- the credit card issuer from using any unfavorable information about a consumer, including his or her credit report, to increase the annual percentage rate (APR) applicable under an open-end consumer credit plan or from canceling or raising any introductory APR.
- the automatic change of any term of a credit card contract, or agreement, under an open-end consumer credit plan.
- penalties and other undesirable actions initiated by issuers for delayed payment when cardholders' actions indicate intention to make timely payment.
When it goes into effect, the legislation will make it the responsibility of the credit card issuer to verify the consumer's repayment ability based on income, current liabilities, and employment conditions. This verification will need to be carried out before an account is opened and completed prior to any credit-limit increase.
This is a welcome move and long overdue. It limits the undue exploitation of consumers, who are almost always in situations where they exercise unequal bargaining power. These changes will ensure their fair treatment.
However, beware! Trust corporate ingenuity to find loopholes.
For instance, regulations governing changes to terms and conditions can easily be flouted. A company may communicate in a particular manner in order to get a desired response. If it wants a positive response, it might send out a letter saying that it has decided to alter terms and conditions and that if the shareholders do not accept the decision, they must submit communications expressing disapproval.
Similarly, a credit card issuer may ask the consumer to communicate in writing any objection to a credit plan change. Since the majority of consumers will not respond, the issuer will receive the desired outcome.
Some of the objectionable trade practices adopted by credit card issuers in the past have been subject to class action lawsuits.
One such case was brought against one of the largest banks in the nation. When the bank changed its payment due date, consumers who were used to paying on a certain date every month were caught by surprise. This gave the company an opportunity to charge late fees averaging $29 per customer. The bank used this technique more than once and was eventually found guilty of refraining from delivering bills properly or on time and then making consumers pay charges for late payments.
In another case, a bank paid $7.2 million in compensation to consumers to settle a class action suit. The bank had charged consumers a higher rate of interest for breaching an agreement guaranteeing a lower rate.
Charging for services not purchased by consumers, such as credit insurance, is another dishonest practice engaged in by credit card companies. Many credit card issuers charge very high interest rates on payments that are due or delayed. Some banks increase their interest rates from 7% to as high as 21%. Another charge brought against issuers is improper assessment of late fees.
Do consumers benefit from such class action suits? Are they adequately compensated? Are such practices stopped by class action suits?
The answer to all three questions is "no." Usually, a large portion of the award or settlement pays for lawyers' fees and very little is kept by the consumers. Many hope that the proposed Credit Card Reform Act of 2006 will bring relief to credit card users.
