levin directed the Subcommittee to investigate unfair credit card practices that mire so many Americans in debt. In March, Levin chaired a Subcommittee hearing and called as witnesses the chief executive officers of the three largest credit card issuers in the country – Bank of America, JP Morgan Chase Bank and Citigroup – and an Ohio consumer whose personal credit card experiences exemplified many of the outrageous practices.

Levin added: “Credit card companies are so profitable that they can afford to give up unfair practices like charging interest on debt that is paid on time, charging consumers a fee to pay their bills, doubling or tripling interest rates to penalize late payments or over-the-limit charges, imposing repeated over-the-limit fees for a single over-the-limit purchase; and applying consumers’ payments to the parts of their accounts with the lowest interest rates first. It’s past time for Congress to protect consumers from such unfair and abusive credit card practices.”

The Stop Unfair Practices in Credit Cards Act has been endorsed by Consumer Action, Consumer Federation of America, Consumers Union, National Consumer Law Center, U.S. PIRG, and the Center for Responsible Lending.

A summary of key provisions in the Stop Unfair Practices in Credit Cards Act follows.

Read Senator Levin’s floor statement here.

Interest Rates

• No Interest on Debt Paid on Time. Prohibit interest charges on any portion of a credit card debt which the card holder paid on time during a grace period.
• No Trailing Interest. Prohibit added interest charges on credit card debt which the card holder paid on time and in full.
• Limits on Penalty Interest. Prohibit interest rate hikes on a credit card account unless the card holder agrees to them at the time, and in any event, limit penalty interest rate hikes to no more than a 7% increase.
• Apply Interest Rate Increases Only to Future Debt. Require increased interest rates to apply only to future credit card debt, and not to debt incurred prior to the increase.

Credit Card Fees

• No Interest on Fees. Prohibit the charging of interest on credit card transaction fees, such as late fees and over-the-limit fees.
• Restrictions on Over-Limit Fees. Prohibit the charging of repeated over-limit fees for a single instance of exceeding a credit card limit, and allow such fees to be charged only when a card holder’s action, rather than a penalty, causes the limit to be exceeded.
• No Pay-to-Pay Fees. Prohibit charging a fee to allow a credit card holder to make a payment on a credit card debt, whether payment is by mail, telephone, electronic transfer, or otherwise.
• Reasonable Currency Exchange Fees. Require currency exchange fees to reasonably reflect the credit card issuer’s actual costs.

Other Protections

• Prompt and Fair Crediting of Card Holder Payments. Require consumer payments to be applied first to the credit card balance with the highest rate of interest, and to minimize finance charges. Prohibit late fees if the card issuer’s action caused the delay in crediting a payment.
• Fixed Credit Limits. Require that card issuers must offer consumers the option of having a fixed credit limit that cannot be exceeded.