Carded

Julie works in a legal field and for years struggled to get her credit card debt under control. Like many people, she was sucked in by campus sales pitches to apply for credit cards when she was in college. It quickly got out of hand, and she has been more or less enslaved ever since. But she was making headway. Every month she paid a little more on the principal and a little less on the interest. Then in November she received a notice raising her interest rate.

“I just sat down and started crying at my mailbox,” she said.

There was a time when card issuers were cautious about extending credit and about letting balances grow. No more. Financial columnist Jane Bryant Quinn wrote in 2007, “Banks don’t cancel your cards, as they did in the old days; they just keep charging until you break.” Customers are milked for as long as they last.

Then Congress decided to help.

It wasn’t exactly Congress’s own idea, but after it bailed out Wall Street, failing to act on credit card abuses would have been embarrassing. Not only had Congress provided the bailouts, but in 2005, at the behest of credit card lobbyists, it approved changes in law that made it more difficult for consumers to use bankruptcy.

The Credit Card Accountability Responsibility and Disclosure Act of 2009, or CCARD, was enacted to crack down on card issuers and the practices they use to lure people into getting in over their heads.

The changes include making due dates the same each month, more protection from interest rate hikes, and allowing consumers to apply payments to the highest rate balance first.

For cases like Julie, applicants under 21 would be required to show they have the means to pay. Marketing of credit cards on campuses will be limited.

But members of Congress also yielded to lobbyists for the banks who wanted time, supposedly to get ready for the impact of the new law.

“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, the bill’s sponsor.

So Congress gave the companies nine months before CCARD took effect. It was signed by the president on May 22, 2009.

On Feb. 22, the day the new law took effect, President Obama said, “For too long, credit card companies have had free rein to employ deceptive, unfair tactics that hit responsible consumers with unreasonable costs. But today, we are shifting the balance of power back to the consumer, and we are holding the credit card companies accountable.”

The same day, U.S. Sen. Harry Reid of Nevada issued a statement.

“I hear from too many Nevadans who are overwhelmed with credit card debt, often times because they are just trying to support their families and make ends meet with responsible credit card usage,” it read. “Today marks a critical turning point that will level the playing field for consumers. … This legislation prevents unfair hikes in interest rates, limits arbitrary fees, protects vulnerable populations like young adults, promotes fair payment practices and establishes clear rules that will help consumers stay in control of their credit. … Today’s enactment of these rules demonstrates how serious Senate Democrats are about helping middle class families thrive again.”

But from across the nation came different accounts suggesting that, far from just spending the nine months retooling computers and training workers to comply with CCARD, the companies were sending out interest rate hike notices and rules changes. By autumn, it was clear the companies were running wild (“Political ad misrepresents legislation,” RN&R, Nov. 5), and Democrats in Congress talked about moving up the effective date of CCARD. In the end, nothing was done except for Democrats acting betrayed.

Most news reports used the consumer protection angle suggested by sunny Democratic talking points such as the Obama/Reid statements, but figures showed something else.

The LowCards Complete Credit Card Index reported that the average advertised APR last week was 13.54 percent compared to 11.64 percent on May 21 last year, the day before Obama signed the law.

Medill Reports in Chicago: “Variable interest rate formulas, new fee structures and the exclusion of business credit cards are some of the issues which have not been covered by the new legislation. According to a report released by the Center for Responsible Lending, many deceptive credit card practices have not been covered. … For one, many issuers have adopted what is known as ‘pick-a-rate,’ a technique that allows issuers to change the formula for calculating variable interest rates, resulting in rates that average 0.3 percent higher.”

CardRatings managing editor Amber Stubbs told the RN&R her company had monitored changes by the card issuers before the new law took effect:

“In a recent CardRatings.com poll 86 percent of respondents had their rates increased in the past 6 months. Additionally, we compile the data for the New York State Banking Department’s credit card survey. The average APR at the end of 2009 was 14.89 percent—up over one point from the 13.68 percent average APR at the end of 2008. This, combined with other data and stories we have heard from consumers, leads me to believe that the banks had too much time to react to the impending legislation.”

Bill Hardekopf of LowCards.com says, “In October 2008, the APR for Blue from American Express was as low as 8.99 percent. Today, the rate is as low as 17.24 percent. In October 2008, the rate for Citi Platinum Select was as low as 7.99 percent. Today, it is as low as 11.99 percent. Some cardholders, who are now perceived as higher risk by their issuer, have received rates as high as 29.99 percent. While the … Act does provide needed restrictions against ‘any time, any reason’ rate increases, it doesn’t provide ‘every time, every reason’ protection for rate increases. Issuers can still raise rates on future purchases if they provide a 45-day notice. Cardholders can also expect rate increases … as the Fed eases its foot off the interest rate brake.”

Banks will likely reduce the number of credit cards they issue, limiting who gets cards and reducing upper limits, but that is probably a good thing.

Last week Sen. Jay Rockefeller of West Virginia, a Democrat, said, “I don’t know why we made the mistake of giving them a year to find loopholes.” Sen. Christopher Dodd says he may do something about credit cards in new consumer protection legislation he is now drafting.

This issue intersects with the Democrats’ big issue in Congress right now—high health care expenses are frequently what gets people into trouble with their credit cards. Health care debts are the principal factor in about half of all bankruptcies. CreditCards.com reports, “Banks, health insurance companies and credit card issuers have stepped up marketing efforts to offer financing methods for cash-strapped families in need of medical care.” There have been cases of doctors’ offices declining to provide care to patients without credit cards.

The overall lesson is that cardholders still need to be very cautious with predatory banks—and gullible Congresses.