Earlier this year the Federal Reserve, a member of Congress, and two other Federal Regulators all announced plans to crack down on credit card lender policies… which I call abuses. Since a long list of abuses have been going on for over a decade, there is no clear reason why this is all of the sudden happening now, and on several fronts. I have read that regulators got caught asleep at the switch given the current mortgage problems, and don’t want the next crisis to be the credit card industry. I have also heard that tens of thousands of complaints have been received over the years. You think? In any event we should be thrilled that maybe finally something will be done! In my opinion these abuses are nothing less than predatory lending practices that should not have been allowed for all of these years.

Here is my list of the most horrible policies that have been allowed:

Universal default clause: Your lender raises your interest rate simply because they found out you were late paying on any other unrelated account… your car loan, your home equity loan… any other obligation. No doubt this has also happened to people who innocently overlooked a bill that was due, or perhaps got lost in the mail. Yes… lost in the mail.

Retroactive rate increases: Triggered by the Universal Default clause, lenders increase the interest rate on your existing balance, to the so called penalty or default interest rate. Is it fair to agree to borrow money at a given interest rate, and then have that interest rate increased by the lender after the transaction?

Allocating payments: Where two interest rates are involved, such as your regular rate, and a higher rate on a cash advance, the lender allocates payments to lower balances first.

Unfair time constraints on payments: An unreasonable amount of time is allowed before the payment due date.

Double-cycle billing: This is where lenders calculate your interest based on the average daily balance over two months. Let’s say that you have a large balance that you dramatically pay down. Well you are still going to pay some additional interest the following month on the balance that you previously paid off. You can also receive a bill for additional interest on an account that you completely paid off the prior month.

Security deposits and other garbage fees: Additional fees tacked on for simply issuing you credit, increasing available credit, overdrafts, etc.

Changing interest rates: The lender sends you a notice that they intend to arbitrarily changing the type of interest on your account, or increase the rate. Once again you agree to borrow money at a given interest rate, however that rate can be increased at any time at the whim of the lender. Of course this policy also allows them to arbitrarily lower your interest rate. Ever happen to you?

Deceptive credit offers: Misleading advertising or fine print making it difficult to understand exactly what all of the terms are.

Apparently these policies have been allowed because they have been “properly disclosed”. Well I hope that everyone out there is smarter than I am. I have studied disclosures and maybe picked out a few things, but I wonder if even a lawyer wouldn’t spend hours trying to understand it all.

In my opinion there are two things that I think we can all be sure of:

1. The banking industry will come out swinging in an all out effort to block any new regulations. After all, the credit card sector is the most profitable of all of their business.

2.   When the effort to block any new regulations fails, and I certainly hope that it does, my fear is that the credit card companies will then come out with a media blitz like none other, to spin this all in their favor. They will tell you how great they are and how out of the goodness of their hearts they have come up with new ideas and better plans, all just to help you. I further expect them to come up with new hooks to get you to sign up for yet to be thought of new plans, gimmicks & fees.

*** DON’T FALL FOR ANY OF IT !!! ***

I for one am hoping that all this talk will be finally real this time, but although I am usually optimistic, it is too soon to believe it just yet.

Americans are hooked on credit, and the credit card industry is a big factor in many of our lives. Reforming it to be fair is LONG overdue!

Tags: Bank, credit, credit card, federal regulators, federal reserve, Federal Reserve System