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During Difficult Times, Schumer Introduces "Credit Card Holders' Bill Of Rights" To Prevent Families Across New York State From Bearing Yet Another Unnecessary Financial Burden

The 2.8 Million Families in Upstate New York with at Least One Credit Card are at the Mercy of Greedy Credit Card Companies

Schumer: Credit Card Companies Have Had Plenty of Time to Do the Right T

U.S. Senator Charles E. Schumer revealed today that millions of Upstate New York families are at the mercy of credit card companies that charge unfair fees, use deceptive practices, and raise rates arbitrarily. Approximately 2.8 million Upstate New York households have at least one credit card. Approximately 1.6 million of those households do not pay off their credit cards each month and carry an average balance of $17,000. These families are often charged interest rates and fees each month that are much higher than the mandatory minimum payment, making it nearly impossible for families to make a dent in paying off their credit card debt. To help protect consumers from unfair and deceptive practices used by credit card companies, Senator Schumer today unveiled his recently introduced “Credit Card Holders’ Bill of Rights,” which was introduced in the House by Congresswoman Carolyn Maloney (D-NY).
“Bottom line, families are getting scammed by their credit card companies,” said Schumer. “Upstate New Yorkers are getting ripped off by arbitrary rate hikes and deceptive practices, and it's time to stop them dead in their tracks. This will protect families from sky high interest rates and fees and help cardholders get a handle on their individual debt.”
“The Credit Cardholders’ Bill of Rights levels the playing field between cardholders and card issuers. It’s the common-sense solution that protects consumers from unfair rate hikes, double-cycle billing, and due-date gimmicks,” Rep. Maloney said. “These would be the right things to do even if the economy were NOT in the straights it’s in-- but in especially times like these, it’s essential that Congress act to stop card issuers from practicing these tricks and traps that keep cardholders under the gun.”
The Schumer-Maloney bill would protect credit card holders from deceptive and unfair practices that have become all too common as credit card use has proliferated in the last fifteen years. According to the Federal Reserve Board, 80 percent of all households now have at least one credit card. Of those households, only 42 percent pay their credit card bill in full each month. The rest carry an average debt of approximately $17,000. From 1999 to 2007, the amount of revolving debt (money owed to a creditor who sets a monthly payment based on the balance owed, primarily made up of credit card debt) increased by 50 percent. With more and more families struggling to make ends meet, credit card use and credit card debt is only expected to increase.
Here is how the numbers break down across the state:
  • In the Capital Region there are 353,000 households with at least one credit card. They carry a total of $3.5 billion in credit card debt.
  • In Central New York there are 349,000 households with at least one credit card. They carry a total of $3.4 billion in credit card debt.
  • In the Hudson Valleythere are 710,000 households with at least one credit card. They carry a total of $7 billion in credit card debt.
  • In the North Country there are 274,000 households with at least one credit card. They carry a total of $2.2 billion in credit card debt.
  • In the Rochester-Finger Lakes there are 484,000 households with at least one credit card. They carry a total of $3.8 billion in credit card debt.
  • In the Southern Tier there are 300,000 households with at least one credit card. They carry a total of $2.4 billion in credit card debt.
  • In Western New York there are 675,000 households with at least one credit card. They carry a total of $5.3 billion in credit card debt.
At the same time that credit card use has multiplied, so have industry abuses. Credit card companies are currently allowed to arbitrarily raise interest rates as long as they notify the consumer. For example, a cardholder who had always paid his bill on time and never exceeded his credit limit responded to an offer for a Citi MasterCard with a fixed rate of 9.9%. Within months, Citi notified the cardholder that his fixed rate of 9.9% would be raised to 16.9%. In addition, the new interest rate would be applied to the entire balance of the card, not just any new charges on the card. No reason or explanation was given. The cardholder could either accept the new terms of the deal, or pay off the card and close the account. Current law does not protect this cardholder, or any other consumer in this same situation from retroactive increases to the contractually agreed upon interest rate.
Credit card issuers have also been known to increase interest rates when consumers miss payments on other cards, a practice known as “universal default”. For instance, one New York credit card holder disputed a charge with Citibank that he had not incurred. Citibank refused to cancel the charge, and turned it over to collections. After his dispute with Citibank, Bank of America raised his interest rate and lowered his credit limit several times despite the fact that he was making on-time payments to his Bank of America credit card.
“Credit card companies are breaking their side of the deal by increasing interest rates and applying those rates retroactively,” Schumer said. “Consumers enter in to an agreement and are expected to hold up their end of the bargain, but the same rule does not apply to the credit card company. This double standard is simply unfair.”
Credit card companies have also begun charging excessive fees and engaging in deceptive practices to maximize the fees that can be charged. According to the Government Accountability Office, 35 percent of credit card accounts from the six largest issuers studied had at least one late fee in 2005. In the last ten years, late fees have steadily risen, and often easily exceed, the minimum monthly payment for cardholders. According to the GAO, late fees increased 160 percent over a 10 year period - climbing from an average of $12.83 in 1995 to $33.64 in 2005. Furthermore, many credit card companies now assess tiered fees based on credit card balances, meaning consumers with higher balances pay more in late fees than those with smaller balances, making it even harder to pay down debt.
In the last ten years, it has become common practice for credit card companies to accept over-the-limit charges and assess a fee for each purchase over the limit, rather than rejecting the card at the point of sale. Thirteen percent of all credit card accounts were charged over-the-limit fees in 2005. This practice allows issuers to charge unlimited fees for a single limit violation and manipulate charges to maximize the fees. For example, a credit card holder with a $500 limit has a $450 balance. In one day, this consumer purchases a $5 latte, a $2 soda and a $70 Amtrak ticket. The credit card issuer applies the most expensive purchase first, pushing the consumer over the $500 limit, rather than applying the two lesser charges first, both of which keep the consumer under the limit. The credit card issuer then charges a fee for each of the day’s three purchases, instead of only collecting on the third or rejecting the third purchase at the point of sale.
All of the abusive and deceptive practices detailed above, and many others, have combined to make it nearly impossible for consumers to pay off debt. There is no doubt that these practices are profitable for credit card companies. Penalty fees and interest charges made up more than 75 percent of credit card issuers’ revenue from 2002 to 2003. Credit card companies made $65.4 billion in interest and $7.7 billion in fees in 2003.
Despite the economic downturn, marketing by credit card companies has shown no signs of slowing down. In fact, solicitations mailed to sub-prime consumers increased 41 percent from 2006 to 2007 as credit card companies saw an opportunity to make quick money in fees and interest by offering a lifeline to the neediest borrowers. New York households received an average of six credit card solicitations each month last year.
Schumer noted that in today’s economy, when more and more Upstate New Yorkers are turning to credit cards to stay afloat, a Credit Card Holders’ Bill of Rights is imperative.  Senator Schumer today unveiled the “Credit Card Holders’ Bill of Rights,” which he has introduced in the Senate and which was introduced in the House by Congresswoman Carolyn Maloney (D-NY), to protect consumers from unfair and deceptive practices used by the credit card companies. The Federal Reserve recently issued a new set of rules for credit card companies, but the new regulations won’t go into effect until 2010. Schumer said because the credit card companies have not stepped up to the plate to implement the rules early, Congress must act. The Schumer-Maloney bill will immediately help eliminate abuses and deception and ensure that control of family finances is no longer in the hands of unscrupulous credit card companies. 
The Credit Card Holders’ Bill of Rights will:
  1. End Unfair, Arbitrary Interest Rate Increases.
·        Prevents card companies from unfairly increasing interest rates on existing card balances – retroactive increases are permitted only if a cardholder is more than 30 days late, if a pre-agreed promotional rate expires, or if the rate adjusts as part of a variable rate. This provision will eliminate universal default.
·        Requires card companies to give 45 days notice of all interest rate increases so consumers can pay off their balances and shop for a better deal.
  1. Let Consumers Set Hard Credit Limits, Stop Excessive “Over-the-Limit” Fees.
·        Requires companies to let consumers set their own fixed credit limit.
·        Prevents companies from charging “over-the-limit” fees when a cardholder has set a limit, or when a preauthorized credit “hold” pushes a consumer over their limit.
·        Limits (to 3) the number of over-the-limit fees companies can charge for the same transaction – some issuers now charge virtually unlimited fees for a single limit violation.
  1. End Unfair Penalties for Cardholders Who Pay on Time.
·        Ends unfair “double cycle” billing – card companies couldn’t charge interest on debt consumers have already paid on time.
·        If a cardholder pays on time and in full, the bill prevents card companies from piling additional fees on balances consisting solely of left-over interest.
  1. Require Fair Allocation of Consumer Payments.
·        Many companies credit payments to a cardholder’s lowest interest rate balances first, making it impossible for the consumer to pay off high-rate debt. The bill bans this practice, generally requiring payments to be allocated proportionally to balances that have different rates.
  1. Protect Cardholders from Due Date Gimmicks.
·        Among other measures, requires card companies to mail billing statements 25 calendar days before the due date (up from the current 14 days), and to credit as “on time” payments made before 5 p.m. local time on the due date.
  1. Prevent Companies from Using Misleading Terms and Damaging Consumers’ Credit Ratings.
·      Establishes standard definitions of terms like “fixed rate” and “prime rate” so companies can’t mislead or deceive consumers in marketing and advertising.
·      Gives consumers who are pre-approved for a card the right to reject that card prior to activation without negatively affecting their credit scores.
  1. Protect Vulnerable Consumers From High-Fee Subprime Credit Cards.
·       Prohibits issuers of subprime cards (where total yearly fixed fees exceed 25 percent of the credit limit) from charging those fees to the card itself. These cards are generally targeted to low-income consumers with weak credit histories.
  1. Bar Issuing Credit Cards to Vulnerable Minors
·      Prohibits card companies from knowingly issuing cards to individuals under 18 who are not emancipated minors.
  1. Ensure Swift Implementation of Provisions
·      Legislation would be implemented 3 months following the President signing the legislation into law.


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