With Credit Card Reforms To Be Implemented Next Week, Menendez Urges Fed To Make Credit Card Companies Play By The Rules | U.S. Senator Bob Menendez of New Jersey

• The bill allows consumers who were late in paying by more than 60 days and incurred a higher “penalty” interest rate the right to “earn back” the previous lower interest rate by paying on time for six months. Some credit card companies are reported to now be avoiding that consumer right to “earn back” a lower interest rate by threatening that the consumer must pay the balance in full after they are late.

• The bill stops credit card companies from charging consumers over the limit fees unless the consumer “opts in” to being charged such fees. But credit card companies are evading this requirement by making the terms of the account worse if consumers choose not to be charged over the limit fees.

• The bill stops retroactive interest rate increases on existing balances unless the consumer is at least 60 days late in paying. Credit card companies are evading this rule by charging, for example, 29% interest but saying they will refund or rebate 10% of interest if the consumer pays on time. Then if the consumers are even one day late, they are effectively paying the higher interest rate, circumventing the rule against higher interest rates unless they are 60 days late.

These are unfair practices meant to exploit loopholes in the law. As a result, fellow Members of Congress and consumer groups have urged the Federal Reserve to adopt an additional rule that would warn credit card companies that the Federal Reserve will not tolerate attempts to circumvent these vital consumer protection laws. As delineated above, we have already begun to see these types of evasive practices, but it is safe to assume that the months and years ahead will see additional attempts to circumvent the law. It is simply not realistic for the Federal Reserve to issue new rulemaking with each new development in the credit card industry that may be meant to exploit the law.

I urge you to initiate a new rule that gives the Federal Reserve the ability and flexibility to address these practices as they evolve. I thank you for your implementation of the Credit CARD Act, and I look forward to your response.

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