Credit Card Rage: Congresswoman Says Help Is On the Way

After last Thursday’s historic face-offat the White House between President Obama and the credit card industry, many of you called into OTM to make your voices heard. It seems that most people, while heartened that the President is focusing on cracking down on abusive credit card practices, are skeptical about what kind of change is on the way and whether it will be enough.

Carmen shares much of the frustration. As she headlined an earlier blog post last week, we need to come to grips with the fact that our credit card companies do not care about us. It’s up to consumers to be savvy about their relationships and do what’s best for them even as these companies continue to hack at credit limits and jack up rates with reckless abandon.

Luckily, the momentum is building and it appears that the President and a good portion of Congressional leadership is behind us. One of those leaders in Congress, Rep. Caroline Maloney (D-NY), joined Carmen on Friday’s show to discuss the actions she is taking to put the ball back in the consumers’ court as it relates to their protection against credit card companies changing their terms unfairly. The piece of legislation she authored, known as the Credit Cardholder’s Bill of Rights, would end the worst deceptive practices, including any-time, any-reason rate hikes, double-cycle billing, retroactive rate hikes and institute a 45-day notice on any rate hikes going forward. The bill passed the the Financial Services Committee last week and is headed to the floor this week for a vote. The same bill passed the House last year with a strong bipartisan vote but failed in the Senate. Maloney says she believes it will pass this year.

If the bill passes, the effects still would not take effect until July 2010. Maloney says she and the president both want to enforce an earlier date to protect consumers now, when they need it most.

Unsurprisingly, the credit card industry is not fully behind the reforms being pushed by Washington. Scott Talbott, senior vice president for government affairs at the Financial Services Roundtable, which represents the industry, says the risk is that the new regulation will shut down the “heart of the credit card financing business model,” although he said they are in support of making the terms and conditions more visible and easily accessible to consumers.

If you regulate how the credit card issuers identify risk and price it into their business model, you threaten the availability of credit to good customers and increase the price to everyone, Talbott says. People with sterling credit could end up subsidizing those who have managed their credit poorly.

But how does that fit into the fact that many credit card companies are raising rates and cutting limits seemingly indiscriminately, even to people with the best credit (Heck, our own credit expert John Ulzheimer just had it happen to him!)?

Ulzheimer also points out that these practices being employed – whatever their real reason – are doing more damage than just making it more difficult for people to pay their bills. Lower credit limits can do real harm to credit scores, as it makes cards seem closer to being maxed out when they previously weren’t. And as we all know, the lending environment is tough enough right now – no one needs another hit to their credit score.

Talbott recommends people contact their credit card companies if they see any of these things happen to them, although our own callers are telling us that none of these companies seem willing to work with them. Watch the accompanying video to see the full debate with Talbott, Ulzheimer and Carmen, including Talbott’s explanation for how the credit card industry feels forced to take such drastic measures in order to hedge their own risk against defaulting customers.