Credit Card Executives Summoned To the Hill To Defend Deceptive Credit Card Practices

Implications: Executives from Bank of America, Capital One and Discover appeared before the Senate Committee on 12.4.07, to explain their credit card practices. Credit card executives defended the practices as "legal," however; critics denounce the practices and want Congress to regulate the credit card behemoths. Consumers' credit card debt has skyrocketed to $900 billion and credit card issuers use practices such as "universal default" and "any time and for any reason," which may be contributing to consumers mounting credit card debt. Issuers also use a practice called "risk repricing," which means if your credit score goes down card issuers may raise your interest rates. Issuers also play the direct mail game to reel in consumers by targeting households who use more than 30% of their available credit and who have higher balances in relation to their credit lines. During 3Q07 direct mail credit card solicitations rose to $1.29 billion, this is up by 20 million from 2Q07. Coincidence?  

Analysis: Credit card issuers are facing a "backlash" due to certain fees they charge their cardholders, such as "universal default fees, over the limit fees, late fees and annual fees."  As a result Congress is proposing legislation to restrict card issuers from charging certain fees and to place caps on other fees and if legislation is passed it may contribute to credit card issuers declining penalty-fee income and interest income.

1.  Practices such as "universal default" allows the credit card issuers to raise the consumer's interest rate even if the consumer defaults on a loan not held by the issuer and "any time and for any reason," practice allows issuers to raise interest rates based on changes in market conditions or for any reason they deem reasonable/necessary, which has led to an outcry by consumer advocacy groups and Congress chastised executives from some of the largest credit card issuers during the Senate hearing on 12.4.07

2.  Some consumer advocacy groups are urging Congress to rein in the credit card issuers and force them to end "universal default and any time and for any reason practices" and enact legislation to do more to protect consumers and also regulate credit card issuers under the OCC (The Office of the Comptroller of Currency), who has oversight over national banks and thrifts to ensure consumers are treated "fairly" by credit card issuers  <!--[if !supportLineBreakNewLine]-->
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Takeaway: Consumers are using credit cards to try and bridge the gaps created by stagnant wages, layoffs and the high costs of living and consequently, consumers are trapped in a cycle of debt with punitive fees and higher interest rates imposed by credit card issuers. Will regulation of credit card issuers solve this crisis or could the threat of possible regulation by Congress persuade credit card issuers to change their practices as Citi and Chase has done? Its been over two decades since the credit card industry was deregulated in hopes of bringing greater competition and lower prices to consumers. Perhaps its time for Congress to revisit this issue of deregulation/regulation again!