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Rights bill pondered for users of credit cards

The Baltimore Sun

Credit cards are diabolically convenient.

Having a card means you don't always have to carry cash. You can zip through payment without delay. You are relatively protected from fraud. And, should a transaction go awry, your chances of getting your money back are greater if you pay with plastic.

But you're paying a high price for that convenience.

The fees and rules associated with using cards keep getting more onerous and perplexing as plastic has become the preferred method of payment, even for purchases as small as a fast-food burger.

The credit-card industry is in the Top 10 most-complained-about to groups such as the Better Business Bureau. Is it any wonder - with arbitrary interest rate changes, universal default penalties, incomprehensible contracts and due dates that change with the shifting of the wind?

Even merchants are raging over the fees they must pay for every card transaction, which retailers say eat into already slim profits.

Responding to calls by advocacy groups for greater regulation, Congress has introduced legislation to curb a wide variety of abusive credit-card practices.

"Consumers have always recognized that many of these practices are unfair," said Jeannine Kenney, senior policy analyst for the advocacy group Consumers Union. "The discontent has reached a fever pitch because the economy has tightened. What has been a costly annoyance in the past has simply become financially unsustainable."

Sure, you can blame irresponsible consumers for racking up too much debt. But you can also blame lenders too eager to prey on consumer vulnerabilities. Given the arbitrary nature of card contracts that say, "Any term can be changed at any time for any reason, including no reason," even the most sophisticated cardholder can get tied into infuriating knots.

Take Karen Lucas, 56, associate director of the Department of Agriculture.

The Columbia resident spent the first three months of this year untangling a mess after her credit-card company failed to send electronic bills to her bill-pay service. Worse, Lucas said, she received no notification from the card company that she was delinquent on payments.

"I always pay the balance at the end of every month through automatic bill pay," Lucas said. "I was traveling a lot at the end of last year, so I didn't pay attention and I should have.

"But instead of trying to help me with a mistake that started on their end, they turned me over to delinquent payments without informing me," Lucas said. "Then they flat-out refused to reduce some of the fees they assessed on me. It took me months to get them to refund all the late fees. They lost me as a customer. I ended up closing those accounts."

The experience made Lucas realize that card companies were waiting to pounce on her slightest misstep. "You really have to stay on your toes," Lucas says.

A consumer struggling to make ends meet could be financially devastated in the same situation.

Late fees trigger higher interest rates. Without the power or money to walk away since card balances must be paid in full when you close an account, struggling consumers get pinched even more. Even if it is the card company's mistake, not everyone is as relentless as Lucas in pursuing a fix, and some never speak up when they have been wronged, consumer advocates say.

House Bill 5244, the Credit Cardholders Bill of Rights, aims to rein in practices including arbitrary rate increases; universal default, in which nonpayment to any other creditor can raise interest rates on your card; random due-date changes; and two-cycle billing, in which you are charged interest on the previous month's balance even though you paid it off.

Such practices are unconscionable. U.S. Public Interest Research Group goes further.

"Owning a credit-card company is truly a license to steal," Edmund Mierzwinski, U.S. PIRG's consumer program director, said in testimony before the House Subcommittee on Financial Institutions and Consumer Credit on Thursday. "Concentration of the industry has resulted in a tight oligopoly where the largest and most powerful players act with impunity. ... The credit-card industry operates without fear of either market or regulatory action to temper its excesses, at the expense of the public's welfare."

Retailers are fighting back, too. They have sued card companies and are pushing for a bill that would force card companies to renegotiate interchange fees, which is a percentage of the sale that merchants must pay to the credit-card network to process a transaction. Fees can vary depending on the merchant's industry and size, and popular reward cards often charge higher fees.

"If someone comes in to buy a birthday card for $1.25 with a credit card, I have to pay 3.25 percent of that to the credit card company," says Robert Chance, owner of Carol's Western Wear in Glen Burnie. "It isn't worth it. But I can't refuse credit cards because everyone wants to use them nowadays."

Groups such as the Electronic Payments Coalition say interchange fees are simply the price of doing business, much like employee salaries and utility bills. Businesses must pay for a service that brings them benefits that include automatic payment and fraud protection.

This merchant battle may seem to have nothing to do with the rest of us, but remember, the cost of doing business is passed on to consumers. Last year, consumers paid $42 billion in interchange fees, the National Retail Federation says.

No surprise then that bankers aren't keen on reform.

In a statement last week, a group of bankers associations and financial groups said federal interference could dampen "competition and innovation." The bill of rights "would dictate practices and effectively set price controls, creating far-reaching, unintended negative consequences for consumers, businesses and the broader economy." Prohibiting card issuers from pricing for risk could create expensive and less-accessible credit, bankers said.

But perhaps less accessible or more realistic credit is exactly what we need. Perhaps, we shouldn't be allowed to spend over our limit. Perhaps, if we were granted rates that are more reflective of our credit risk, we wouldn't be so prone to spend money we don't have. And perhaps, the card industry should stop encouraging us to use our plastic so freely and without thought.

dan.thanh.dang@baltsun.com

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