Last May, the government created the Credit CARD Act, a set of legislation regulating the practices of the credit card industry so as to protect credit card holders from abusive interest rates and fees. However, since the passage of the act, credit card companies have drastically increased their interest rates and fees well ahead of the scheduled activation of the act which is on February 22 of next year, 2010.
Attorney General Richard Blumenthal of Connecticut recently blasted credit card companies and banks over their practice of hiking up rates before the Credit CARD legislation sets in, going so far as to demand that they do an immediate rollback of interests to the January 1, 2009 levels.
According to Blumenthal, the banks are "gaming and evading the new law". He says that they are quickly raising their interests before the new safeguards for consumers can take effect, "looting and pillaging before the deadline".
Blumenthal says that, ever since the Credit CARD Act got signed into law last May 22 of this year, 2009, hundreds of complaints have reached his office about credit card companies raising their interest rates, some of which have gone up by as high as 30%, and their fees. The Attorney General has written letters to eleven credit card issuers, calling for them to rollback their interest rates. The recipients of Blumenthal's letters are Wells Fargo, U.S. bank, USAA, HSBC, Target, JPMorgan Chase, Discover, Bank of America, Barclays, Capital One and American Express.
Attorney General Blumenthal has vowed that he will join up with the other attorney generals from all over the country should the banks continue to refuse to roll back their interest rate increases. He also noted that a number of these credit card issuers were also those who received federal bailout money earlier.
Senator Chris Dodd wrote to Ben S. Bernanke and regulators for the banking industry last July to create a strong set of rules for the mandatory review of interest rate increases which will become a requirement for credit card companies once the Credit CARD Act is activated. The senator also tried to impose a temporary freeze on fees and rate hikes in Congress but his efforts were unsuccessful.
Chris Dodd expressed his displeasure over recent press reports of a number of credit card companies who were allegedly hiking the interest rates of their credit card holders without any justification.
Meanwhile, Blumenthal's demands is coming at a time when the U.S. Senate is getting ready for the debate on financial industry reforms that, according to Dodd, should include the creation of a federal watchdog agency for consumer protection which will keep an eye on abuses in the credit card industry.