Challenge those credit fees

Personal Finance

Your Money

March 13, 2007|By Eileen Ambrose | Eileen Ambrose,Sun Columnist

It's amazing what a little congressional attention can do.

Even before last week's Senate subcommittee hearing to explore credit-card industry abuses, two major card issuers announced they were abandoning certain practices long criticized by consumer advocates.

The CEO of Chase Card Services even apologized during the hearing over the treatment of an Ohio customer. The man charged $3,200 for wedding expenses in 2001, but ended up owing more than $10,000 as fees and interest piled up. Chase forgave the man's debt after he was asked to testify before the subcommittee.

Whether Congress eventually will pass credit-card legislation is uncertain, but consumer advocates are hopeful. If advocates could have their way, what one industry practice would they eliminate?

Curtis Arnold, founder of, would kill off "universal default." This is where a card issuer jacks up the interest rate on a card if a customer is late on a payment to another creditor. Citigroup Inc., which appeared before the subcommittee, said early this month that it would stop this practice.

Nancy Castleman, co-owner of, would revamp the industry's math. If a customer charges, say, $300 on a card and repays all but a dollar of it, card issuers charge interest on the full $300, Castleman says. Companies should be able to charge interest only on the unpaid balance, she says.

Ruth Susswein, a deputy director of Consumer Action, would hold card issuers to contract terms until the customer's card expires. Right now, card issuers are free to change rates and terms, Susswein says. "It's the only contract we will ever sign like that where we are for the most part powerless," she says.

Alys Cohen, staff attorney with the National Consumer Law Center, wants to prevent card issuers from "making loans that people can't afford." Instead of issuing cards based on a credit score, she says, card issuers should take into account a consumer's ratio of debt to income, similar to underwriting for other loans.

Of course, that could reduce easy access to credit for some.

But Norma Garcia, staff attorney with Consumers Union, says not everyone should have credit. On Garcia's wish list, card companies would no longer be able to aggressively market unsolicited cards to college students with little means to repay debts.

Card companies argue that they are taking a risk because credit cards are essentially unsecured loans. And they say most customers are responsible users who avoid fees and high rates.

Until card companies change practices - whether willingly or by congressional action - unhappy consumers are left to fend off fees and rising rates on their own.

As a consumer, how much power do you have?

Not much if you're delinquent on payments or chronically late, advocates say. You have some leverage, though, if you're a "good" customer, meaning you pay bills on time and, preferably, carry a balance.

In either case, don't silently accept high fees and high rates, advocates say. Call the card issuer and politely complain.

With little federal regulation of the industry, your best friend is industry competition, says CardRatings' Arnold.

If the card company's representative initially balks at, say, waiving a late fee, ask to speak to the manager, Arnold says. If that doesn't work, tell the company you want to cancel the card. At that point, you'll likely be transferred to the retention department, whose job is to keep you as a customer, Arnold says.

It's expensive to replace customers, so you may be able to negotiate a waiver of fees or a temporary reduction in the interest rate. If not, prepare to shop around for a new card, Arnold says.

But don't stop there. Now that Congress is listening, it can help to share your gripes with your legislators, Susswein says.

Do you have ideas on how to fix the credit-card industry or a card story to share? Write

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