Credit card hikes raise Congress' blood pressure
House, Senate consider bills to stop credit card issuers from raising rates ahead of new law limiting them.
WASHINGTON (CNNMoney.com) -- As credit card companies continue raising rates and fees, lawmakers are considering bills to stop such hikes until new credit card laws take effect.
In the House, a key committee passed a bill to move up by nearly three months the start date of new laws aimed at cracking down on the way credit card issuers raise fees and assess credit risk. The new start date would be Dec. 1, up from Feb. 22.
"It was argued ... that they needed more time, and we granted them more time, but it was under the understanding that abusive practices would not continue, and double and increase dramatically," said Rep. Carolyn Maloney, D-N.Y., a bill sponsor, debating amendments to it.
The House Financial Services committee passed it on a voice vote.
In the Senate, Sen. Chris Dodd, D-Conn., Sen. Charles Schumer, D-N.Y., and others have introduced a bill to freeze credit card interest rates until the new legislation takes effect Feb. 22.
"We worked long and hard to enact the safeguards included in the Credit CARD Act," Dodd said. "And no sooner had it been signed into law, but credit card companies were looking for ways to get around the protections this Congress and the American people demanded."
Congressional watchers say that the odds are against passage for either bill, especially since the two are not identical.
"For now, this seems to be much more about scoring political points by beating up on unpopular credit card companies than on pushing legislation that can get enacted quickly," said Jaret Seiberg, an analyst with Concept Capital's Washington Research Group.
Still, public outrage continues to boil over on the topic, especially as card issuers continue to hike rates.
On Tuesday, the Pew Charitable Trusts released a study showing that interest rates rose by an average of 23% from December 2008 to July 2009.
Also, they found that all the largest banks and card issuers had engaged in practices that would be prohibited under the new credit card laws, such as hiking penalty rates on those who are just barely late on a credit card payment. The new law would only allow such a hike if the cardholder is more two months late.
"The unfair and deceptive practices that the credit card act targets remain widespread, and in some cases we've seen it getting worse," said Nick Bourke, manager of the Pew Safe Credit Cards Project.
The banks say that tinkering with the new law start date is unnecessary. They say rates are rising because customers and economic times are riskier. Record number of cardholders have been walking away from card debt, unable to pay, according to Federal Reserve data.
"We oppose it, because the two main factors driving the changes are the increased risk of nonpayment from the borrower and the riskiness of the economy," said Scott Talbott of the Financial Services Roundtable, a business lobbying group.
Last week, Republicans on the House panel pointed to a letter from Federal Reserve Chair Ben Bernanke about the consequences of moving up the effective date. Bernanke said advancing the date could be tough on companies and would prevent the Fed from getting feedback on its proposed new rules cracking down on fees.
"Although a December 1 effective date could provide benefits for consumers, the Board continues to believe that. . .card issuers must be afforded sufficient time for implementation to allow for an orderly transition and to avoid unintended consequences," Bernanke wrote.
The Credit CARD Act was signed into law by President Obama on May 22, with a first round of changes -- including giving cardholders 45 days notice before a hike takes effect -- taking hold in August. The more substantial changes were slated to take effect about six months later.
Among other things, the new law bans rate hikes unless a consumer is more than 60 days late -- and then restores the previous rate after six months if minimum payments are made. It also makes it harder for people under age 21 to get credit cards.