By Bill Raack, KWMU / AP
St. Louis, MO. – Missouri Senator Claire McCaskill has introduced legislation that's aimed at cracking down on what she calls "abusive credit card practices."
The legislation, proposed Tuesday, would outlaw some credit-card billing and interest-rate practices that critics say confuse consumers and can push them deeper into debt.
McCaskill joined Sen. Carl Levin (D-Mich.) in writing the bill. Levin chairs the Homeland Security and Governmental Affairs Committee's investigative panel.
The measure would ban interest from being charged on any portion of a credit card debt that the consumer paid on time during a grace period.
It also would limit so-called penalty increases in interest rates, which are imposed when a payment is made after the due date, to a maximum 7% points above the current rate.
The legislation was heralded by consumer groups. Many lawmakers, however, have expressed reluctance to impose mandates on how banks do business.
Sen. Christopher Dodd (D-Conn.), who heads the Senate Banking Committee, which has jurisdiction on the issue, said he will examine the proposal "in a careful and thoughtful fashion."
The banking industry opposes such legislation. "We worry about micro-managing the pricing of financial products in a way that may ultimately hurt consumers," said Ken Clayton, managing director of credit card policy at the American Bankers Association.
Heightened scrutiny of credit card practices has come from the new Democratic-controlled Congress, which has put a number of consumer issues on its legislative agenda. With Americans weighed down by some $850 billion in consumer debt, the practices of the robustly profitable credit card industry are a compelling subject for scrutiny.
Amid the congressional focus, several major banks recently began to eliminate or temper some of the practices.
An investigation by Levin's subcommittee found abusive and confusing practices, and repeated penalties imposed by credit card issuers that are said to amplify the financial woes of many Americans while bringing in tens of millions of dollars for the companies.
"Credit card issuers too often sock consumers with sky-high interest rates and excessive fees, making it harder and harder for families to climb out of debt," Levin said in a statement. "The goal of this legislation is to put an end to unfair and abusive credit card practices that outrage so many American families."
The bill also would:
- Require increased interest rates to apply only to future debt on a credit card account, not to debt incurred prior to the increase.
- Prohibit charging of interest on credit card account fees, such as late payment fees and fees for going over the credit limit.
- Prohibit charging of repeated over-limit fees for a single instance of exceeding a credit limit, and allow the fees to be charged only when the consumer's action, rather than a penalty, causes the limit to be exceeded.
- Ban so-called "pay-to-pay" fees, often charged when consumers make payments on their accounts by telephone. Such fees would be prohibited for any form of payment, including mail or electronic transfer.
- Require payments to be applied first to the portion of the account balance with the highest interest rate.
- Ban the practice known as "universal default," in which credit card issuers raise interest rates for customers because they're late on payments to other creditors separate from the account in question.
"It's one of those things that I think cuts across party lines and it's one of those things, we do a lot of things in Washington that don't impact a lot of Missourians' lives every single day," McCaskill said. "This is something, if we can get this done, if we can fight the lobbyists on this and it won't be easy; it will help average Missourians probably as much as anything else I could do out here."