By Kathleen Day
Washington Post Staff Writer
Wednesday, March 7, 2007; D01
The chief executive of Chase Card Services, one of the nation's five largest credit card issuers, will apologize to Congress today for charging a financially strapped customer $7,500 in interest charges and late fees on purchases of $3,200, the company said yesterday.
Richard J. Srednicki's apology before the Senate permanent subcommittee on investigations will follow testimony by the customer, Ohio resident Wesley Wannemacher, on how Chase's penalty fees and interest charges made his initial bill triple over six years.
The hearing by the subcommittee, part of the Homeland Security and Governmental Affairs Committee, will examine credit card industry practices that subcommittee Chairman Carl M. Levin (D-Mich.) says are "unfair" and "unethical."
The hearing follows a Senate Banking Committee hearing in January on credit card industry practices. The two are part of a wider focus by the new Congress, now controlled by Democrats, on financial practices that affect rank-and-file consumers, including those in the home-lending and retirement-savings industries.
Wannemacher has paid the bank $6,300 -- nearly twice the amount of his original purchase -- since March 2001. At the end of February, he still owed $4,400.
Last week, after subcommittee staff members called Chase for comment on the situation, Chase officials telephoned Wannemacher to say that he no longer owed the bank the $4,400 and that the bank erred in imposing so many penalties. Bank officials yesterday said they should have put him in a repayment assistance program in 2005, where many penalty fees and charges would have been waived. Chase said that as a result of his case, it will no longer charge additional over-limit fees after a customer is over his or her limit for more than 90 days.
"Clearly, some companies have stepped over the line," the subcommittee's ranking Republican, Sen. Norm Coleman of Minnesota, said at a briefing yesterday about what subcommittee staffers found after a months-long investigation of credit card industry practices.
Last week, Citigroup, which will also testify today, announced that it would end two policies that consumer groups and some members of Congress have criticized as unfair and abusive -- "universal default," under which a cardholder's interest rate on a Citibank card increases if the holder is late on a payment for another, non-Citibank credit card, and reserving the right to raise a customer's credit-card interest rate at "any time for any reason."
Ed Yingling, head of the American Bankers Association, said the actions by Citigroup and Chase reflect a "recognition in the industry that things have become too complicated and that it's working to address these issues voluntarily." He said, "I think you are going to see more of it."
Senate Banking Committee Chairman Christopher J. Dodd (D.-Conn.) and Levin have told the industry that it must fix such problems or expect lawmakers to take action, either by pushing bank regulators to tighten lending rules or by introducing legislation banning the practices.
In addition to Wannemacher -- whose experience is not uncommon, consumer groups and Dodd, Levin and other lawmakers say -- today's hearing will focus on a practice that subcommittee staff say all major card issuers use: charging interest on balances that customers have paid on time.
A typical example works this way, according to Levin and Coleman: A customer charges $5,020 in merchandise and pays $5,000 of it by the payment-due date after getting the first bill. The next bill will include the $20 that wasn't paid but also $34.78 in interest charges on the entire $5,020.
If the customer had paid the entire $5,020, no interest charge would have been imposed. In short, credit card companies eliminate the grace period in which no interest is charged if the balance isn't paid in full every month. This practice hurts millions of customers who pay their bills on time, the senators said.
Bank of America, which will also have an executive testifying today; Discover; and Capital One, based in McLean, are the other top issuers besides Chase and Citigroup. The five control 80 percent of the credit card market.