The Pew Heath Group's Safe Credit Cards Project released a report which discloses that all credit cards offered by major card companies include practices that will be outlawed by the Credit CARD Act next year.
The report disclosed that even if banks' cost of lending decreased, advertised card rates increased to an average of twenty percent in the first two quarters of 2009. It also includes policy recommendations for regulators.
The Federal Reserve is currently making rules under the Credit CARD Act to ensure that penalties are proportional and justifiable. According to Shelley Hearne, managing director of the Pew Health Group, they found that credit card issuers have only done little in eradicating unscrupulous practices since enactment of this law.
She reveals that some unfair practices have grown more widespread that not even one of the banks they studied would meet legal requirements in the act.
The Pew Health Group report has examined all credit cards issued by the twelve largest card providers in the United States. These banks are said to control more than 90% of outstanding credit card debt nationwide. The report also checked the cards offered by US' biggest credit union. The group collected data last July on four hundred cards, which is an addition to data it gathered last December 2008.
The results of this report show three important things:
1. Ninety-nine percent of bank credit cards actually allow providers to raise charges on outstanding balances, which is a big leap from ninety-three percent last December.
2. Ninety percent of these cards had penalty rate hikes, triggered by only one or two late payments in a single year.
3. Ninety-five percent of bank cards allowed issuers to apply payments which could cause financial injury to card holders.
Nick Bourke, manager of Pew's Safe Credit Cards Project, said the Federal Reserve must now ensure that its rules will not be detrimental to consumers. Last July, the advertised annual percentage rates (APRs) for bank-issued card purchases were between 12.24 and 17.99 percent, as compared with a range of 9.99 to 15.99 percent last December 2008. The lowest advertised bank rates increased by more than twenty percent while the highest advertised rates also went up by about 13 percent.
To ensure that this Credit CARD Act safeguards consumers, the Pew Project provides policy recommendations for Federal Reserve as well as other regulators:
1. The new rules being developed must regulate rate hikes governing justifiable fees and charge in accordance with the law.
2. They must scrutinize partially variable rates, which may increase when index rises but cannot decrease below the minimum set by issuer.
3. They must eradicate penalties not aligned with achieving the Act's goals of consumer protection.