REGULATORS AND elected officials are starting to circle the credit card companies, and not a moment too soon. The Federal Reserve reports that credit card debt rose more than 7 percent last month, on top of the already burdensome average of $8,000 per family. Credit and debit card delinquencies are at their highest levels in 18 years. And all the while credit card companies are employing practices that only dig consumers deeper into the hole.
The Federal Reserve, stung by charges that it didn't move quickly enough to head off the subprime mortgage crisis, this month proposed new regulations to protect consumers from usurious and inexplicable fees and interest rates. Among other things, the new rules would forbid companies from raising rates on existing credit card balances; allow consumers a reasonable amount of time to pay their bills before slapping on late fees; and force banks to apply payments to higher-rate balances first.
The Fed's moves complement several congressional efforts, though some bills go further to protect consumers. Representative Carolyn Maloney of New York proposes modest reforms to bar credit card companies from raising interest rates on outstanding balances because of bad credit reports or unpaid bills to other creditors. She would give cardholders 45 days' notice of any rate increases. Senators Chris Dodd of Connecticut and Robert Menendez of New Jersey have separate bills that cap the interest rate hikes companies can assess for an unpaid bill at 7 percent above the previous rate, and allow consumers under age 21 to opt out of the relentless credit come-ons in the mail.
The American Banking Association, the credit card trade association, opposes more regulation and longs for the good old days, when "disclosure" in the fine print of credit card applications was considered protection enough. The ABA says that more restrictions will limit choices for consumers and make it harder to offer certain credit "products."
This wouldn't be so terrible; Americans are overextended enough without ever more exotic offers to add to their debt. And yes, people need to take some personal responsibility for living beyond their means. But "caveat emptor" isn't good enough, not when the credit companies change the rules - and interest rates - in the middle of the game. Not everyone with a crushing debt load blew it all on big screen TVs or vacations they can't afford.
It's not certain that the rising debt and defaults among credit card holders will cascade the way home mortgage losses did and undermine the whole industry. But Washington shouldn't wait for a catastrophe to call the game. Credit card companies have tilted the board for too long.
