Senator to Fed: Bolster Reform Law to End Credit Card Tactics

Sen. Carl LevinA key democratic senator has joined a prominent consumer group in urging the Federal Reserve to act now, three months before reform laws take effect, to stop “unfair” rate hikes and other “abusive” practices by credit card issuers.
Sen. Carl Levin, D-Michigan, chairman of the Permanent Subcommittee on Investigations, today asked the Fed to clarify and strengthen the Credit CARD Act of 2009, enacted in May but slated for full implementation Feb. 22. The Fed has already issued some rules to define portions of the sweeping legislation. But greater and faster action is needed, Levin said.
“Unfortunately, since the law’s enactment earlier this year, some credit card issuers have already initiated actions that seem designed to circumvent or undermine the CARD Act’s consumer protections and to continue the industry’s history of subjecting consumers to abusive practices,” Levin wrote.  As a result, the proposed rule requires further clarification and strengthening to ensure effective implementation of the consumer safeguards established by the CARD Act.”
Levin’s letter comes only days after Consumers Union, the prominent nonprofit organization and publisher of Consumer Reports, sent a formal letter to the Fed, also requesting immediate action to stop “unfair practices” of the credit card issuers in the months since the law’s signing. 
The organization felt compelled to seek action after Republicans in the Senate blocked attempts by Democrats, led by Sen. Chris Dodd, of Connecticut, to initiate a freeze on interest rates on existing balances until February.
In his letter to the Fed, Levin was remarkably detailed in the practices that the Fed should review, including so-called “hybrid fixed-variable” interest rates. A significant number of card issuers have used this “mechanism” that allows rates to go up as indices rise, but prevents rates from coming down below a “fixed minimum of the issuer’s choosing,” according to Levin.
Levin said his subcommittee’s research confirms that such “hybrid fixed-variable” interest rates are proliferating. “In my view, as one of the authors of the CARD Act, this type of interest rate does not and should not qualify under the exemption for variable interest rates (in the CARD Act).”
He also points to “interest rate rebates” as another new and “potentialy unfair and abusive” practice. Citibank announced such a new policy last week in a letter to consumers. In Levin’s letter, Levin cites one case in which a customer’s interest rate was raised to 29.99 percent. That customer was also notified that he could “earn back” 10 percent on total interest on purchase charges, only if the card holder spends $1,500 a month.
“It is confusing,” Levin explains, “because the notice provided to consumers does not adequately explain when the rebate would be paid, what the 10 percent applies to – whether it would, for example, reduce the 29.99 percent interest rate to 19.99 percent or 27.00 percent – or how the interest rate charges would be calculated on a daily basis.”
Click here for the full text of Levin’s letter.
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