Shining a Light on Card Fees

Changes Proposed For Long-Neglected Industry Issue

Senior Democrats on Capitol Hill want to ban excessive credit card fees. Bank regulators are on the verge of forcing companies to give more notice before raising interest rates. And New York's attorney general, whose investigations transformed the student loan industry, now has his eye on conflicts of interest in the credit card sector.

After years of complaints about abusive practices that trap borrowers in an endless debt cycle, federal and state officials are shining light on the most controversial practices and preparing changes that would make card companies' policies more consumer-friendly.

The fight between consumer advocates and the banks that issue credit cards has been simmering for decades. But a rise in cardholder complaints and the ascension of Democrats in the House and Senate is pushing companies to engage in preemptive damage control and is setting the stage for what could be the most significant changes to the industry in more than two decades.

Sen. Carl M. Levin (D-Mich.) said he will hold a hearing this week focused on card companies that raise interest rates for consumers who comply with the terms of their original agreement. "It is becoming increasingly difficult for the credit card industry to defend this type of unfair interest rate increase," he said.

In the face of the hearing, major card issuer J.P. Morgan backtracked on the practice, which includes using data-profiling to raise interest rates for customers who pay their card bills on time but fall behind on other expenses such as utilities.

"This is a huge issue to the public because credit cards have become a way of life," said Rep. Carolyn B. Maloney (D-N.Y.), who is drafting legislation that would strengthen disclosure requirements for rates and fees. "What they are most concerned about is when they are given fees and fines for things they were unaware of. Credit card customers ought to be able to fully understand their accounts and control them."

Americans use credit to finance about $2 trillion in purchases each year. Households have an average of five cards and $2,200 in debt, according to industry research. Their situation is compounded by rising interest rates and an abundance of fees. Many consumers experience a double whammy -- high fees and spikes in interest rates.

Under the current setup, the average customer who misses a payment often ends up paying a late fee on top of a fee for exceeding her credit limit and still another fee for using the telephone to settle her account. Some card companies also charge interest on those fees.

Even consumers who make a habit of paying their bills on time are starting to challenge card issuers' tactics. Daniel DeHaven said he recently noticed that the "fixed" interest rate on his card issued by Capital One of McLean had increased by five percentage points despite what he called an "excellent" credit record.

"Something of this magnitude should have been sent under a separate cover letter" rather than in a monthly bill stuffed with ads and inserts for insurance policies, blank checks and other sales pitches, the Beltsville resident said.

Dennis Kocik of Charlottesville said he canceled one of his longstanding credit cards after reading the fine print and noticing that his interest rate almost had doubled. Kocik was so angry about the issue that he said he wrote a complaint letter to the Federal Reserve Board, the chief bank overseer. He said he is outraged on behalf of thousands of people who don't scrutinize the leaflets that arrive with their card statements.

"Nobody reads that stuff," Kocik said. "The banks that issue credit cards are like pigs feeding in a trough. . . . If the sun rises in the east and sets in the west, you get a fee."