Credit Card Day of Reckoning This Thursday?

Most of us are painfully familiar of the tendency for credit card issuers to try and screw us in any and every way possible, but this Thursday the Federal Reserve will vote on legislation that (assuming it passes) will make it a little harder for them to do it legally.

The bill addresses a few of the biggest injustices of the current system, namely:   

  • Universal Default - The ability to change terms on your credit card (like, say, your interest rate…) if you default on another, completely non credit card related bill.
  • Double Cycle Billing - An interest calculation method that allows issuers to charge you interest on debt you’ve already paid off.
  • Arbitarty Interest Rate Increases – Currently you can get rate-jacked for… well, pretty much anything.

Reuters has more on the story:

The new rules, which were proposed earlier this year, are expected to total some 1,000 pages. They need approval of the Federal Reserve, the Office of Thrift Supervision and the National Credit Union Administration, which all are expected to act on Thursday.

Consumer groups say practices of credit card companies blindside consumers and U.S. lawmakers have threatened legislation if regulators did not use their consumer protection powers to reform the industry.

With Democrats strengthening their control of the next Congress that convenes in January and the financial services sector in turmoil, credit card companies that resisted the changes increasingly have accepted them as inevitable.

They have warned that interest rates charged on credit cards will rise for all borrowers and that borrowing limits may be reduce because of the changes.

The industry maintains that credit cards provide a service to consumers with convenience and sometimes free loans.

“The new rules will be a challenge to the business,” said Peter Garuccio, director of public relations at the American Bankers Association trade group.

But don’t celebrate yet. Though the bill is clearly a step in the right direction, it also fails to address many other problems with the current state of affairs, as we outlined in Top 10 Worst Credit Card Practises

Crucially, we can’t find anything on the biggest problem of them all - Arbitration.

What is Arbitration?

Arbitration means that if there is a dispute between you and your credit card company, you cannot take the matter to court. Instead, the dispute is settled by a private panel of arbiters (who are usually chosen by the company) and, in most cases their decision is binding – meaning you do not have the right to appeal. Consumers are forced to give up their right to trial and the clause doesn’t stop there. Many credit card companies take it a step further by adding that the consumer cannot participate in any class action lawsuits brought against the company.

How do these types of clauses benefit or protect the consumer? What guarantee does the consumer get that arbitration will be fair to the full extent of the law?

Until these questions are answered conclusively, many credit card issuers will continue to prey on vulnerable consumers.

2 thoughts on “Credit Card Day of Reckoning This Thursday?”

  1. Citibank isn’t the only one Rate-Jacking. After acquiring WaMu, Chase sent out letters raising interest on accounts from 8.99% to 18.99% supposedly based on something in a credit report. We checked ours, and it had only gotten better since we opened the WaMu account last year. We have always paid on time and always over the minimum, even clearing it to zero once in that year. For that we received that rate jack to 18.99%. Needless to say, we closed the account and are shopping for a new card to transfer the balalnce to, if we can find a card a less than the old WaMu rate.

  2. Good move Bill – this is clearly nothing more than a way for many of the cc issuers to squeeze as much as they can out of us before the new rules come in.

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