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Credit Card Companies Under More Scrutiny

[Aug 15, 2007.]


This summer, credit card companies are under increasing scrutiny.

For instance, the Federal Reserve Board wants companies to make information about their credit rates and fees more user-friendly. The Fed also wants credit card issuers to give consumers more notice when they're about to raise rates. Currently, issuers give consumers 15 days' notice. The Federal Reserve Board wants that expanded to 45 days.

Credit card companies are responding by saying that they support improved disclosure practices. However, they're balking at restrictions on raising fees or hiking rates.

Credit card issuers can make a tremendous amount of money through extraneous fees. For instance, they may charge a customer a $29 late payment fee, then another $29 for going over the credit limit. Some consumers are responding to the heightened fees by canceling their cards.

Meanwhile, credit card industry representatives note that many consumers are enjoying lower interest rates on cards than they did before 1990. At that time, the fixed rate was set at about 20%. In fact, as many as three-fourths of American households now possess charge cards with lower interest rates.

Meanwhile, bills have been introduced in the U.S. House and Senate to stop universal default with credit cards. Under the concept of universal default, a credit card company can hike your interest rate even if you're paying your credit card bill on time if you've paid your electric bill or some other bill late.

In addition, consumer watchdog groups are objecting to the fact that credit card companies are hiking interest rates based on consumer credit reports. These consumer advocates say that such practices are unfair because many reports contain mistakes—mistakes consumers may be unaware of.

Even if Congress doesn't take action, consumers can protect themselves by obtaining a free copy of their credit report each year. Financial experts say credit card customers should also strive to stay under their limits and pay their bills on time to avoid unnecessary charges.

Julie Ann Amos
August 15th 2007

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