When interest rates hit 32%, there ought to be a law - Yahoo! News

When interest rates hit 32%, there ought to be a law

2 hours, 32 minutes ago

Wesley Wannemacher of Lima, Ohio, charged $3,200 on a new Chase credit card in 2001 to help pay for his wedding. That put him $200 over his credit limit - and into a riptide of penalty fees and interest rates.

Wannemacher told a Senate panel Wednesday that he had paid Chase $6,300 over six years, nearly double his initial debt. Despite that, he still had a balance of $4,400.

Like Wannemacher, millions of consumers have been caught in spiraling debt as credit card issuers have flooded them with solicitations, then squeezed them with record-high fees and usurious interest rates for the slightest infractions. Such rates would be illegal in several states, but not in the states that the issuers call home.

For years, the Republican-controlled Congress ignored consumer outcries as the industry flooded Washington with campaign cash to protect its outrageous practices. Now, with the Democrats in control and probing those practices, the industry has made a few grudging changes. But some of the most egregious policies remain:

•Many card issuers hit consumers with penalty rates of up to 32.24% for a variety of infractions, most commonly late payments. Adding to the unfairness, the sky-high rates can apply to customers' entire balance, not just new charges.

•Some issuers impose these onerous rates on cardholders who pay them on time, but are late paying another creditor. That's akin to a mortgage holder raising your rate because you paid your phone bill late. Citi announced last week that it was dropping this much-criticized practice.

•Many banks impose fees of up to $39 - nearly three times what they were in 1995 - for paying even one minute late or going over a credit limit. In one of the most abusive practices, the fee is imposed repeatedly every month the customer remains over his limit. That's what happened to Wannemacher on his Chase account. Chase said it would end that practice.

These egregious practices, sky-high rates and the dense language that obscures them are plainly designed to suck consumers dry. Issuers surely have a right to rein in those who don't pay their bills, but only in a way that enables customers to get out of debt - not buries them in it. Lenders who are so incompetent that they extend credit to people who can't handle it deserve some of the blame and some of the bill.

With all the traps awaiting consumers, issuers should have to disclose every rule and penalty in clear English. Instead, a federal study last fall confirmed what just about every customer knows: The fine-print disclosures are too complicated for many consumers to understand.

Moves in recent days by Chase and Citi to end some punitive practices are helpful, but consumers can't rely on the good graces of issuers feeling heat from Capitol Hill.

Wannemacher's six-year struggle to pay off his ballooning debt with Chase shows why. Only after he agreed to testify before the Senate did Chase suddenly call and forgive his $4,400 balance.

Unless Congress is planning to intervene individually in the case of every consumer caught in a web of credit card debt, it should set some markers to ensure that credit card issuers behave better than loan sharks.

When interest rates hit 32%, there ought to be a law - Yahoo! News