Charging back: Will credit cardholders get their due?

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Americans are drowning in debt like never before, yet the big, ugly “d” word has been of little issue in this election. Still, policymakers are way behind on creating credit reform, both from a consumer and fiscal standpoint. After all, consumers are in way over their heads, with delinquencies and defaults rising by double-digit percentages in the last year alone. Erratic rate hikes and hidden fees are being shoved on to consumers as banks continue to eat dirt from the subprime mess. And economic experts predict credit-card debt will be the unfolding of a much larger financial crisis to come.

But some relief could be on the way.

Last week, the House held a hearing on Rep. Carol Maloney’s (D-N.Y.) proposed Credit Cardholders’ Bill of Rights. In December, Barack Obama introduced the five-star rating system, which would rank cards based on their features, and he proposes a complete do-over in credit-card rules similar to Maloney’s. Hillary Clinton has proposed a Products Safety Commission and caps on interest rates, though the “cap” is 30 percent.

And McCain? Well, he has nothing, other than a record of voting against requiring credit-card companies to disclose to consumers the consequences of making only the minimum monthly payment. In other words, it should be a secret that such a policy only serves to force consumers into the deep end of the debt pool.

So what does this all mean to consumers?

The fact is, we’re not just submerged in debt; it’s become our watery grave.

Credit-card debt increased more than 315 percent from 1989 to 2006. We have a collective debt of around $800 billion, which means that every man, woman and child is carrying a debt of around $2,900. The American Bankruptcy Institute reports that filings in February were up by 15 percent over January, despite the stricter requirements.

And the debt burden is only increasing, thanks to a lack of consumer rights. Major credit card companies have been juggling their due dates recently — thereby making those with automatic payments go into default — and they’re ratcheting up rates for even those with zero payment blemishes. That’s because as the mortgage crisis continues, banks are looking for any way to make a profit. And they’re squeezing everyone.

Adam Levitin over at Credit Slips has done an excellent job of parsing out the details of Maloney’s bill. Included it in are provisions that would protect consumers against the arbitrary rate hikes we’re seeing today and prevent credit-card companies from charging retroactive interest on existing balances.

And while Levitin says the bill is the most significant credit-card legislation since the Truth in Lending Act, he does note the omissions in the fine print, like the fact that it doesn’t address the problems with reward programs or merchant fees.

Still, if passed, the bill would prevent credit-card companies from using the revenue schemes they’ve enacted of late, like increasing interest rates for millions of consumers with good credit; not including corporate contact info such as a phone number on statements; and charging hidden fees that often are the dominoes for defaults, yet money in the banks’ pockets.

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