Democrat and Chronicle

Credit cards scrutinized
State hearing held to discuss alleged exploitive practices

Cara Matthews, April 17, 2007

ALBANY -- Consumer advocates said Monday that credit card companies engage in exploitative practices, such as increasing interest rates if a customer fails to pay a phone bill. But they said it's up to Congress to make changes.

"Under the federal regulatory scheme, states are effectively foreclosed from regulating interest rates of all but a handful of state-chartered institutions," said Matthew Barbaro, an assistant attorney general, adding that the office received more than 4,000 credit card complaints last year.

States can take action against card companies that engage in deceptive solicitations but they can't impose additional disclosure requirements because that, too, comes under federal law, he said.

Despite limits on what states can do, speakers at a joint Senate-Assembly hearing criticized a number of the industry's common practices. Among the speakers was Robert Manning, a professor and director of the Center for Consumer Financial Services at Rochester Institute of Technology, who had his own story to tell.

Manning said he paid a credit card bill late for the first time in December and his account's fixed rate jumped from 3.99 percent to 32.24 percent. The company wouldn't consider lowering the rate for five months, even though he immediately paid the balance, he said.

Barbaro, Manning and others were critical of:

  • Universal default provisions, which allow card issuers to raise interest rates if cardholders are delinquent or carrying a high balance on one of their other credit cards or debts.

  • Subprime credit cards for consumers with poor credit histories that provide low credit limits, often less than $300, and yet levy steep fees.

  • Companies that offer low interest rates but charge increasingly complex user fees.

    Manning said the government should prohibit universal default provisions. In fact, the Senate and Assembly are considering legislation that would do that. But Barbaro cautioned that the measure would be enforceable only against a handful of state-chartered banks.

    The weather prevented New York State Bankers Association representatives from attending the hearing, but they submitted statements. Roberta Kotkin of the association said the group has consistently advocated for "accurate and appropriate disclosures and consumer financial literacy and awareness."

    "However, we would strongly caution against any legislative actions that would impede New York issuers' effective credit card risk-management strategies. Such legislative initiatives would undoubtedly have the unintended consequence of reducing access to this important credit vehicle for many New Yorkers," she wrote.

    Manning and others had additional suggestions, such as requiring issuers to recognize the postmark date as the payment date, as the IRS does. Card companies now use the date they receive the payment, which produces many late fees.

    The consumers advocates also urged that contracts be written in more readable formats that reflect the average reading level.

    Manning said the combination of aggressive tactics by card issuers and "shockingly low levels of financial literacy" among many Americans are threatening the nation's economic well being. He said the RIT center and the GlobalVision media company are organizing a national "fair and responsible lending" campaign.

    Assemblyman David McDonough, R-Nassau County, suggested that acting on the state level could push Congress to act.

    Nearly 75 percent of the country's households have bank credit cards, up from 54 percent in 1989, according to Mindy Bockstein, head of the state Consumer Protection Board. Between 1980 and 2005, consumers increased their yearly credit card charges from an estimated $69 billion to more than $1.8 trillion, she said.

    The board is forming a task force on credit card practices and is expanding its consumer education program, Bockstein said.


    This story ran on Democrat and Chronicle on April 17, 2007.