Vague law threatens to solidify abusive credit card rate hikes

Creative Commons photo by The Truth About via Flickr

Creative Commons photo by The Truth About via Flickr

WASHINGTON — Credit card holders hit with arbitrary interest rate hikes in recent months might be stuck with the extra burden, despite the high-profile congressional effort this year to protect consumers from such increases.

With most of Congress’ sweeping credit card reforms not taking effect until next year, some card companies have reportedly taken to raising rates — while the law still allows it — on even reliable borrowers. Rather than attacking those discretionary hikes head on, however, Congress sidestepped them, punting any protections for those card holders to the fancy of officials at the Federal Reserve, who are currently drafting rules for implementing the reforms. That punt could create a loophole for card companies to exploit — a possibility that’s raised concerns about the ultimate effectiveness of the law to protect the most responsible card holders from new rate increases, and left consumer groups anxiously awaiting the Fed’s interpretation of the statute.

It wasn’t supposed to happen this way. Enacted in May, the new law is designed to protect consumers from the most abusive practices of the credit card industry — practices like hidden fees, short payment windows and interest rate hikes applied to existing balances. Beginning next August, it will also require card companies to review rate hikes periodically to determine whether changes in market conditions, customers’ credit risks, “or other factors” should result in reducing the rates previously increased. The provision is designed to remedy the near-universal trend of companies raising rates when customers are deemed to be risky bets, but almost never reducing them again if conditions change and the risks are eliminated.

Yet the provision’s “other factors” clause is so vague — purposefully so, some experts say — that consumer advocates have been left wondering how successfully it will protect card holders from arbitrary rate hikes.

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Mike Lillis

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