Overview
Credit card companies use a variety of unfair practices to trap
consumers in a cycle of over-priced debt. The companies are allowed by
regulators to raise your rates for any reason, including no reason.
They are allowed to operate nationally out of states, like Delaware and
South Dakota, with weak consumer laws and no limits on interest rates
or fees.
Consumers
should either pay balances in full, or make the largest payments they
can afford, and always pay early in the cycle to avoid late fees. But
for years the firms lowered minimum monthly payments and encouraged the
use of cards for everyday expenses—through rewards programs—so that
many consumers accumulated massive amounts of credit card debt. Until
recently, a consumer who owed credit card debt of $5,000 at a common
16 percent APR, who only made the typical 2 percent minimum payment, would take 26
years to pay off the card, even if it was cut up and never used again.
Even the federal regulators finally took notice, and recently ordered
banks to increase minimum payments by a modest amount.
In
2005, Congress passed punitive legislation long sought by the powerful
credit card industry to make it harder and more expensive to file for
bankruptcy, and to force consumers to pay off more credit card debt if
they do so.
The
new law includes a weak yet-to-be-implemented disclosure of
how many years it will take to pay off the card if you only make the
minimum requested payment. S 393, the Akaka Credit Card Minimum
Payment Warning Act, would replace that industry-approved disclosure
with a specific, customized warning.
Although
the ability of states to regulate the fees and interest rates (APRs) of
credit card companies has been severely restricted by federal
preemption doctrine, which has allowed the weak laws of Delaware and
South Dakota to override the state laws where credit card customers
live, states are taking action in one area. In response to the growing
problem of aggressive credit card marketing to young people on college
campuses, some states, such as California, have restricted campus
credit card marketing. Several colleges and universities have taken
similar actions at the local level.
