Credit Card Holders Benefit Through Congress’ Pressure 

Owning a credit card is fast becoming a better deal for consumers as the credit card industry (banks and other cloned credit cards for sale issuers) starts changing their practices and implementing what can only be construed as more lenient practices, under the pressure exerted by Congress. This article offers the whole story. In economic figures released by the Commerce Department at the end of May 2007, the U.S. first-quarter gross domestic product (GDP) grew by 0.6 percent. This was the weakest quarterly expansion since the fourth quarter of 2002 and was well under the 0.8 percent growth rate projected by Wall Street economists.

Housing continued to be a drag on the economy and was though likely to remain so in the coming months. However, there were positive signs as well, which could signal a healthier rate of growth towards the end of the year. One of these good signs was personal consumption spending — which powers two-thirds of the economy — increased by about 4.4 percent versus the 3.8 percent figure in April.

In a related report, the Labor Department reported on June 6 that U.S. worker productivity had also increased at a much slower rate than originally estimated. This report raised fears about possible inflationary pressures as labor costs go up.

Most of the performance figures had already been anticipated.

What came as a surprise was that borrowing by U.S. households had expanded by less than half ($2.6 billion) of forecast ($6 billion) as credit card use actually fell for the first time in 13 months. This increase in consumer credit was the smallest monthly increment in seven months, since October.

It seems consumers are pulling back from taking on more debt. Revolving credit, which includes credit cards, declined $403 million in April, the first monthly decline in the 13 months since March 2006. Consumers may be cautious about contracting more debt while housing remains in a slump and economic growth has been so weak. The decline in revolving credit has been interpreted as a sign that consumers are paying off more of their credit card debt.

In the middle of these mixed signals from the various sectors of the economy, legislators have expressed their dismay over practices being followed in the credit card industry. The House Financial Services subcommittee hearings last Thursday, June 7, called for stronger action by the Federal Reserve to control what lawmakers called the deceptive and predatory practices of credit card companies. Lawmakers subjected executives of major credit card issuing banks to intense questioning during the hearing.

Saying that the average American household carries $13,000 in credit card debt and overall credit card debt runs in the hundreds of billions of dollars, the panel chairwoman Rep. Carolyn Maloney, D-N.Y., was reported to have expressed fears “that we will see a perfect storm in consumer credit as these pressures converge on Americans, and that the ripple effect will be felt throughout our whole economy.” Maloney cited the success of credit cards in providing for the credit needs of the American consumer but also emphasized that with great success came “great responsibility.”

Lawmakers think the Fed needs to do more to protect credit card users, and propose to give other bank regulators the authority to curb industry abuses, including policies that confuse consumers and push them into more debt. The Fed is requiring credit card companies to extend to 45 days the notification period to consumers before they implement any changes in the terms of an account. The present practice is that when banks want to make any changes, for instance, to increase interest rates or to impose a higher penalty rate for missed or late payments, they will give only 15 days notice.

The Fed’s proposed full disclosure requirements would, among other things, allow consumers a longer time to look for another credit card. But legislators feel this is not enough and want regulators to impose an outright ban on abusive practices. They do not want to create new laws, but prefer to see regulators act on the problems.

Legislators are targeting other practices like charging interest on portions of debt that is paid on time during a grace period, and raising interest rates because a customer is late on payments to other creditors (not the credit card issuer) — which is termed “universal default” in the industry. Legislation is being proposed that would make some of these practices illegal.

These are serious concerns being raised by our lawmakers. Other regulators appear to agree with the lawmakers. The Federal Deposit Insurance Corporation chairman is not fully convinced that problems regarding credit card industry practices will be resolved by full disclosure alone. Other federal regulators who were also called to testify expressed support for legislation that would give their offices the authority to curtail practices that are deemed to be deceptive or unfair.

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