Creditors and predators

December 06, 2007

Janet Hard of Freeland, Mich., couldn't understand why she and her husband were paying more than the minimum balance on their Discover credit card - adding only an $8 Internet fee each month - but the amount they owed did not seem to decrease at all. As Mrs. Hard testified before a congressional subcommittee this week, it turned out that the interest rate they were being charged was a whopping 24.24 percent, based on an arbitrary determination Discover card services had made about the ability of the couple - a stay-at-home mother of two and her steamfitter husband - to pay.

Mrs. Hard's and similar horror stories are part of an ongoing, and long-overdue, look by the Senate Permanent Subcommittee on Investigations into questionable practices by credit card companies. At the least, credit card companies need to re-examine those practices, make better judgments about individual customers and be more open and transparent - or rightly risk legislative corrections.

The hearing exposed consumer complaints of insufficient or indecipherable notices of higher interest rates or other repricing changes on accounts; of interest rate increases applied to existing as well as new balances; and of unhelpful, even hostile, customer service workers. In a heartbreaking moment, Mrs. Hard described paying Discover $5,618 over a two-year period - of which $3,478.39 was interest.

Some card industry representatives tried to justify their "risk-based pricing" as a necessary tool of adjustment when customers' circumstances change. But standards of assessing customer risk are often too rigid.

There are inherent pitfalls in taking on revolving, unsecured credit card debt, but the process doesn't need to be as arbitrary and obscure as some companies make it. And there should be no excuses for jacking up interest rates or imposing other penalties when customers pay on time, pay at least the minimum balance and otherwise abide by the agreed-upon terms when they were approved for the card.

The Senate subcommittee's spotlight on credit card companies has helped push some companies to make voluntary changes that have benefited customers, such as greater notice of pricing changes, more flexibility to reject the changes and other customer-friendly assistance in managing accounts. If card companies don't want Congress to saddle them with new rules, they need to adopt more consumer-oriented policies on their own.

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