Cardholders urged to protect themselves

By Suzanne Smither

The Credit CARD Act of 2009 is being hailed as landmark legislation to protect the rights of borrowers.

 “It's the most significant legislation to pass – the only legislation ever passed – to prohibit unfair credit card practices,” said Ed Mierzwinski, consumer program director for the U.S. Public Interest Research Group in Washington, D.C.

He summed up the impact of the new law in three words: “The banks lost.” He related, “Bank regulators under [President George W.] Bush allowed banks to do whatever they wanted. They pushed the envelope too far and got too greedy.” But in May of this year, “Congress and the president, with the support of all the major consumer groups, took the credit card industry and beat it down.”

While the Credit CARD Act does put an end to many of credit card companies' unfair practices, Mierzwinski cautioned cardholders to remain on the alert. “A credit card company is like a snake. If it's in front of you, it will strike because it's in its nature. We have put it partly into a box but you still need to protect yourself,” he said.

The federal government poses no limit on the interest rates card issuers may charge, and many states lack usury laws, which ban exorbitant or unreasonable interest. Efforts earlier this year in the U.S. Senate and House of Representatives to cap credit card interest rates at 15 percent and 18 percent, respectively, failed.

U.S. Sen. Bernie Sanders, the Vermont Independent who introduced one of the bills that was defeated, compared card issuers to loan sharks. He said one-third of all cardholders were paying interest above 20 percent and as high as 41 percent.

There are six months to go before most of the Credit CARD Act's provisions take effect, and this lag allows banks and credit card companies plenty of time to shore up their profits before they'll be bound by the new law.

Mierzwinski noted that credit card issuers have recently “tripled interest rates to as much as 36 percent.” And that's not the only big increase showing up on borrowers' statements.

“Chase has been raising minimum payments by two-and-a-half times,” he said, adding that if you owe $10,000 on one card at 2 percent, that's $200 a month, but at 5 percent, it's $500 a month.

“That could hurt a lot of people and it is hurting a lot of people.”

“The credit card industry needs a lot more reining in, but what we were going for here is the tricks and traps,” he said, listing recently outlawed practices like mailing bills late, making payments due on a Sunday or changing payment due dates from month to month.

The consumer advocate offers this advice for cardholders waiting for the new regulations to kick in: “Pay as much as you can, as early in the month as possible, and force yourself to change your habits so you can pay more than the minimum. You have to take care of yourself.”

Stronger protections for borrowers will come with the establishment of the federal Consumer Financial Protection Agency, Mierzwinski predicted. “That agency will have only consumer protection as its mission and only consumer protectors as its staff.”

The agency plan must withstand one big challenge before it can become a reality.

“The banks are trying to kill it,” he said.