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Members of Congress take on credit card firms

Some members of Congress are denouncing credit card industry practices that include raising interest rates for customers whose credit ratings decline, even if they make their card payments on time.
/ Source: The Associated Press

Some members of Congress are denouncing credit card  industry practices that include raising interest rates for customers whose credit ratings decline, even if they make their card payments on time.

Industry critics say it's one more example of abusive, confusing practices that can push consumers deeper into debt.

Sen. Carl Levin, D-Mich., chairman of a Senate Homeland Security and Governmental Affairs subcommittee, is holding out the club of possible legislation to spur voluntary changes.

'Abuses need to be remedied'
"Working people are being squeezed,'' Levin told reporters Monday. In a call for "good, strong legislation'' to be enacted next year, Levin said that "these abuses need to be remedied. ...We have some real momentum for reform.''

With Americans weighed down by some $900 billion in credit card debt _ an average $2,200 per household _ practices of the very profitable industry have been ripe for scrutiny by the Democratic-controlled Congress. They have also grabbed the attention of the Federal Reserve, which plans to require credit-card issuers to give customers at least 45 days' notice before raising interest rates and to provide clearer information on fees.

On Tuesday, Levin's subcommittee, which has been investigating the industry, will look at how credit-card issuers raise consumers' rates -- to as high as 30 percent -- when their so-called FICO credit scores decline even if they've paid credit card bills regularly and promptly. In many cases, consumers have little notice of the increased rate, which are automatically triggered by declines in FICO scores for reasons left unexplained, the subcommittee found.

In some cases, just opening another account, such as a department store credit card, could trigger the downgrade in credit score.

In one of the cases cited by the subcommittee, Marjorie Hancock of Arlington, Mass., wound up with interest rates on her four Bank of America credit cards of 8 percent, 14 percent, 19 percent and 27 percent, even though her credit risk is the same for all four.

Ken Clayton, managing director of card policy for the American Bankers Association, which represents the banking industry, said: "Costs for nearly every product can change, be it because consumer's risk profiles change or because underlying costs change. Credit cards are no different.''

Five big financial companies -- Discover Financial Services LLC, Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co. and Capital One Financial Corp. -- issue around 80 percent of U.S. credit cards, according to the subcommittee.

Citigroup and JPMorgan Chase recently have said they will discontinue the practice; Citigroup's change already is in place and JP Morgan Chase's will take effect in March. But Levin says legislation may still be needed to get other companies to do the same.

Customers "have the right to say 'no'"
Larry Di Rita, a spokesman for Bank of America, said its customers "have the right to say 'no' to an increase.''

In March, the subcommittee focused on complex billing and interest-rate practices, such as charging interest on balances paid on time but not in full, and so-called double-cycle billing _ which eliminates the interest-free period of consumers who move from paying the full balance monthly to carrying a balance.

The week before the subcommittee's hearing in March, Citigroup announced that it would no longer make ``any-time-for-any-reason" increases to interest rates and fees charged to customers until a credit card expires and a new one is issued, usually in two years.