This editorial will appear in Friday’s print edition.
Credit card companies are begging for a backlash as they race to squeeze as much money out of American consumers as they can before tighter regulations take effect in February.
Interest rates are up an average of 20 percent, even for the best customers. Card issuers have altered account terms and tacked on new fees – anything, it seems, to make a buck.
Their scheming reveals just how determined the industry is to perpetuate profiteering practices, no matter how unfair or deceptive. It also challenges any assurances that such tactics will come to a sudden halt once the new rules kick in.
Consumer advocates warned that this would happen. By delaying reforms nine months, Congress signaled that credit card companies better make the best of the good times while they can.
What’s happened since the May passage of the Credit Card Accountability, Responsibility and Disclosure Act calls into question whether the party will actually end in February, or merely carry on to a new playlist.
A coalition of consumer groups told the Federal Reserve last week that card issuers are plotting end-runs around the new law. They specifically cited a move by Citi to refund a portion customers’ finance charges if they pay on time.
The group said the practice effectively allows the company to retroactively raise interest rates if a customer pays so much as a day late, which would violate the new law’s prohibition against rate hikes on existing balances for any account less than 60 days late.
Such devious creativity has lent urgency to calls to put curbs in place now rather than waiting until February. Unfortunately, such efforts have stalled in the U.S. Senate. In the long term, the credit card companies’ attempts to outsmart the rules is helping build the case for a Consumer Financial Protection Agency that would regulate lenders of many stripes.
But the best – and most enduring – check is consumers themselves.
A report released this week by one the leading credit-reporting agencies showed that credit card delinquencies are falling (which undermines any argument that the industry needs to boost profits to make up for rising default rates).
That decline, as well as a decrease in the average card balance and a slip in the savings rate, indicates people are making greater efforts to pay down their cards. Experts say consumers’ decisions to forgo additional credit card debt is in part a response to the industry’s attempt to milk them for all they’re worth.
Regulation helps set basic ground rules and protect those Americans locked in a downward spiral of debt. But it will never be as effective at yanking credit card companies’ chains like customers who demand better and vote with their feet when they don’t get it.