This article on the credit card industry failed to include a response from Capital One to a customer's contention that he did not receive adequate notification of an interest rate increase. Capital One says it sends a letter to customers 45 days before a rate increase and offers them an opportunity to opt out by stopping use of the card and paying off the balance at the old rate over time.
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Shining a Light on Card Fees
Sen. Carl Levin (D-Mich.) is to hold a hearing this week on firms that raise rates even for borrowers who comply with their terms.
(Alex Wong - Getty Images)
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Card companies and banks are spending millions of dollars to hire well-connected lobbyists to argue their case. They say card issuers need flexibility to assess the risks posed by customers who may be on the verge of defaulting -- and taking card companies along with them.
The American Bankers Association recently enlisted Jonathan Orszag, a former economic adviser to President Clinton, to research and issue a paper arguing that more federal oversight of the card industry would be counterproductive and would only hurt borrowers by reducing their access to credit.
New restrictions under congressional consideration, the companies say, would harm the consumers who pay their bills on time by subjecting them to a one-size-fits-all approach to fees and interest rates. More than 95 percent of customers stay current with their payments, said Ken Clayton, managing director of card policy at the ABA.
"The vast majority of Americans are using cards in a way that really works for them," Clayton said.
Legislation, Orszag concluded, "would do significantly more harm than good."
Senior Democrats, including the leaders of the Senate Banking Committee and the House Financial Services panel, would seem to disagree. Christopher J. Dodd (D-Conn.), who chairs the banking panel, is preparing to introduce his own legislation by early next year, aides said.
His bill would come on top of legislation already proposed by Levin. Levin's plan would cap interest rate increases that companies impose to penalize customers for late payments at no more than 7 percent. It also would stop companies from charging interest on debt paid on time or during a grace period, putting an end to situations when customers postmark payments before the due date but a card company does not credit the payment until after the monthly deadline has passed.
Virginia Kory, 82, has skirted that issue several times. In a telephone interview, Kory said she receives her Chase card statement at least 10 days after it is dated, with little more than a week before the bill is due. Kory said the short turnaround time is designed to wring late payments out of consumers who use the mail to pay their bills and whose checks may be lost or delayed.
"At one time, I seem to remember that one had adequate time to pay one's bill, put it in the mail and have the company receive it in time to avoid late charges," she said. "I get hot under the collar every time I think about these credit card practices."
Separately, the Federal Reserve is moving ahead with a plan that would require card companies to give customers at least 45 days' notice of a rate increase and to present fee information more clearly. The Fed change, albeit incremental, is designed to respond to criticism that important data are buried in fine print or lost amid inserts that accompany monthly bills. The new rule is due next year, a spokeswoman said.
At the same time, investigators working for New York Attorney General Andrew Cuomo (D), who roiled the student loan industry this year by uncovering improper payoffs to college loan officers, are turning their attention to credit card marketing on university campuses, according to sources familiar with the inquiry.
Under special scrutiny are arrangements in which companies that supply electronic cards used to pay for purchases at bookstores and cafeterias are granted exclusive access to market their card products to students, said the sources who spoke on condition of anonymity because the investigation is at an early stage.
Benjamin Lawsky, a senior deputy to Cuomo, would not provide details of the investigation but did say that the attorney general understood the high stakes when it came to protecting students and would "bring the same level of scrutiny to campus credit card abuses that he brought to the student loan industry."
Interest on Capitol Hill, within federal agencies and among state officials is casting fresh attention on the card industry, which had receded from public view in recent years. Legislative movement next year could be hampered by the coming presidential election, analysts said, but a new rule from the Fed and the scrutiny of investigators will not fade so easily.
Card companies "were skating along pretty well and now they're getting oversight, and they don't like it," said Ed Mierzwinski, director of the federal consumer program at U.S. PIRG.
