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Editorial: Credit-card reform deserves to pass

So-called bill of rights would better protect consumers.

Last update: May 7, 2009 - 7:07 AM

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FIXING THE PROBLEM

"This bill will help level the playing field between the -credit-card issuers and consumers. A contract with the credit-card companies is probably the only one in the world where you can change the terms, anytime, any reason. This bill will ban some of the most egregious abuses ... ."

Rep. Carolyn Maloney, D-N.Y., an author of the Credit Cardholders' Bill of Rights, during testimony about the bill.

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Most Americans either have a credit-card horror story or know someone who does. Interest rates abruptly rise for no apparent reason. A college-age son or daughter racks up thousands in debt after being bombarded with credit offers. Late-fee traps drive up penalties and fees. Fine print and densely written contracts bewilder and confuse cardholders.

Those are among the problems that demonstrate the need for the consumer credit-card bill now moving through Congress. Measures approved by the House last week, and currently under consideration by the Senate, would prohibit such practices as double-cycle billing and retroactive rate hikes. Known as the Credit Cardholders' Bill of Rights, the legislation would also limit the marketing of credit to young people and prevent credit-card issuers from giving cards to 18- to 21- year-olds without evidence of ability to pay or a cosigner.

And the proposed bill would end calendar gimmicks that don't allow borrowers a fair amount of time to pay. That provision in some card agreements would be replaced by a mandatory minimum 21-day period to pay before a consumer is considered late.

New rules from the Federal Reserve will ban the more egregious tricks of the credit-card trade -- but not until July 2010. Congressional action would get some of the changes into place earlier, bringing faster relief to consumers in a struggling economy.

House members passed the legislation last year, but the Senate failed to act. This year, President Obama has added his muscle to the effort. He recently met with executives of the credit-card industry and expressed his desire for consumer-friendly reform. And he urged Congress to ban unfair rate increases and abusive fees and penalties, and to require that credit terms and conditions appear in plain language.

Those are much-needed reforms. The House version also would prohibit issuing cards to younger consumers without an income or cosigner and would require a 45-day notice of rate hikes -- beginning 90 days after the bill became law.

Critics of the measure, namely some from the banking industry lobby, claim that the new rules will make consumer credit more costly, which could in turn reduce consumer lending and stretch out the recession. Unreasonable late fees and other unfair methods of driving up debt are big moneymakers for the industry. It is understandably under pressure to raise revenues any way it can. But the law should not allow the credit companies to make that money in unfair, abusive and deceptive ways.

American consumers have not all behaved as responsible borrowers, and together they are carrying an estimated $963 billion in credit-card debt. Undergraduate college students have an average of $3,173 in credit-card debt. And just over 92 percent of them use high-interest credit cards to buy textbooks and to pay for other education expenses.

But the majority of cardholders handle their debt well. They do not deserve to be penalized by the companies, especially in ways that are arbitrary and unfair.

The Senate should pass these reasonable reforms. Its version, called the Credit Card Accountability, Responsibility and Disclosure Act, merged with the House bill would strike a good balance between the credit companies' business interests and the consumers' right to fair and equitable treatment. The reforms are overdue, but in this case no late fees apply.

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Opinion Exchange is produced by the Editorial Department, which is dedicated to hosting the discussion on a range of issues of interest to Star Tribune readers online and in print. In its new format, it's our hope that Opinion Exhange will create a more dynamic dialogue between Star Tribune readers and the Editorial Board. Many individual posts will be written and signed by members of the Editorial Board and will reflect their own opinions. Daily editorials will continue to represent the institutional voice of the newspaper and be researched and written by the Editorial Department, which is independent of the newsroom.

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