Credit card nightmares prompt long-awaited crackdown

WASHINGTON — What prompted a slew of new federal proposals to combat abusive practices in the credit card industry depends on whom you talk to in Washington.

Some say the new recommendations by the Federal Reserve Board were the result of congressional pressure and public outcry.

Others say that regulators, stung by their own inaction in the subprime mortgage meltdown, feared a similar mistake would cause the growing credit crisis to snowball.

While there's disagreement about what sparked the move, even the most jaded political observers now agree that, after years of complaints, relief is finally on the way for cardholders who feel victimized by their plastic.

"I've not seen anything like this out of the Federal Reserve ever," said Travis Plunkett, the legislative director of the Consumer Federation of America. "These problems have been coming up for a decade, and they've been asleep at the switch. But that's changing. It's a new world."

And not a moment too soon for such folks as Kathi Parlier of Newnan, Ga., whose credit card interest rate jumped from about 7 percent to 32 percent in 2004 after a property foreclosure damaged her credit rating. Parlier, 42, said she'd never made a late payment on the card.

"I could deal with it going to 12 to 15 percent, but considering I was never late, they never should have gone up on it like that," Parlier said. "They shouldn't be able to do that."

New rules proposed by the Fed wouldn't stop rate increases like Parlier's, which are known as "universal defaults." But they would prohibit card companies from applying the higher rate to the existing card balance — unless the cardholder was more than 30 days late on his or her bill.

That provision alone would have saved Parlier thousands of dollars. Her card balance was nearly $7,000 when the rate hike kicked in. The higher interest rate — now about 29 percent — means only a small portion of her payments go toward her debt.

"I paid $160 last month and $108 of that was finance charges, so I've only got $52 going to principal," Parlier said. "I always pay a little more than the minimum, otherwise I would never get it paid off."

The Fed's new recommendations were drafted in concert with the Office of Thrift Supervision and the National Credit Union Administration.

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