A study of 400 credit cards offered by the top banks found “unfair” or “deceptive” practices that will soon be outlawed, according to the Pew Charitable Trusts, the independent nonprofit.
The organization’s Safe Credit Cards Project issued the report today, which also found that advertised credit card interest rates rose an average of 20 percent in the first two quarters of 2009, even as banks’ cost of lending declined.
Obama signed sweeping reform laws, known as the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009, in May of this year. The CARD Act is scheduled to take effect in February, but legislators are pushing a bill to push up that date to Dec. 1. The new laws target what the Obama Administrations describes as unfair rate hikes, hidden fees, unclear policy language and unreasonable time-frames offered by credit issuers.
“Since passage of the Credit CARD Act, we found that credit card issuers have done little to remove practices deemed unfair or deceptive by the Federal Reserve,” said Shelley A. Hearne, managing director of the Pew Health Group, which oversees the project. “In fact, some of the most harmful practices have actually grown more widespread–not one of the bank cards reviewed would meet the legal requirements outlined in the Credit CARD Act, which is bad news for consumers.”
The new report, “Still Waiting: ‘Unfair or Deceptive’ Credit Card Practices Continue as Americans Wait for New Reforms to Take Effect”, reviews all consumer credit cards offered online by the largest 12 bank issuers. The banks control more than 90 percent of outstanding credit card debt nationwide, the organization said. The report also reviewed cards offered by the largest credit unions. The Pew Safe Credit Cards Project gathered data from July of this year on nearly 400 cards, building on its previous research from December 2008.
Here are some key findings:
- 99.7 percent of bank cards allowed issuers to increase interest rates on outstanding balances – a jump from 93 percent in December;
- 95 percent of bank cards permitted issuers to apply payments in a way the Federal Reserve found likely to cause substantial financial injury to consumers; and
- 90 percent of bank cards had penalty rate hikes with the vast majority imposed by “hair triggers” of one or two late payments in a year.
“The Federal Reserve must ensure that the rules it is developing will prevent unreasonable or disproportionate penalties, including penalty rate increases, which our data show remain far too common,” said Nick Bourke, manager of Pew’s Safe Credit Cards Project.