Credit Card Fees Prompt Hearings, Proposed Legislation Around The Nation

Card card issuers are constantly on the lookout for new ways to pump up their profits. They raise rates, charge new (and hidden) fees and punish card holders with unjust policies. In response, the Federal Reserve Board has proposed rules requiring issuers to disclose clearer information about rates and fees and 45 days’ (instead of 15 days’) notice before they could raise rates. Congress has stepped in, too, proposing bills to restrain some of the more widely criticized policies.

USA Today reports on Steve Gutierrez of Houston, who was recently hit by a $29 late payment after he paid online 31 minutes after a 3 p.m. deadline. Because his late payment also caused his account to exceed his credit limit, he was socked with a $29 over-the-limit fee. His 31-minutes-late payment cost him nearly $60. “I’ve made mistakes, and I’ve overlooked the fee,” Gutierrez says. “But with the over-the-limit fee, it’s getting steep.” As a customer since 2001, he expected his bank to waive at least one of the two fees. But it said no. He canceled the card.

Many consumers argue that credit card disclosures are confusing and that so many penalty rates and fees can apply, it’s hard to know how to avoid them.

Rep. Keith Ellison, D-Minn., and Sen. Jon Tester, D-Mont., have introduced bills to bar the use of “universal default” by credit card issuers. With universal default, a card issuer can raise rates even if you pay on time but pay another creditor late — say, the power company.

Nevada has enacted a bill banning universal default. A similar bill passed by New York’s legislature will soon go to the governor for his signature. The bill would bar card companies that do business in New York from enforcing universal default against New York card holders.

A broader bill, introduced by Sens. Carl Levin, D-Mich., and Claire McCaskill, D-Mo., would crack down on over-the-limit fees and bar card issuers from applying an increased rate to credit accrued before the higher rate took effect. But before the bills can go to the floor, they’ll need more backing from top lawmakers.

Rep. Carolyn Maloney, D-N.Y., chairwoman of the House subcommittee that oversees the card industry, has held two hearings and a roundtable discussion on Monday. Maloney says she’s concerned that improved disclosure “may not be enough to resolve some of the serious issues that consumers are confronting. And so Congress may need to step in and push the Federal Reserve to do more on this front,” with its regulatory authority.

Citibank did say in March that it would end universal default and would no longer change the terms on an account “at any time for any reason.” Instead, it will change rates only after a card expires, typically after two years. (A late payment or an over-the-limit purchase can still trigger higher rates and fees.)

Chase said this year that it would end “two-cycle billing.” With two-cycle billing, an issuer calculates interest by reviewing a customer’s average daily balance over two months, not just one — which causes many people to pay more than they otherwise would.

Yet, Citibank and Chase have eliminated the maximum cap on balance-transfer fees, which means they can raise those fees as much as they want.