Consumer Group Asks Fed to Halt 'Unfair' Interest Rate Hikes

Gallery.creditcard4A prominent consumer group has formerly asked the Federal Reserve to stop credit card issuers from “unfairly hiking interest rates” and put a halt to other dubious practices ahead of credit industry reform laws.
The reform, known as the Credit CARD Act of 2009, doesn’t take effect until February, and Republicans in the Senate this week blocked efforts to consider an interest rate freeze until then.
In a letter submitted to the Federal Reserve Board today, Consumers Union outlined several practices the group deems as unfair “traps” that have emerged since Congress passed the CARD Act, which will make it tougher for card issuers to raise rates, impose fees and modify policies.
Founded in 1936, Consumers Union is a nonprofit organization that works to educate and empower consumers. It is the publisher of Consumer Reports, one of the top-ten magazines in the United States, based on circulation figures.
“Credit card companies have wasted no time coming up with new ways to hit consumers with high interest rates and fees,” said Lauren Bowne, staff attorney with Consumers Union.  “The Fed can act to stop some of these unfair practices, but ultimately we need a Consumer Financial Protection Agency to protect consumers from new credit card tricks and traps as they emerge.”
Congress is already consider creating a new Consumer Financial Protection Agency, but there is much disagreement with a current Senate plan to strip the Federal Reserve of its regulatory muscle, and transfer much of its authority to a new agency.
In its letter, Consumers Union asked the Fed to stop  credit card issuers from “coercing customers to accept interest rate hikes that will be illegal under the new regulations.”
Consumers Union said Chase, the top credit card issuer in the U.S., has significantly raised minimum payments twice in the past 12 months on customers with cards that had a promotional fixed rate for the life of the loan.
“Many card holders with large balances have been faced with the difficult choice of accepting a 250 percent hike in their minimum payment or a higher interest rate that will soon be prohibited by law,” the organization report to the Fed. “In most cases, the Credit CARD Act prohibits card issuers from raising interest rates on existing balance,  unless the customer has been more than 60 days late.”
The group also urged the Fed to revent card issuers from using “interest-back programs” to raise rates that will be prohibited under the new regulations.  Citibank has been alerting customers this week about changes in their contracts. The second-largest card issuer is raising rates, as high as 29.9 percent, but offering to credit back 10 percent of the interest if customers pay on time and spend a minimum of $1,000 a month.
Consumers Union says this “interest-back” promotion disguises an interest rate increase that would be prohibited under the Credit CARD Act, unless the customer was seriously delinquent.
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