Consumer Advocates Urges Fed To Close Loopholes in Credit CARD Act

Recently, national consumer group advocates urged the Federal Reserve Board to eliminate the loopholes that credit card companies are already exploiting in the Credit CARD Act. Even before the Credit CARD Act has fully gone live, credit card companies have already developed several tricks and traps to counter the restrictions that the new legislation will bring.

One such loophole can be found in the prohibition of the act of rate increases for existing balances unless the card holder is already more than sixty days late. Major credit card company Citibank has already found a way to evade the ruling by charging a 29% APR to card holders but promising them a 10% refund during the next billing cycle if they manage to pay their current bill on time. If analyzed, this is similar to charging a card holder a retroactive 10% rate hike if he misses payment for even one day.

Another loophole that is being exploited by credit card companies is the legislation allowing retroactive rate increases if they are caused by variable index changes which is outside of their control. US Bank, Barclays and Wells Fargo are just three of the major banks which are exploiting this loophole by using only variable rates that can only increase or by picking only the previous 90 days’ highest rate.

In one particular case, it is the Fed’s own proposed rules which would allow credit card companies to evade the intentions of congress to put a limit on credit card marketing to college students. College students were routinely victimized by credit card companies by enticing them with free gifts. They often end up signing up for over priced credit cards in exchange for free gifts. The Fed’s proposed rules would allow credit card companies to continue giving out free gifts as long as those gifts are not conditioned when filling out the application. U.S. PIRG Consumer Program Director Ed Mierzwinski said, “Incredibly, the Fed even proposes to allow banks to perpetuate unfair marketing to college students, even though Congress said to stop. The Fed will allow banks to keep enticing students with free pizza at campus tables, so long as all the students who stop get free pizza, even if they don’t sign up for a card”.

National Consumer Law Center Managing Director for the Washington DC office Lauren Saunders said, “The ink hadn’t even dried on the President’s signature on the CARD Act when we began seeing runarounds by the credit card companies”.