View From Lodi CA: In Over Your Head On Credit Card Debt? Help May Be On The Way!
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In my column last week, I wrote about the recent push in Washington D.C. lead by Treasury Secretary Henry Paulson to overhaul the rules and regulations that govern the financial securities markets.

I concluded that no new federal approach to policing the markets, assuming one could be agreed upon and put into place, would be as effective for investors as their own due diligence.

But I have an entirely different perspective on the feds going after credit card issuing banks that, for years, have engaged in usurious practices that have strangled the average consumer.

Only half of all American households participate in the stock market.

Of those that do, many hold stock through 401(k) plans or other tax-advantaged accounts. Or they have portfolios valued at less than $50,000 that consists of treasury securities.

But many more people use credit cards.

Most households average at least one card per family member, have an $8,000 outstanding debt with interest charges that range from 18 to 30 percent. Current aggregate U.S. credit card debt is $800 billion. (

Not surprisingly, California—the leader in everything bad for consumers—is the worst offender when it comes to protecting the little guy.

Along with Tennessee, South Dakota and Delaware, California offers the least consumer protection against outrageous fees on the following credit and routine bank charges: delinquencies, cash advances, over-the-limit transactions, stop payments, ATM usage and mandatory grace periods.

The culprit is a 1978 U.S. Supreme Court decision that allowed these the-sky's-the-limit rate policies to prevail.

In Marquette vs. First Omaha Service Corp., the Supreme Court ruled that a national bank could charge the highest interest rate allowed in their home state to customers living anywhere in the United States, including in states with restrictive interest caps.

Even if you make your credit card payments on time, the issuing bank can raise your interest rate automatically if you're late as little as one hour on payments elsewhere — such as on another credit card or on a phone, car, or house payment — or simply if the bank feels you have assumed too much debt.

This is standard practice found in your credit card agreement fine print, the result of another Supreme Court decision in 1996, Smiley vs. Citibank, that lifted the existing restrictions on late penalty fees. Back then, fees ran to $5 or $10; now they can run as high as $45.

On a PBS special dedicated to exposing the consequences credit card lending, Harvard Law School Prof. Elizabeth Warren, a contract law expert, said: "I don't know any merchant in America who can change the price after you've bought the item, except a credit card company. They are the new loan sharks in America."

Credit agreements are another trap for unsuspecting cardholders.

Even Professor Warren, the well-schooled authority, says she can't decipher hers.

One controversial practice the Federal Reserve Bank wants to eliminate is "two-cycle billing," which adds to interest charges by calculating the average daily balance for the last two billing period rather than one.[U.S. Aims to Rein in 'Unfair' Credit Cards, By Becky Yerak, Chicago Tribune, May 3, 2008]

Sandra Braunstein, director of the Division of Consumer and Community Affairs, testified April 17th before the House Financial Services Committee and outlined other changes proposed by the Fed.

Among them are:

  • Introductory rates used to lure customers would more clearly disclose the eventual higher rates and how soon they would be imposed;

  • Advertisements of "fixed" rates would be restricted to rates that are truly not subject to change, either for a clearly disclosed period or for the life of the plan;

  • A consumer would be sent notice 45 days before a penalty rate was imposed or the rate or a critical fee was increased for other reasons.

  • The periodic statement's "effective annual percentage rate," would be revised to make it simpler for creditors to compute and for consumers to understand.

Help may be on the way.

But in the meantime, the best bet is to give your credit cards a long rest.

Joe Guzzardi [email him], an instructor in English at the Lodi Adult School, has been writing a weekly column since 1988. It currently appears in the Lodi News-Sentinel.

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