Released: September 09, 2008

Regulators fail to rein in credit card abuse

Source: USA Today

Janet Hard, a registered nurse and mother of two from Freeland, Mich., never understood why Discover hiked the rate on her credit card from 18% to 24% in 2006. Last year, she told a Senate panel investigating credit card abuses that she feels sick whenever she thinks of the extra interest she has paid to Discover based on that rate — which was slapped on not just future purchases but on her entire balance. Raising rates on existing balances is one of the credit industry's most lucrative but indefensible practices. Even the usually pro-banking Federal Reserve Board finally moved in May to ban it. Not surprisingly, the banks are resisting. And last month, they acquired an unlikely ally — a federal agency that is supposed to protect consumers. The Office of the Comptroller of the Currency asked the Fed to pull back. The Fed rule would allow banks to raise rates on existing balances in only a few circumstances, such as when a borrower pays more than 30 days late. The OCC wants to greatly expand those exceptions by allowing, for example, rate hikes when payments are as little as five days late or whenever a card expires. That would undo much of the Fed reforms.

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