Saturday, November 7, 2009

Credit Card Company Usury

The behavior of credit card companies in recent months has been unbelievable.

Hysterical that new federal rules are to take effect dealing with their operations, the credit card companies have, among other things, been raising interest rates to levels otherwise only charged by Mafia loan sharks—to 30 and 40 percent.

A definition of usury: “An interest rate that greatly exceeds the bounds of reason or moderation, one that is exorbitant.” Like 30 and 40 percent.

The new rules—provisions of the Credit Card Accountability, Responsibility and Disclosure Act of 2009—include:

· Not allowing an interest rate increase to be applied to an existing balance unless a cardholder is delinquent.
· Notifying cardholders of an interest rate jump 45 days in advance.
· Stopping young people with no income from getting hooked on credit cards; under-21-year-olds would need a co-signer or a job.

Some of the rules are to take effect in February, some in August.

But importantly, there’s no cap in the new rules on interest rates—a gargantuan hole considering the recent behavior, indeed the history of credit card companies.

Did you ever wonder why you mail your payments to credit card companies in states like South Dakota, Utah Delaware? It’s because these states have no or very loose usury laws.

Vermont’s independent Senator Bernie Sanders tried to get a cap set on credit card interest rates of 15 percent in the new rules. With rates of 30 and 40 percent, the credit card companies, he said, weren’t “making credit available. They’re engaging in loan-sharking.”

His effort failed—only 33 senators supported it. The banking lobby is plenty powerful in Washington.

Because of the recent credit card company machinations, there’s a second bill now before Congress, the Expedited Card Reform for Consumers Act of 2009—to make them comply with the new rules starting next month.

Incidentally, folks with solid finances who pay off their credit card bills every month are also being victimized-- with big hikes in fees.

New York’s U.S. Senator Charles Schumer says the “sneaky fees and tricks” of the credit card companies “are ripping off consumers across the country and it’s time to stop them dead in their tracks.”

He’s right, but just expediting the new rules won’t do it. Necessary are tougher rules—including a cap on credit card interest to end credit card company usury.

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