Finally! Legislation That Makes Sense and Holds Credit Card Companies Accountable

This is the finest and most comprehensive piece of legislation I have seen to curb the abuses of the credit card industry. If this regulation would pass, we would see an unbelieveable change in the industry with consumers reaping the benefits. These two Senators need to hear from us and get our support. Fabulous work!

News

Monday, May 21, 2007

McCaskill, Levin introduce credit card legislation

Published: Saturday, May 19, 2007 11:29 AM CDT
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Sen. Carl Levin, D-Mich., and Sen. Claire McCaskill, D-Mo., today introduced legislation to stop some of the most egregious credit card practices that unfairly deepen or prolong credit card debt held by consumers. The Stop Unfair Practices in Credit Cards Act follows an investigation and hearing by the Permanent Subcommittee on Investigations, which Levin chairs and on which McCaskill serves.

“Credit card issuers too often sock consumers with sky-high interest rates and excessive fees, making it harder and harder for families to climb out of debt,” Levin said. “The goal of this legislation is to put an end to unfair and abusive credit card practices that outrage so many American families. I'm afraid these practices have become too entrenched and too profitable to the credit card companies for the companies to change them on their own. Congress needs to enact pro-consumer legislation to put an end to these unfair practices.”

“Credit card companies must be stopped from preying on the most vulnerable Americans with unfair and confusing practices. We have to fight for those who have not hired dozens of lobbyists to make sure that American consumers are not getting ripped off and are fully informed of how these companies are manipulating their financial security,” McCaskill said.

In October 2006, Levin released a Government Accountability Office (GAO) report analyzing credit card fees, interest rates, and disclosure practices by major credit card issuers. Following the release of the GAO report, Levin directed the Subcommittee to investigate unfair credit card practices that mire so many Americans in debt. In March, Levin chaired a subcommittee hearing and called as witnesses the chief executive officers of the three largest credit card issuers in the country - Bank of America, JP Morgan Chase Bank and Citigroup - and an Ohio consumer whose personal credit card experiences exemplified many of the outrageous practices.

Levin added: “Credit card companies are so profitable that they can afford to give up unfair practices like charging interest on debt that is paid on time, charging consumers a fee to pay their bills, doubling or tripling interest rates to penalize late payments or over-the-limit charges, imposing repeated over-the-limit fees for a single over-the-limit purchase; and applying consumers' payments to the parts of their accounts with the lowest interest rates first. It's past time for Congress to protect consumers from such unfair and abusive credit card practices.”

The Stop Unfair Practices in Credit Cards Act has been endorsed by Consumer Action, Consumer Federation of America, Consumers Union, National Consumer Law Center, U.S. PIRG, and the Center for Responsible Lending.

A summary of key provisions in the Stop Unfair Practices in Credit Cards Act follows.
Interest Rates

No Interest on Debt Paid on Time. Prohibit interest charges on any portion of a credit card debt which the card holder paid on time during a grace period.

No Trailing Interest. Prohibit added interest charges on credit card debt which the card holder paid on time and in full.

Limits on Penalty Interest. Prohibit interest rate hikes on a credit card account unless the card holder agrees to them at the time, and in any event, limit penalty interest rate hikes to no more than a 7 percent increase.

Apply Interest Rate Increases Only to Future Debt. Require increased interest rates to apply only to future credit card debt, and not to debt incurred prior to the increase.

Credit Card Fees

No Interest on Fees. Prohibit the charging of interest on credit card transaction fees, such as late fees and over-the-limit fees.

Restrictions on Over-Limit Fees. Prohibit the charging of repeated over-limit fees for a single instance of exceeding a credit card limit, and allow such fees to be charged only when a card holder's action, rather than a penalty, causes the limit to be exceeded.

No Pay-to-Pay Fees. Prohibit charging a fee to allow a credit card holder to make a payment on a credit card debt, whether payment is by mail, telephone, electronic transfer, or otherwise.

Reasonable Currency Exchange Fees. Require currency exchange fees to reasonably reflect the credit card issuer's actual costs.

Other Protections

Prompt and Fair Crediting of Card Holder Payments. Require consumer payments to be applied first to the credit card balance with the highest rate of interest, and to minimize finance charges. Prohibit late fees if the card issuer's action caused the delay in crediting a payment.

Fixed Credit Limits. Require that card issuers must offer consumers the option of having a fixed credit limit that cannot be exceeded.

Abuse of "Piggy Backing"

This article is about the recent abuse of what is termed as "Piggy Backing" and is a legitimate means for a person to add credit history and improve their scores. However, as with everything it seems these days, someone found a way to abuse it. Rather than used sparingly or appropriately such as with a parent/child relationship or close friend, some Internet marketers are exploiting it to the maximum by selling credit histories to anyone willing to pay the price in order to get a decent mortgage rate.

Let's be clear. I hate this abuse and the regulation it could cause. It is also important to point out, that "Piggy Backing" is nothing more than adding your child or someone you know to your credit card account as an authorized user and all the positive payment history you have built up over the years shows up on the authorized user's credit history as well.

It is a loop hole that the credit card issuers didn't think through evidently and it has helped many, many children start out with good credit history. When it is used as fraud with the intent to deceive and misrepresent, then I am against it. I'm sorry this has happened, i.e. the abuse, but "Piggy Backing" should not be outlawed. It is a tool I recommend, I just don't recommend using it to commit fraud. A word to the wise, avoid this like the plague.

(04-08) 04:00 PDT Washington -- When your credit scores don't qualify you for the mortgage you want, where do you turn? That's an especially timely question now, as banks and mortgage companies tighten underwriting standards for applicants with less than perfect credit. But federal and state authorities fear that some borrowers are turning to a fast-growing business on the Internet -- companies that claim to boost credit scores by transplanting the credit DNA of people with excellent payment histories into the credit files of people with subpar histories -- ostensibly without breaking any law. The companies claim to raise FICO credit scores by 50 to 250 points or more by adding low-scoring borrowers as "authorized users" onto the credit card accounts of people with FICO scores well in excess of 700. The positive payment information from such cardholders then flows into the files of the persons with subpar credit. Federal law permits authorized users to be added to credit card accounts. Typically the users are relatives or friends of the primary cardholder. For example, a parent might add a son or daughter to a Visa card in order to provide access to credit for the child or for use in emergencies. Federal law, however, does not limit the number or prescribe the type of authorized users permitted on any single account. Nor does it prohibit the rental or sale of authorized user designations. Exploiting that loophole, numerous companies have popped up on the Internet offering to buy and rent out the credit card "trade lines" or accounts of credit card holders with high limits combined with perfect payment histories. Big bucks -- and a strong potential for fraud on mortgage applications -- are involved. Some Web site promoters say they can add 80 to 120 authorized users onto a high-quality credit card account before banks or lenders get suspicious. Each account can rent for as much as $1,500 to $2,000 for a 180-day usage. The primary credit card holder receives a cut of the rental fee, often hundreds of dollars for each authorized user added to the account. The person seeking a higher credit score does not obtain actual access to the credit card. But within 30 to 90 days of being added to the account, the national credit bureaus incorporate the primary cardholder's ongoing account information into the files of the authorized user. The score-raising attributes of the primary cardholder's stellar payment record then flow through to the new user. One company based in Tampa recently solicited mortgage brokers promising FICO score boosts of 150 to 205 points for applicants "in as little as 30 days" for the "discounted" price of $750 per trade line. That widely distributed pitch prompted one state financial regulator to issue a "fraud alert" warning that "consumers, brokers and lenders that complete, submit or participate in the completion and submission of an application for credit that contains misrepresentations or false information are subject to administrative actions and potential criminal penalties by the state." The Nevada Mortgage Lending Division termed the inflating of FICO scores through additions of authorized user accounts "deceptive" because it makes credit-impaired applicants appear to be more creditworthy than they actually are. Mortgage lenders might grant them lower interest rates and lower fees than they otherwise could obtain. Some Web sites advertise and price high-quality credit card trade lines on the basis of their credit limits and time on the account. A site called AddaTradeline.com recently offered a card history with a $25,000 credit limit and 2 3/4 years of perfect payments for a fee of $1,025. Adam Wheeler, who identified himself as the owner of AddaTradeline.com, based in Orange County, said his business "is legal, although some people might say it's unethical." He insisted that his firm does not approve of efforts by clients to mislead lenders. "If they are going to lie to lenders," he said, "that is not good." Asked for comment on the rental of trade lines to artificially inflate mortgage applicants' FICO scores, Steven Baker, Midwest director for the Federal Trade Commission, would say only: "We are aware of it. We are concerned about it, and we are looking into it." Donald Girard, spokesman for Experian, one of the three national credit repositories, said, "These are nothing more than new credit repair scams." However, he said, Experian "does support authorized user relationships such as ... parents helping a son or daughter establish credit with their first credit card." Fair Isaac Corp., developer of the FICO score, said that the "inappropriate use" of trade lines is "an industrywide issue" and that the company is in discussions with the FTC. E-mail Kenneth Harney at kenharney@earthlink.net. This article appeared on page K - 4 of the San Francisco Chronicle