Credit-Card Rage

Debt-strapped consumers vent their frustration with banks as they root for new rules to rein in card rates and fees

By Jessica Silver-Greenberg

David Giantomasi says he vigilantly paid his credit-card bills each month. Even if he could only make the minimum payment, he made sure to get all his monthly payments squared away. So he was shocked when the interest rate on his Chase credit card suddenly jumped to 19.99% from 7.99%. When Giantomasi called the card issuer to demand an explanation, he was enraged. He was told that overall turmoil in the credit markets meant higher rates for a number of customers.

Chase won't comment on individual cardholder accounts. "I felt completely helpless," Giantomasi recalls. "These credit-card companies are beyond the law and should be more tightly regulated."

Giantomasi isn't alone in his desire to see the credit-card industry reined in. Lured by bank come-ons that sold a debt-fueled lifestyle of lavish vacations, sumptuous restaurant meals, and carefree shopping sprees, consumers piled up unprecedented debt during the credit boom: Consumer credit-card debt has skyrocketed to almost $1 trillion, double what it was in 1996. Unpaid credit-card debt is on the rise, too, up 22% in June from a year earlier, according to reports by the major credit-card issuers, American Express (AXP), Bank of America (BAC), Capital One Financial (COF), JPMorgan Chase (JPM), Citigroup (C), and Discover (DFS). But when the housing bubble popped and the economy slammed on its brakes, suddenly many free-spending consumers were left holding the bag.

Now those same cardholders are rushing in to support rule changes proposed by the Federal Reserve Board back in May, to limit unfair or deceptive credit-card practices.

New Rules on Rates

The proposed rules, which could be implemented as early as yearend, would represent the first time in over 20 years that a government agency has recommended banning certain credit-card industry practices. Regulation has been left largely to the card issuers, and the Fed and other banking regulators tended to stick to forcing card companies to disclose terms and conditions clearly to customers.

Under the proposed rules, though, banks would no longer be able to hike up interest rates on existing debt, as Giantomasi experienced. Card companies would have to split required monthly payments evenly between the high- and low-rate balances on a card. (Currently, card companies allocate payments to the lowest interest-rate balance first, which leaves a lot of cardholders unable to make a dent in balances at higher interest rates. That's a recipe for rapidly accruing interest and a feeling of helplessness about managing debt, say cardholders.) And consumers would get a longer grace period before they're slammed with penalty fees.