Senators probe surprise credit card rate rises
WASHINGTON (Reuters) - As consumers whip out their credit cards for another holiday shopping binge, a U.S. Senate panel on Tuesday will examine surprise interest rate increases, even for cardholders who scrupulously make payments on time.
"Working people are being squeezed. That's something which is intolerable and we're going to try to shed some light on it," Michigan Democratic Sen. Carl Levin told reporters on Monday.
The chairman of the Senate's wide-ranging Permanent Subcommittee on Investigations said his panel has found some card companies charging rates as high as 30 percent, even for consumers "faithfully paying" their credit card bills.
Charges are sometimes applied retroactively to existing balances and often card holders have trouble getting a straight answer about why their rates have been raised, Levin said at a briefing ahead of a subcommittee hearing set for Tuesday.
"The fact that this is the holiday season, it's an appropriate time to be having this hearing," he said.
"Credit cards will be pulled out of wallets to make purchases in record numbers this holiday season. These abuses need to be remedied and that's what our goal is."
With Americans carrying more than $900 billion in credit card debt, card companies are under growing pressure to change disclosure policies, fee structures and interest rate practices that Levin said "frequently amount to gouging."
An American Bankers Association executive said interest rates can change on credit cards for various reasons.
"Costs for nearly every product can change, be it because consumer's risk profiles change or because underlying costs change. Credit cards are no different," said Ken Clayton, managing director for card policy at the industry group.
"If the interest rate changes, customers can choose to close their card account ... and find a better deal that works for them. It's that simple," Clayton said.
About 2.5 billion credit cards are in circulation worldwide.
With Congress consumed by Iraq, children's' health care and budget and tax issues, lobbyists said credit card reform would not likely see action this year, but it may next year if election politics leave even a little room for policy debates.
Levin introduced a bill in May aimed at forcing changes in a variety of card company practices. New York Democratic Rep. Carolyn Maloney expects to introduce a bill in early 2008.
North Carolina Democratic Rep. David Price has introduced a bill calling for more disclosure by issuers of the consequences of making only minimum required payments on credit card debt.
Federal regulators, including the Federal Reserve and the Office of Thrift Supervision, for several months have been looking at possible new rules for credit card issuers.
"Some credit card companies have taken the initiative to correct the inadequacies of their disclosures ... I applaud their efforts, but more needs to be done," said Minnesota Sen. Norm Coleman, the permanent subcommittee's senior Republican.
Executives from Bank of America Corp, Discover Financial Services and Capital One Financial Corp are scheduled to testify at the subcommittee's hearing on Tuesday.
(Reporting by Kevin Drawbaugh; editing by Tim Dobbyn)
