PersonalFinance: Credit cardholder rights and reforms

By Linda Stern

WASHINGTON (Reuters) - Congressional reformers are eyeing the credit card business with plans to help consumers snagged by high rates, punitive fees and troubling billing practices.

Several efforts are underway. A "Cardholders Bill of Rights" has been introduced in the House of Representatives by Carolyn Maloney and in the Senate by Charles E. Schumer, both New York Democrats. Schumer, a frequent card issuer critic, said: "Bottom line, families are getting scammed by their credit card companies."

The bill would clamp down on the card issuers' ability to retroactively raise interest rates on existing balances and limit a number of other fees. It would make it harder for issuers to charge late fees and over-limit fees. It is also popular with Massachusetts Democrat and Chairman of the House Financial Services Committee Barney Frank, who has plans to move the bill to the full House within a few weeks. A second bill from Democratic Sens. Sheldon Whitehouse of Rhode Island and Richard J. Durbin of Illinois, would put pressure on issuers of high-interest-rate cards to negotiate with financially troubled cardholders. It would go a long way toward reversing legislation passed in 2005 which prohibited many consumers from discharging their credit card debts when they filed for bankruptcy.

Even without either bill passing, consumers who can hang on until July 2010 will get some relief, because the Federal Reserve has already approved rules that would eliminate many of these practices. The Schumer/Maloney legislation goes further than the Fed, but the legislators have also argued that consumers shouldn't have to wait a year for these provisions to take effect. Their bill is written to go into effect three months after passage.

It may never get that far, as its future in the Senate is a big question mark. But consumers can take steps now to protect themselves. Here's how to beat Washington to the punch, and enact your own credit card consumer bill of rights, right now.

-- Never pay your bill late, ever. You'll avoid late fees and those punitive rate increases for late payments. Banks have been shortening the time between when consumers receive a bill and when their payment is due. And they move the due dates around a bit. The Fed and the proposed legislation will require them to give consumers more lead time on due dates, and will limit their ability to jack up those rates.

How can you avoid being "tricked" -- or simply forgetting -- to be late on your bill? Authorize your checking account bank to automatically pay at least a minimum amount (that will safely cover the minimum due) every month to your credit card company, a couple of days before the bill is due. You can always make a separate payment of any additional amount. If you'd rather, you can authorize your credit card company to dip into your checking account for the full minimum due amount every month.

-- Manage your rates carefully. If you are paying off a balance, check your bill every month to make sure your rates haven't gone up. In the current environment, with the prime hovering just over 3 percent, they should be coming down. Shop for better card rates at one of the many sites which lists credit card offers, such as www.indexcreditcards.com, www.cardratings.com, www.credit.com, and www.creditcards.com.

-- Steer clear of the worst practices: Double cycle billing and universal default rates. In double cycle billing, card issuers levy finance charges over a two-month cycle instead of monthly. Cardholders who almost always pay off their balance in full, but occasionally carry a balance are most affected by this. They will be expected to pay finance charges for the month AFTER the month in question. So if they paid a minimum and carried a balance in February and then paid it in full in March, they would still have to pay a finance charge in April. The second problematic practice involves card companies jacking up fees when cardholders are late on other debts. A cardholder who's keeping up with his credit card but whose credit score is going down because he was late on his electric bill, for example, could find his credit card rate going up. To avoid these practices, call your issuer and ask if they follow them. If they do, seek out other cards.

-- Complain. If you've already been trapped by any of these practices, call your issuer and complain. You can get through the voicemail more quickly if you simply say "representative" at every prompt. And you can often get specific charges reversed, if -- and only if -- you specifically ask to have them reversed. Those card company operators are trained to not offer fee reversals if you're simply whining about them, so use these words: Could you please reverse these charges?" Maybe they will and maybe they won't, but it won't hurt to ask.

(editing by Gunna Dickson)