Americans collectively owe almost $850 billion in credit card debt. This is what is driving the thriving credit card industry in the US. An average American family owns about five credit cards. The credit card business is dominated by five companies who between them control 80% of the US market. They are Discover, JP Morgan Chase &Co., Capital One, Citigroup and Bank of America. This business is extremely profitable for these companies not just because of the size of the market but also because of the practices followed by them.
It is not uncommon for even those customers who have paid their credit card bills on time to be hit by arbitrary increases in interest rates charged. The reason usually given, if at all one is given, is that their credit rating has fallen simply because of opening another credit card account. The fine print in the contract which you sign when applying for a credit card usually contains clauses for charging penalty interest rates and various kinds of fees. The language used is complicated and difficult to understand even if you take the trouble of reading the entire contract. With complaints about unfair card practices on the rise a Senate committee was asked to look into the matter.
Sen. Carl Levin, Chairman of the Senate Homeland Security and Governmental Affairs Permanent Sub committee on investigations had this to say, 'The bottomline for me is this: when a Credit card issuer promises to provide a card holder with a specific interest rate if they meet their credit card obligations, and the card holder holds up their end of the bargain, the credit card issuers should have to do the same.' The committee has already proposed legislation which would prevent card companies from raising interest rates charged from persons who have paid their debt on time. The maximum rate increase permitted is also sought to be fixed.
The common forms of extra charges a card holder may have to pay include over the credit-limit fees from those customers who have been in an over-limit position for a particular period of time, usually 90 days. Another practice followed is called 'universal default.' This simply means that when a person defaults on even one of the cards that he owns then the interest rates go up on all the cards even though he may be making timely payments on them. The committee also noticed a practice that customers who had charged close to the limit on their cards for a length of time, but were making at least the minimum payment regularly, were also likely to be penalized by a hike in interest rates. The committee found that the card companies were justifying their actions by claiming that the credit score of the customer had fallen.
Although such practices cannot be called illegal, they are certainly unethical and it is likely that with the Democrats in control of Congress they may place this important consumer issue on the legislative agenda.Credit card companies claim that unless they continuously monitor every individual and take timely action to compel him to reduce his debt they may find themselves in a situation where it may become difficult for them to recover their loans. But the Senate committee does not seem to buy this argument. The message for now seems to be that if such practices are not ended voluntarily then legislation may become necessary to correct the situation.