Posted on 03/07/2007 5:40:00 PM PST by Extremely Extreme Extremist
(CBS News) WASHINGTON -- An Ohio man whose $3,200 credit card debt mushroomed to $10,700 with interest and fees told his story Wednesday to senators, who denounced the industry for confusing billing practices and shifting interest rates.
Executives of three major banks defended their credit card practices as responsible and responsive to consumers' needs in testimony at the hearing of the Senate Homeland Security and Governmental Affairs' investigative subcommittee. Those from Citigroup Inc. and Chase Bank USA said their companies were eliminating some practices — including the one that hit Wesley Wannemacher of Lima, Ohio, with over-limit fees on his Chase card account 47 times although he went over his credit limit only three times.
The interest charges and fees on Wannemacher's account more than tripled his debt despite his having made payments averaging $1,000 a year over six years, noted Sen. Carl Levin, D-Mich., the subcommittee's chairman.
"Unfair? Clearly, I think," Levin said. He said an investigation by the panel found that "sky-high interest charges and fees are not uncommon in the credit card industry. While the Wannemacher account happened to be at Chase, penalty interest rates and fees are also employed by Bank of America, Citigroup and other major credit card issuers."
Richard Srednicki, the chief executive officer of Chase Card Services, apologized to Wannemacher in his testimony. "In this case, we simply blew it," he said.
Srednicki said the company has decided it no longer will charge over-the-credit-limit fees to customers who have been in a chronic over-limit position for 90 days.
Wannemacher used a new Chase card in 2001 and 2002 to pay for expenses mostly related to his wedding. He had $3,200 in purchases, interest charges of $4,900, 47 over-limit charges totaling $1,500, late fees of $1,100, for total charges of $10,700 as of February. He paid $6,300, leaving a $4,400 balance — which Chase agreed to waive after he contacted the subcommittee staff.
"Debt seems to invoke a feeling of hopelessness unlike any other problem I've encountered," Wannemacher testified at the hearing. "When a debtor calls you on the phone and you make a minimum payment, you know that you've made no real progress and that in a month, they will be calling again."
Sen. Norm Coleman of Minnesota, the panel's senior Republican, said high interest rates on credit cards, "hefty fees and crippling penalties impede more and more hard-working families from pursuing their American dream."
The problem is worsened by the "impenetrable" language of credit card disclosures provided to consumers, he said.
One hidden practice is called "universal default," reports CBS News correspondent Sharyl Attkisson. For example, say a person misses a car payment. That person's bank cards, even if unrelated, could use the missed payment to raise interest rates.
A similar chain of events happened to Bob Rolls, Attkisson reports. He charged $5,000 to a home improvement store credit card to buy materials to build a ramp for his 97-year-old father.
That purchase somehow triggered an incredible jump in the interest rate charged on his entirely unrelated Bank of America Visa — even though his credit is spotless.
"They said they were gonna raise my rate to 27.99 percent," Rolls said. "I said 27.99 percent. Forget it. I'm closing this account."
While the credit card practices in question are legal, Levin is threatening possible legislation to outlaw them as a spur to the banking industry for voluntary changes.
Senate Banking Committee Chairman Christopher Dodd and other Democratic senators challenged credit card executives at a hearing in January over rising late fees and other penalties and marketing practices they portrayed as predatory. Dodd, D-Conn., said he was putting the industry on notice that if it doesn't improve practices on its own, legislation may be warranted.
Since Democrats assumed control of Congress in January, they have put a number of consumer issues on the legislative agenda. With Americans weighed down by some $850 billion in consumer debt, the practices of the robustly profitable credit card industry are a compelling subject for scrutiny.
Citigroup, the nation's largest financial institution, announced last week that it was eliminating the practice of so-called universal default — raising interest rates for card customers because of their failure to pay other creditors on time. In addition, Citigroup said it would eliminate some types of interest rate increases that have been criticized.
Credit card issuers raise customers' rates and fees, for example, when they believe it is warranted by conditions in the financial markets. But under Citigroup's new policy, rates and fees will be increased before a card expires only if the customer pays late, exceeds his credit limit or pays with a check that bounces. If the rate is linked to the prime interest rate, it would rise or fall in tandem.
The mob doesn't take 40% like some of them do. Sadly market forces aren't available due to the huge regulations for me to start a cc company.
So Congress should be in the business of credit underwriting? How does Congress make such a determination?
On the same principle as the Fed has the power to decree the minimum amount of the collateral one has to put for a margin loan.
Hmm, my experience with Bank of America's been just the opposite - I send them money and they pay ME interest. The program's got some weird name... I think it's called a 'savings account' or something like that.
Congress working on the important issues again
Sorry, but this IS an important issue. These worse-than-the-mob tactics are drowning people in additional debt. Company A should not be able to raise interest rates because a customer was late with company B. Nor should they be allowed to raise rates if another card has an increased balance.
The additional predatory interest hikes artificially alter a person's TRUE debt to income ratio (payment is increased) and ends up screwing them on other credit-related purchases like a mortgage or auto loan...or a decent insurance premium.
It's one thing if a person is a habitual bogue with a 448 FICO and 30-60-90's all over the place. It's another when a person manages their credit wisely and decides to charge a trip on Card A to Aruba and comes home to find Cards B, C and D went from 14% TO 29% because Card A had an increase.
That's just utter B*llSh!t and I'm GLAD to see Congress trying to do something about it.
There used to be usury laws. Apparently they've gone bye-bye.
BINGO!! Post of the day.
I guess you haven't been a victim of this "universal default" scam.
Think about it.
You have a legitimate grievance with one unscrupulous financial institution, and refuse to pay. Even if you are in the right, every other financial institution you deal with can triple their interest rates and fees based on nothing that affects your responsibility and record with them.
If the mob did this, the RICO statutes would apply. Why not to banks?
I say class action suit...
Sorry, credit card companies don't force people to sign up.
If you can't handle a credit card, then perhaps you shouldn't get one in the first place. Or maybe just stick to one card for important stuff or emergencies and make sure to pay it off.
Yes, this is obviously an important issue for the nanny party, in the world's "most deliberative body."
Why should credit issuers not be allowed to price for risk?
**Sorry, but this IS an important issue.**
I fully agree with everything you said.
Many consumers are finding themselves in severe financial straits because of deceptive clauses in credit card contracts, NOT because they are misusing their cards.
We insist on teaching all Americans "life skills" such as reading and writing, but have you ever seen a mandatory high school course on personal finance?
Many people that get into trouble financially are simply ignorant about what these companies can and will do to them if they are not careful.
anyone that lives on credit deserves to be screwed!
I had a card with about 6.9% interest that I paid off every month until I bought my home, then I accepted the 2.99% cash offer and maxed out the card for a down payment.
After a few months of $1000.00 a month payments, I used the card for about $3,000.00 worth of household stuff like a refrigerator and shed.
When my statement arrived I saw that the $3000.00 portion was collecting interest at about 19%, and I learned that it was hidden behind the huge amount of the initial total, meaning that nothing I paid on the initial amount would go to that smaller part that was burning up the 19% interest.
I threw everything I could into paying off the card quickly, so my mistake and the Citibank mafia tactics only cost me a few hundred dollars, but it was one of the shadiest business dealings I've ever seen, and I know many people would have been wiped out by that immoral act by the credit card company.
The reason given for my interest jump from 6.9% to 19% was that by accepting the promotional offer for almost the card limit, I reached the high interest red zone.
A side note is how soulless the employees were at the other end in our conversations, I was reminded that you need to look at what you do for a living when you ponder what a high quality, wonderful, moral person you are away from your work.
Yes, this is obviously an important issue for the nanny party, in the world's "most deliberative body."
It really is. There is a Big Picture here that many of the credit card nazis on here don't see and the creeping effects will come a knockin' on *their* door whether they have a credit card or not.
Risk is not an issue here. How is that "risk"?
If bank "A" sends me a bill that is fabricated, and I refuse to pay it, how is that a "risk" for Banks "B", "C" and "D' plus my mortgage company, whom I've always paid on time?
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