As of this past Monday, a slew of credit card abuses that should have been banned years ago were finally prohibited by federal law.No longer will banks be able to raise rates on existing balances “at any time, for any reason.” Or impose sky-high interest rates because a customer is an hour late paying. Or slap a penalty rate on a good customer because he pays some other unrelated bill late.
That’s progress. But don’t whip out your plastic with abandon just yet. As fast as you can say, “consumer protection,” some issuers have already devised new traps for unwary credit card holders. Consumer advocacy organizations have identified some of the most egregious new tricks.
For instance, banks have long pegged their rates to changes in the “prime rate,” the most basic bank lending rate. But now, a growing number of card issuers have made an obscure change in fine print: They’ll pick the maximum rate over the past 90 days, a practice that could cost consumers $720 million a year, according to the Center for Responsible Lending, a North Carolina non-profit group. Some other banks have simply set a floor on the variable rate, so, no matter how the index moves, a customer’s rate can only go in one direction--up.
Another change involves notifying a customer of a rate increase to say, 29.99 percent, then promising to “offset the increase” with a huge interest rate rebate. Why raise a rate just to give the money back? Because some banks have figured out an angle: The 29.99 percent becomes the card holder’s actual rate and the issuer can simply yank the rebate for any petty infraction, even if otherwise prohibited by the new law. Most consumers would never know what hit them.
Last fall, even before the Federal Reserve could issue regulations based on the new law, consumer advocates urged action to prevent the industry from using such tactics to skirt the law’s intent. The Fed, which for decades sat idly by while some banks picked consumers clean, slapped down two of the industry’s most egregious new tactics, but it largely left the banks free to game the system.
Not all banks are so intent on abusing their customers. But for the ones that are, slow-footed regulators and Congress, which moves like a glacier, are no match.
That’s why a federal agency dedicated to looking out for consumer’s interest over a wide array of financial products--from credit cards to mortgages to “pay-day loans”--is needed. President Barack Obama and several prominent law makers are pushing to create such an agency, and, not surprisingly, the banking lobby is intent on killing it.
The industry’s chief argument--that a gaggle of federal overseers already does the work--is reason to create the agency, then streamline, not to keep a status quo that only a banker could love. The job now is splintered among a half-dozen agencies, all of which tend to treat consumer protection as a stepchild. The best evidence of their failure is how many years abusive credit card practices continued.
The new credit card law offers consumers some respite. But without a protector, those gains could start to dissipate after a few billing cycles.
The above is an editorial of USA Today.
