Credit card users deserve prompt notice of rate hikes: 12/11/07
The Detroit News, Tuesday, December 11, 2007Editorial
U.S. Sen. Carl Levin has doggedly uncovered a slew of unfair and suspect practices in the credit card industry. The Michigan Democrat wants satisfactory responses from banks but is also ready with tougher consumer protection laws if needed.
In Milwaukee, a senior on a fixed income had for years faithfully paid $119 a month on a closed account but his rate jumped 15 percent to 27 percent. As a result, his payments over a year did not reduce the debt at all, said Levin, chairman of the Senate’s Permanent Subcommittee on Investigations, which is probing such practices.
A Florida woman watched her rate nearly triple to 23 percent from about 8 percent even though she had paid her credit card bills on time for years. A computerized credit rating system had churned out a lower score for the woman. And without notifying her ahead of time, the bank unilaterally hiked the rate.
However, the bank restored the woman’s original 8 percent rate after she wrote to Levin’s committee and to the Florida attorney general. The change of heart, of course, came after heavyweight public officials got involved.
Banks say they set rates based on risk, assessed by computer analysis of credit rating and other factors. But sometimes no rhyme or reason can be discerned. Levin’s panel turned up a woman who has four credit cards from the same company and each has a different interest rate: 8 percent, 14 percent, 19 percent and 27 percent. That makes it four different rates for a woman who, logically, can have only a single credit rating.
At a minimum, customers with a good payment record should not get nailed for higher interest rates without notice and without easy appeal. “Buyer beware” is a fine adage. But it doesn’t justify predatory business practices.
In an earlier probe, Levin was credited with forcing a company to end universal default,” in which interest rates were raised because of a customer’s later payment to another creditor.
Consumers are entitled to know the terms of their credit card agreements at all times and have a clearly described path to challenging any negative information that might cause a rate hike. This requires prior notice of any rate increases.
That’s a good basis for banks to reassess their policies or for a rewrite of U.S. lending law.