4-30-09, 10:23 am

Original source: The Atlanta Progressive News

WASHINGTON, Apr 29 (IPS) - With the U.S. economy in dire straits, Congressional leaders and President Barack Obama are turning their attention to stopping credit card abuses, including high interest rates, fees, and other practices that are affecting millions of U.S. households.

'We expect opposition, no question about it. These are major powerful banks,' Rep. Maurice Hinchey, a Democrat from New York, told IPS.

Hinchey and others in the House of Representatives, including legislators from Vermont, Massachusetts, and Washington State, are pushing a federal limit on credit card interest rates at 18 percent. Currently, there is no federal limit at all, and many consumers have discovered that their rates are suddenly skyrocketing, with little warning or recourse.

'The top three banks that control 50 percent of the credit cards - JP Morgan Chase, Bank of America, and Citigroup - have just received more than 127 billion dollars through the Troubled Asset Relief Programme or TARP,' Hinchey explained. 'It was an interest-free loan to the banks.'

'We have an interesting set of circumstances. You have American taxpayers [floating] these banks... at the same time, they're controlling over 50 percent of accounts and going as high as 41 percent in interest,' Hinchey said. 'Taxpayers across the country are subsidising those banks. You'd think as recipients, they'd have a responsibility for fair practices to the American taxpayer.'

Hinchey's bill will be introduced this week as an amendment to New York Rep. Carolyn Maloney's Credit Cardholders' Bill of Rights, which has broad bipartisan support.

Maloney's bill, among other things, limits the circumstances under which a credit card company can raise an interest rate, so that other types of increases can only affect future balances, not existing ones.

'The bill is good. It has a number of good things. [However] it doesn't deal with the dramatic increases in credit card interest rates as high as 41 percent,' Hinchey said.

Maloney's bill would put into effect some of the changes which have already been approved by the Federal Reserve, but which would otherwise not go into effect until July 2010.

Some consumer advocates believe banks have been rushing to raise as many rates as possible before the new Fed rules take effect next year.

This prompted California legislator Jackie Speier to introduce a bill which would cap interest rates on cards issued by any banks receiving federal assistance at 18 percent. Hinchey's amendment would extend that limit to all credit cards.

'In 1973, there was a court ruling that if a state wants to regulate credit card interest rates, that's fine... If you [as a bank] are located in a state where rates are not regulated, you can operate in that state and have unregulated [accounts] across the country,' Hinchey said.

That is why most credit card companies are based in states like South Dakota and Delaware, where usury laws are weak or nonexistent.

The irony of TARP-funded banks putting the squeeze on their erstwhile benefactors was not lost upon Bryan Palacios, 48, an engineering technician and a father of three in Ohio, who spoke with IPS about his credit card rate with Citibank. Despite never paying late, his rate went up from 7.9 percent to 14.9 percent a few months ago.

'With no explanation either,' Palacios said. 'I called one time on the weekend. They didn't seem to know [why]. They said it was across the board but there wasn't anything they could do about it. They just decided they wanted more.'

'It's drastic. We tried making some additional money to the payment to get it whittled down. We've got a daughter we're trying to put in college. I took a 5 percent pay cut. Now what we're paying with this 15 percent, it's going to take 15 years to pay off,' Palacios said.

'As a taxpayer, we're getting stuck twice because of the stimulus they got a chunk of. With all of that money, hitting us twice, as a taxpayer, and twice the interest, for what? For being a good customer and paying all these years with no late fees? I felt we got really shafted on that deal. That's what burned me, when I knew they were getting a chunk of money from the government,' Palacios said.

'I work for the same amount every two weeks. I can't just say to my employer, you know what, I raised my rates. It doesn't work like that,' Palacios said.

Citigroup would not comment on Palacios's account due to privacy reasons, but said they would look into whether they could assist him further.

'The industry has recently experienced an unprecedented market cycle with severe funding dislocation and significant consumer credit deterioration driven by the mortgage crisis and rising unemployment,' Citibank said in a statement.

'In light of these unprecedented developments and others, Citi will be repricing a group of customers in our Citi-branded consumer credit card business in the U.S. to appropriately manage these risks,' Citibank said.

Citibank noted they were giving its customers 60 days to opt out of the change in terms. Unlike other banks, they are allowing customers to keep their accounts open under the existing terms until they expire. Then, customers can pay off the balance at the existing rate.

However, a closed account can still hurt a consumer's credit rating, making it more difficult for them to obtain favourable loan rates in the future.

Citibank could not immediately comment on the possible impact of a closure of an account on a customer.

Meanwhile, Palacios said he never received a change in terms notice.

Hinchey has also questioned whether the costs of borrowing had truly gone up for major banks like Citigroup, when in fact, they had received an interest-free loan through the TARP fund.

The banking industry has raised concerns that the rate caps will prevent them from issuing accounts to riskier customers in the future.

Hinchey thinks that logic is backwards. 'People are becoming riskier because they're losing money. [Raising rates is] pushing people to default. You have a record number of people in default,' he said.

'More and more, people are depending on credit cards,' Hinchey said. 'High interest rates make it harder to pay off. A huge amount of people are just paying the interest rates. From a business point of view, that's a guaranteed income.'

Rep. Maloney's bill has already passed a committee and is expected to be approved by the full House. When it comes up this week, Hinchey will ask his colleagues to support a federal rate cap.

'I think it has a very good chance of passing. More and more people in this Congress are beginning to hear from constituents,' Hinchey said.

If passed, Maloney's bill, with or without Hinchey's amendment, will have to be reconciled with whatever version the Senate approves.

--Matthew Cardinale is the News Editor for The Atlanta Progressive News and is reachable at matthew@atlantaprogressivenews.com.