Senators Hear From Consumers And Credit Card Companies Concerning Interest Rate Increases And Fees – Legislation Possible

Senators Hear From Consumers And Credit Card Companies Concerning Interest Rate Increases And Fees – Legislation Possible

Carl Levin

(Best Syndication) A Permanent Senate Subcommittee on Investigations looked into the practices of credit card companies Wednesday. The panel interviewed an Ohio man whose $3,200 credit card debt ballooned into $10,700 with interest and penalties. The heads of various credit card companies also gave testimony.

The subcommittee of Homeland Security and Governmental Affairs heard from representatives of Bank of America, Citigroup Inc. and Chase Bank USA. The Ohio man, Wesley Wannemacher, went over his $3,000 limit only three times but was hit with over-limit fees 47 times.

Even though Wannemacher paid between $140 and $210 per month, his total debt more than tripled over a six year period. Lawmakers worry that these practices and other exorbitant fines and interest penalties may be widespread in the industry.

Wannemacher’s problems began in 2001 but escalated until 2006 when he sought help from a credit councilor. All of his creditors were willing to work with him to solve his debt problem, except for Chase. Last Thursday Wannemacher was asked to testify before the senate committee, and on Monday a representative from Chase contacted him saying that they had decided to forgive the remaining balance.

Senator Carl Levin (Dem-Mich) said “Our investigation has shown that sky-high interest charges and fees are not uncommon in the credit card industry.” He said that similar penalty and fee structures exist at BofA and Citigroup.

Levin used an example to illustrate how companies could be charging more in interest than they should. For instance, let’s say a person pays his credit card off ever month but then racks up $5,020 of debt in December and pays $5,000 by the January 15 due date.

Levin asked everyone how much they thought the borrower would owe. “If you thought the bill would be the $20 past due plus interest on the $20, you would be wrong. In fact, under industry practice today, the bill would likely be twice as much. That’s because the consumer would have to pay interest, not just on the $20 that wasn’t paid on time, but also on the $5,000 that was paid on time.” According to Levin the credit card holder would have to pay interest on “$5,020 from the first day of the billing month, January 1, until the day the bill was paid on January 15, compounded daily.”

Levin said credit card companies bring in huge profits. Part of the reason for these huge profits is the penalty interest rates that can exceed 30 percent. “But the data shows that, typically, 95 to 97% of U.S. cardholders pay their bills. And it is clear that credit card issuers charge interest and fees in ways that produce enormous profit.” The credit card companies are making so much money that they sent out 8 billion pieces of mail last year soliciting people to sign up, according to the Senator.

The practice of forcing consumers to pay for the balances with the lowest interest rates first was also troubling. The Subcommittee will continue to look into abuses by credit card issuers and hopes they change their policies before they take legislative action. Leven mentioned a remark he heard from a Michigan businessman “I don’t blame the credit card issuers for putting me into debt, but I do blame them for keeping me there.”

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By Best Syndication Staff Writer

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