Credit card rage in the US

Businessweek tells how American consumers are infuriated at the egregious tactics of US credit card issuers. Congress is likely to push back, and that's a good thing.

Venting Rage

"Something needs to be changed to keep credit-card companies from taking advantage of people," consumer Paul Wolcott posted to the Fed comment board. Another cardholder, Cleve Prince, wrote that his credit-card debt drove him to the brink: "Credit-card companies had increased my interest rates on each one of my cards so that my only recourse was to file for bankruptcy."

Consumer advocacy organizations encouraged their members to use the public comment period as a forum to air their grievances and push for change. Consumers Union, a nonprofit consumer-rights organization, encouraged its members to write in. The group set a goal of generating 10,000 comments. "Look how many people agree," says Mark Hickney, a small business owner from Dallas.

Of course, not everyone agrees. The five largest credit-card issuing banks say that as much as consumer may enjoy lashing out, they're likely to regret the end result of the rule changes. The new regulations will curtail their ability to "price for risk," the banks say: By being able to change the rates they charge cardholders based on payment history, outstanding debt, and credit score, banks can price in the risk that each individual consumer won't be able to pay off his debt. The alternative is to cut back on low-interest offers for all cardholders, the banks say.
Banks Call Rules Misguided

"We have very real concerns that the proposal will result in higher costs for cardholders across the board," says Peter Garuccio, a spokesman for the American Bankers Assn. (ABA). If the Fed rules rob them of the right to price for risk, all consumers will suffer with higher rates overall and worse teaser rates.

In a response posted to the Fed's Web site, Bank of America, the nation's largest credit-card issuing company, summarized the industry's attitude toward the new rules: "We believe the practices the agencies are mandating are far from ideal, from the perspective of consumers, banks, and the financial system as a whole." Bank representatives held a series of private meetings with the Fed and the ABA. According to notes from the meeting on the Fed site, industry officials reiterated that risk-based pricing actually keeps rates down overall for the majority of consumers.

Consumer groups counter that the rule changes are fairly minor compared with the reforms they would like to see.

Once the 75-day comment period ends, the Fed will decide what rules to approve. Sandra F. Braunstein, who heads the Fed's consumer and community affairs division, told congressional lawmakers in April that she thought the proposal would be hammered out and finalized by the end of the year.