WASHINGTON - Credit card industry practices are being denounced by some in Congress, especially raising interest rates on those whose credit ratings decline, even if they pay card bills on time.
Industry critics say it's one more example of abusive, confusing credit card practices that can push consumers deeper into debt.
Senator Carl Levin, Michigan Democrat, chairman of a Senate Homeland Security and Governmental Affairs subcommittee, is holding out the club of possible legislation to spur voluntary changes.
"Working people are being squeezed," Levin told reporters yesterday. In a call for "good, strong legislation" by year-end, Levin said "these abuses need to be remedied."
With Americans weighed down by some $900 billion in credit card debt - an average $2,200 per household - practices of the industry have been ripe for scrutiny by the Democratic-controlled Congress and have grabbed the attention of the Federal Reserve, which plans to require credit card issuers to give customers at least 45 days notice before raising interest rates and to provide clearer information on fees.
Levin's subcommittee, which has been investigating the industry, will today look at how credit card issuers raise consumers' rates, to as high as 30 percent, when their so-called FICO credit scores decline even if they've paid credit card bills regularly and promptly. In many cases, consumers have little notice of the increased rate, which are automatically triggered by declines in FICO scores for reasons left unexplained, the subcommittee found.
In some cases, just opening another account, such as a department store credit card, could trigger the downgrade in credit score.
In an e-mail, Ken Clayton, managing director of card policy for the American Bankers Association, which represents the banking industry, said: "Costs for nearly every product can change, be it because consumer's risk profiles change or because underlying costs change. Credit cards are no different."