A Senate panel is examining complex billing and interest-rate practices for credit cards that critics say confuse consumers and can push them deeper into debt.
Senator Carl Levin, chairman of the Senate Homeland Security and Government Affairs subcommittee, said an investigation by his panel found "abusive" and confusing practices by credit card companies that can increase financial pain for many families.
"The penalties are repeated and they keep you in debt," Levin told reporters in advance of a hearing yesterday at which major credit card issuers were expected to testify.
While the credit card practices in question are legal, Levin is threatening possible legislation to outlaw them as a spur to the banking industry for voluntary changes.
Scrutiny from Congress in recent months of the credit card industry already has caused several major banks to begin to eliminate or temper some of those practices, said Levin, who was joined at a briefing by Senator Norm Coleman, the panel's senior Republican.
Stricter rules for banks laid down by regulators such as the Federal Reserve also may be needed, the two senators said.
Senate Banking Committee Chairman Christopher Dodd and other Democratic senators challenged credit card executives at a hearing in January over rising late fees and other penalties and marketing practices they portrayed as predatory. Dodd said he was putting the industry on notice that if it doesn't improve practices on its own, legislation may be warranted.
Since Democrats assumed control of Congress in January, they have put a number of consumer issues on the legislative agenda. With Americans weighed down by some US$850 billion in consumer debt, the practices of the robustly profitable credit card industry is a compelling subject for scrutiny.
Levin and Coleman denounced practices they said brought in tens of millions of dollars to banks issuing credit cards, such as charging interest on balances that are paid on time but not in full, and so-called double-cycle billing, which eliminates the interest-free period of a consumer who moves from paying his full balance every month to carrying a balance.
"This investigation has already had some impact," Coleman said.
Citigroup, the nation's largest financial company, announced last week that it was eliminating the practice of so-called universal default -- raising interest rates for card customers because of their failure to pay other creditors on time. In addition, Citigroup said it would no longer make "any time for any reason" increases to the interest rates and fees charged to customers before a card expires and a new one is issued.
Credit card issuers will raise customers' rates and fees, for example, when they believe it is warranted by conditions in the financial markets.
Under Citigroup's new policy, rates and fees will be increased before a card expires only if the customer pays late, exceeds his credit limit or pays with a check that bounces. If the rate is linked to the prime interest rate, it would rise or fall in tandem.
Carter Franke, chief marketing officer of Chase Bank, said on Tuesday the company had decided it would no longer charge over-the-credit-limit fees to customers who have been "in a chronic overlimit position" for 90 days.
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