Credit cards still use practices to be banned

NEW YORK - Not only have credit card companies continued to use practices that will be outlawed under a strict law due to take effect in February, in many cases their policies have gotten harsher since the law passed.

A review of nearly 400 cards offered by the largest 12 card issuers in the U.S. found nearly all contracts still allow banks to raise interest rates on outstanding balances. Most also still have penalty interest rates that can be triggered with just one or two late payments or overlimit transactions. And most still allow banks to apply payments to the lowest interest portion of balances first.

All of these policies are prohibited under the legislation, the Credit Card Accountability, Responsibility and Disclosure (or CARD) Act, which was signed by President Obama in May. Congress phased in the provisions to give credit card companies time to adjust their policies, but is now considering moving the effective date up to Dec. 1, because of continued complaints from consumers.

"It's clear that until the law takes effect, or Congress accelerates the implementation date of the law, these practices are going to continue to be out there," said Nick Bourke, co-author of the study done by the Pew Charitable Trusts' Safe Credit Cards Project. "Once it takes full effect next year, it's going to stop a lot of unfair and deceptive practices."

The biggest change, he said, will be that banks won't be able to do things like change interest rates or other terms without warning the card holder. "Right now, the credit card company can rewrite the contract at any time," Bourke said.

The study examined cards offered by the banks that control more than 90 percent of outstanding credit in the country. It found that from December to July, the lowest interest rates offered rose by more than 20 percent. Penalty interest rates, which can be imposed for just one or two late payments or overlimit charges, also rose, and banks added or raised fees for things like balance transfers, cash advances and overdraft protection.

In contrast, Pew found that the 12 largest credit unions, which have just 1 percent of the market, have lower interest rates, lower fees and less punitive policies. Most still have contracts that allow them to change the terms at will, or take other actions the law will prohibit. But even when credit unions have things like penalty rates or overlimit fees, they tend to be less expensive than banks, the study said. For instance, credit unions offer cards with average late and overlimit fees of $20, versus $39 for banks.

Bourke said it's important to note that while the law has many provisions, there was also a big chunk of policy left for the Federal Reserve to spell out in new regulations, including defining "reasonable" fees and "fair and deceptive practices." He said highlighting credit union's generally lower costs may help influence what the Fed defines as fair and reasonable.

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