PARAMUS– As an increasing number of Americans fall victim to out-of-control credit card costs and as the credit card market begins to resemble the subprime mortgage market from when the foreclosure crisis began, U.S. Senator Robert Menendez (D-NJ) announced a sweeping plan to put an end to deceptive practices and irresponsible marketing last week.
The Credit Card Reform Act goes beyond any other current legislative proposal in curtailing skyrocketing interest rates, curbing sudden changes in credit card agreements, and restricting issuance of cards to consumers who don’t have the ability to make payments, along with other deceptive practices undertaken by some credit card companies.
The Credit Card Reform Act has the backing of 11 major consumer groups and unions, which have signed a letter of support to Menendez. Joining Menendez to announce the legislation on March 26 were NJPRIG Executive Director Allison Cairo, New Jersey Citizen Action Executive Director Phyllis Salowe Kaye, Consumer Union State Campaigns Director Rob Schneider, and Lucila Gomez Jimenez of National Council of La Raza (NCLR). Also joining the announcement were East Rutherford, New Jersey resident Tarek Salib, and Newark resident Lloyd Hassell, whose personal stories of a skyrocketing interest rate represent the hundreds of calls and letters that have flooded the Senator’s office from consumers struggling because of deceptive credit card practices.
Menendez said, “Too many families that might have had an oversight are seriously affected by credit card contracts that would suddenly sink them deeply into debt. Credit card companies use a layer of fine print to conceal all kinds of trap doors: take one false step, then your credit rating plummets and your interest rate shoots through the roof.
“This bill would bring peace of mind to consumers because they will be able to understand their responsibilities and predict the outcome if they fail to make a payment. This is the strongest, most comprehensive effort yet to end some of the most egregious practices of credit card issuers, while making sure that Americans young and old don’t so easily fall into financial traps. The big principle behind this bill is: companies should be clear about the rules up front, and shouldn’t change them in the middle of the game.
“We cannot allow predatory and deceptive practices in the credit card industry to continue as we did in the subprime mortgage market. We cannot allow the credit card problem to become the next foreclosure crisis.”
The Credit Card Reform Act would end some most egregious credit card practices that continue to lure Americans young and old into financial traps, such as excessive fees, retroactive rate increases, universal default, unilateral changes to credit card agreements, and deceptive credit card offers.
Creates Opt-In for Underage Consumers
Requires credit card issuers to receive “opt in” approval from young consumers under age 21 before they mail credit card solicitations to these consumers.
Prohibits Unilateral Changes in Credit Card Agreements
Prohibits credit card issuers from changing the terms of the credit card agreement.
Prohibits Universal Default
Prohibits credit card issuers from increasing a cardholder’s interest rate based on activity unrelated to their credit card agreement – for example, a late payment on another bill or a change in credit score.
Ban on Retroactive Rate Increases
Prohibits interest rate increases on existing balances.
Limits Penalty Interest Rate Increases
Limits penalty rate increases to a seven percentage point increase.
Limits Late Payment Fees
Requires issuers to state clearly on a billing statement the postmarked date and the amount of the late payment. Does not allow late fees or other adverse consequences for payments made by the postmarked date.
Makes Fees Reasonably Related to Cost
Requires that any penalty fee, such as a late payment fee or over-the-limit fee not exceed an amount that is reasonably related to the cost that the issuer incurs as a result of the consumer’s action.
Requires Verification of Ability to Pay
Credit card issuers may not offer credit or raise credit limits to consumers unless they determine that the consumer will be able to make the scheduled payments under the terms of the agreement based on their current income, obligations, and employment status. The Federal Reserve would provide the appropriate formula for determining ability to pay.
Ban on Deceptive Credit Card Offers
Stops bait and switch tactics by requiring “pre-approved” offers to be a true, firm offer containing the material terms such as interest rate, fees, and amount of credit; requires such offers to be honored by the issuer.
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