Consumers Union Urges Fed to Require Banks to Roll Back Recent Unfair Credit Card Interest Rate Hikes
By Consumers Union on Tuesday, April 13th, 2010
As most people know from personal experience, credit card companies took advantage of the CARD Act’s long implementation time to raise rates and change terms on millions of credit card customers before the law went into effect on February 22, 2010. Anticipating this, Congress included in the law a provision which requires card companies to review rate increases, dating back to January 1, 2009, and lower them if the review warrants such action. The problem with this CARD Act provision is that it leaves the details of the review up to the Fed to provide guidance through regulation. Last month the Fed issued its proposed regulation and not surprisingly it was not very strong. Today CU issued its comment on this proposal, to encourage the Fed to strengthen its rule so that consumers get a genuine review of these unfair rate increases.
The Board’s proposal is weak in multiple ways. It allows issuers to flip flop between factors, using either market conditions or creditworthiness to justify and maintain rate increases. It delays the start of required rate reviews until February 22, 2011 leaving some consumers without review for up to 26 months. It does not require issuers to reinstate the consumer’s old rate when a review leads to an appropriate reduction. These loopholes in the proposed rule undermine its benefit for consumers who need review and reduction of unjust rate increases made prior to the February 22, 2010 effective date, as Congress intended.
CU asked the Fed to:
• require banks to make public the methodologies they use to review rates and banks should submit to the Board the number of rate increases reviewed and the number of reductions that result from each semi-annual review.
• For rates that were increased between January 1, 2009 and February 22, 2010, for reasons that are no longer permissible under the CARD Act, the Board should require issuers to reinstate the old rates.
• Banks should be required to begin reviewing rate increases on August 22, 2010, not six months after the rules goes into effect, as proposed by the Board.