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Wednesday, May 20, 2009

CONTACT: Cullen Schwarz
(202) 225-5802


Rep. Peters’ Amendment Stops Credit Card Company Practice of Applying Payments to Lowest Interest Rates First

Washington, DC – The U.S. House of Representatives today gave final approval to the Credit Cardholders’ Bill of Rights, legislation to protect consumers from hidden fees, arbitrary rate changes and other egregious practices.  The bill now heads to the president’s desk.  Congressman Gary Peters, a member of the Financial Services Committee, sponsored a key amendment to the bill as it passed through his committee.  Peters’ amendment would require that consumers’ payments be applied to the portion of their balance with the highest interest rate first.  Currently, a credit card company can require a consumer to pay off all other debt before money can be allocated to the principle with the highest interest rates.

“In my 22 years working in the financial sector, the most basic advice I would have for any family was to pay off their debt with the highest interest rates first,” said Rep. Peters.  “But credit card companies were forcing people to do just the opposite.  My amendment simply says that a consumer has the right to pay off the principal with the highest interest first.”
Congressman Gary Peters met with local residents and credit counselors last week to highlight the need for the Credit Cardholders’ Bill of Rights.  In 2008, credit-card issuers imposed nearly $20 billion in late fees, over-limit charges, and other penalties—many of which were applied arbitrarily to consumers paying their balances on time.  Meeting participants spoke to Congressman Peters about problems they have had with credit card companies treating them unfairly (e.g., one woman saw her rate raised from 6% to 44% without notice even though she never missed a payment).  Contact information and characterization of remarks for event participants is below.  All have said they are willing to speak with media.
“One of the reasons families have such high debt levels is that credit card companies are engaged in unfair practices.  It’s time families have rights,” said Rep. Peters.  “For too long, credit card companies have engaged in practices that saddle families with undeserved debt.  The common sense reforms in this bill will simply require that card companies are upfront with cardholders about fees and interest rates.”

The Credit Card Holders’ Bill of Rights will (see below for a full fact sheet):

• Prohibit card companies from raising interest rates on existing balances unless payment is 60 days late.  If a cardholder pays on time for the following six months, the company is required to restore the original rate;

• Require 45 days advanced notice for rate hikes;

• End “double cycle billing,” so that companies cannot charge interest on debt consumers have already paid on time;

• Protect cardholders from due date gimmicks such as making payment due on the morning of the stated due date;

• Strengthen protections for small businesses.



Local Residents:

Beverly Ott
Royal Oak
(248) 588-4454

Ms. Ott is a local senior who says her interest rate was raised from 6% to 44% without notice, despite the fact that she did not miss any payments. 

Thomas Runyon
(248) 332-6596

Mr. Runyon is a retiree who says he has a few credit cards with varying interest rates and no matter how hard he tries to pay them down the balance never really drops.

Patricia Kulikauskas
Farmington Hills
w) (248) 258-9300
c) (248) 535-2776

Ms. Kulikauskas says she has been a customer with her bank for many years and has never missed a payment or even made a late payment, and has a flawless credit report.  Last month her interest rate was raised to 23% with no prior notice.

Jordan Steckloff
Farmington Hills
(248) 227-9413

Mr. Steckloff is a 24-year-old Ph.D. student at the University of Michigan.  His credit card company recently raised his rate for being late one day on a payment.  He called his company and they returned his rate to its original level, but believes that protections in the credit card holder bill of rights must be enacted to prevent this from happening to others (especially given that many others may not have noticed or have called, meaning their rates would not be corrected as his was).

Financial Counselors

Greg Sterns
Lighthouse of Oakland County

Mr. Sterns discussed how a number of local residents his organization serves have told him and other Lighthouse staff of their experiences with egregious credit card practices, and how the Credit Cardholders’ Bill of Rights would positively affect Lighthouse’ work with struggling families.

Dorothy Guzek
GreenPath Debt Solutions

Ms. Guzek discussed how the Credit Cardholders’ Bill of Rights could help a number of her clients struggling to get out of debt and provide families much-needed stability.



Summary of the Credit Cardholders’ Bill of Rights

The “Credit Cardholders’ Bill of Rights,” provides crucial protections against unfair, but unfortunately common, credit card practices.

Prevents Unfair Increases in Interest Rates and Changes in Terms
 Prohibits arbitrary interest rate increases and universal default on existing balances;
 Requires a credit card issuer who increases a cardholder’s interest rate to periodically review and decrease the rate if indicated by the review;
 Prohibits credit card issuers from increasing rates on a cardholder in the first year after a credit card account is opened;
 Requires promotional rates to last at least 6 months.

Prohibits Exorbitant and Unnecessary Fees
 Prohibits issuers from charging a fee to pay a credit card debt, whether by mail, telephone, or electronic transfer, except for live services to make expedited payments;
 Prohibits issuers from charging over-limit fees unless the cardholder elects to allow the issuer to complete over-limit transactions, and also limits over-limit fees on electing cardholders;
 Requires penalty fees to be reasonable and proportional to the omission or violation;
 Enhances protections against excessive fees on low-credit, high-fee credit cards.

Requires Fairness in Application and Timing of Card Payments
 Requires payments in excess of the minimum to be applied first to the credit card balance with the highest rate of interest;
 Prohibits issuers from setting early morning deadlines for credit card payments;
 Requires credit card statements to be mailed 21 days before the bill is due rather than the current 14.

Protects the Rights of Financially Responsible Credit Card Users
 Prohibits interest charges on debt paid on time (double-cycle billing ban);
 Prohibits late fees if the card issuer delayed crediting the payment;
 Requires that payment at local branches be credited same-day;
 Requires credit card companies to consider a consumer’s ability to pay when issuing credit cards or increasing credit limits.

Provides Enhanced Disclosures of Card Terms and Conditions
 Requires cardholders to be given 45 days notice of interest rate, fee and finance charge increases;
 Requires issuers to provide disclosures to consumers upon card renewal when the card terms have changed;
 Requires issuers to provide individual consumer account information and to disclose the period of time and total interest it will take to pay off the card balance if only minimum monthly payments are made;
 Requires full disclosure in billing statements of payment due dates and applicable late payment penalties.

Strengthens Oversight of Credit Card Industry Practices
 Requires each credit card issuer to post its credit card agreements on the Internet, and provide those agreements to the Federal Reserve Board to post on its website;
 Requires the Federal Reserve Board to review the consumer credit card market, including the terms of credit card agreements and the practices of credit card issuers and the cost and availability of credit to consumers;
 Requires Federal Trade Commission rulemaking to prevent deceptive marketing of free credit reports.

Ensures Adequate Safeguards for Young People
 Requires issuers extending credit to young consumers under the age of 21 to obtain an application that contains: the signature of a parent, guardian, or other individual 21 years or older who will take responsibility for the debt; or proof that the applicant has an independent means of repaying any credit extended;
 Limits prescreened offers of credit to young consumers;
 Prohibits increases in the credit limit on accounts where a parent, legal guardian, spouse or other individual is jointly liable unless the individual who is jointly liable approves the increase;
 Increases protections for students against aggressive credit card marketing, and increases transparency of affinity arrangements between credit card companies and universities.

Enhanced Penalties
 Increases existing penalties for companies that violate the Truth in Lending Act for credit card customers.

Gift Card Protections
 Protects recipients of gift cards by requiring all gift cards to have at least a five-year life span, and eliminates the practice of declining values and hidden fees for those cards not used within a reasonable period of time.

Encourages Transparency in Credit Card Pricing
 Requires the GAO to study the impact of interchange fees on consumers and merchants, specifically their disclosure, pricing, fee and cost structure.

Protects Small Businesses
 Requires the Federal Reserve to study the use of credit cards by small businesses and make recommendations for administrative and legislative proposals;
 Establishes Small Business Information Security Task Force to address the information technology security needs of small businesses and help prevent the loss of credit card data.

Promotes Financial Literacy
 Requires comprehensive summary of existing financial literacy programs and development of strategic plan to improve financial literacy education.