Levin Committee Opens Hearings On Credit Card Interest Hikes

Powerful Senator Carl Levin (D-MI) opened Senate hearings today that put credit lending giants on notice that sudden rate hikes would soon come under greater scrutiny.

Levin chairs the Subcommittee on Investigations under the Homeland Committee and criticized the industry from the credit bureaus to the credit lenders for a lack of transparency in the process. Citing multiple examples in which the interest rate on a consumer's credit card could suddenly and retroactively increase, Levin announced that the Subcommittee would review the process.

Using the occasion to describe legislation he has been co-sponsoring with Senator McCaskill (D-MO) almost all year, Senator Levin said, "When a credit card issuer promises to provide a cardholder with a specific interest rate if they meet their credit card obligations, and the cardholder holds up their end of the bargain, the credit card issuer should have to do the same."

Amen.

The Michigan senator referred to the mysterious FICO credit scores many lenders use to determine interest rates and said that he would advocate that the underlying data used to generate those scores be kept so that a consumer could challenge an increase. Consumers currently are advised of an increase, but Levin said that many are unaware of the increase's trigger, including spending within an individual account's limit, but at a higher percentage of that limit.

Senator Levin chastised lenders and called the practice "offensive".

We think this is the first step in more transparency to credit reporting laws, a long overdue overhaul of how lenders operate now. We certainly don't expect lenders to issue credit to bad credit risks and we respect a lender's light to charge a premium interest rate to protects itself when granting credit to consumers with poor credit.

But full disclosure in plain English with no retroactive increases makes sense to us too. And if someone is issued a credit limit by a lender, their interest rate on another account shoudn't rise if the consumer spends that money. Credit is a privilege, not a right, but consumers ultimately pay for that privilege through interest, card fees and higher prices when merchants have to keep prices higher rather than absorb the fees credit card companies charge them for each transaction.

Cheers to Carl Levin. Read up on S. 1395, (pdf file) and call your own Senator about signing on to the bill. This is a good one.

Labels: credit, Levin, McCaskill

posted by George Bounacos at 4:27 PM |