Credit card rate freeze proposed

04.24.09
By Sarah Beldo

While consumers wait to learn the outcome of credit card legislation that is currently being considered in Congress, two Senators are calling for urgent action to help protect consumers.

Two Democrats - Senate Banking Committee Chairman Chris Dodd of Connecticut and Senator Chuck Schumer of New York - have proposed an immediate credit card rate freeze to keep issuers from hiking rates in anticipation of the government's new rules.

In a letter to Federal Reserve chairman Ben Bernanke, the lawmakers express their disapproval of raising interest rates for customers who have a spotless credit report and history of on-time payments.

"Consumers describe situations to our offices in which the interest rates on their accounts have doubled or tripled overnight, without any misconduct on their part," the letter says.

"This kind of practice clearly violates the spirit and intention of the rules, even if the delayed implementation date has the effect of making such behavior legal," it adds.

The Federal Reserve has approved a set of rules that would limit credit card companies' ability to increase interest rates - however, the guidelines do not come into effect until July 2010.

Meanwhile, on Capitol Hill, the House of Representatives is currently considering the Credit Cardholders' Bill of Rights Act, while the Senate mulls the Credit Card Accountability, Responsibility and Disclosure Act.

Both sets of legislation have similar aims - also in line with those of the Fed's rules - and contain provisions banning practices such as retroactive rate increases.

In the past few months, a number of banks have increased interest rates for responsible customers. Earlier this month, Bank of America said it would hike rates on cardholders who carry a balance and have an APR of less than 10 percent.

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Immediate credit card rate freeze would keep issuers from hiking rates in anticipation of the government's new rules.