Tuesday, April 29, 2008

Fighting Abuses by Credit Card Companies: Know Your Rights

As the economy tightens, many people are beginning to take notice of tactics allegedly being used by the credit card companies to limit the rights of cardholders.

For example, on Friday (April 25), the U.S. Court of Appeals in New York reinstated a class action lawsuit against several large credit card companies. According to Reuters:

The credit cardholders "alleged that the banks … illegally colluded to force the cardholders to accept mandatory arbitration clauses in their cardholder agreements," according to the ruling by the 2nd U.S. Circuit Court of Appeals.

The cardholders argued the banks had violated antitrust laws "by refusing to issue cards to individuals who did not agree to arbitration," according to the decision.

The cardholders want the court to stop the banks from compelling arbitration, prevent them from "continuing their alleged collusion" and invalidate the existing mandatory arbitration clauses.

This ruling is not a finding of wrongdoing by the companies, however. It is only a decision that the lawsuit against them may proceed.

In the meantime, a number of state and federal lawmakers are exploring legislation to remedy what they see as abuses by the card companies. For example, Michigan Senator Carl Levin has stated:

[O]ver a dozen bills are now pending in the House and Senate to correct credit card abuses [including] bill [to] stop credit card companies from piling on excessive fees; charging interest on debt that is paid on time; charging so-called "trailing interest" that is added between the time a bill is sent out and the date the bill is paid; increasing interest rates on cardholders who pay their credit card bills on time (employing so-called "universal default"); and applying higher rates retroactively to pre-existing credit card debt…there is a shared focus on provisions to halt unfair practices that attempt to squeeze more money out of even the most responsible cardholders.

Of course, not everyone agrees that such measures will improve the situation. Eli Lehrer, of the Competitive Enterprise Institute, writes:

[T]he new restrictions that self-styled “consumer advocates” and their trial lawyer allies envision will result in immediate, sizeable interest rate and fee increases for the majority of Americans who pay their credit card bills on time. Quite simply, efforts to cap, reduce, and ban penalty fees and interest-rate hikes for bad customers will axiomatically lead profit-minded companies to seek returns elsewhere. Many will hike the annual fees and interest rates for everyone else. New ways to litigate likewise will create another lawyers’ payday while doing nothing to help ordinary Americans.

Those who live on limited incomes or fail to pay their bills on time—the supposed beneficiaries of the proposals—will also see themselves hurt. Many will be denied credit that bureaucrats decide they “can’t afford.” More will find they only qualify for the “secured credit cards”—which require a bank deposit against the credit line—that predominated in the dark days before deregulation helped banks figure out ways to extend credit to everyone.

As these cases make their way through the legal system, and the proposed laws make their way through the legislature, it is important for consumers to know their rights and to be very careful when applying for any credit card.

The Federal Trade Commission has information for consumers on line. In addition, persons facing mounting debt and legal action to collect credit card fees may wish to consult with an attorney who can assist them in asserting their rights during any collection process.