WASHINGTON, D.C. – Seventh District Congressman Dave Obey won approval of an amendment in the Appropriations Committee that will prevent credit card issuers from using any unrelated negative information contained in an individual’s “credit report” to raise interest rates, unless that negative information was directly related to the individual’s account with that issuer.
“Credit card companies are now claiming the right, even if you have never missed a payment to them or been a day late in payment to them, to jack-up your interest rate and charge you a default rate if you have missed a payment or been late in a payment to a party totally unrelated to that credit card company,” said Obey, the senior Democrat on the House Appropriations Committee. “You can have a perfect payment record with all of your credit cards, and simply forget to pay your phone bill before going on vacation, or run a little late on your utility bill and all those credit card companies can start charging you outrageous ‘penalty’ rates.”
“They shouldn’t be able to profit because you were late one-time with your utility bill or your phone bill,” added Obey. “My amendment will stop that practice. It simply says that credit issuers can’t use any other information other than their history with you to determine what rate you pay.”
The amount of credit card debt juggled by a majority of American households has exploded in the past decade. Much of that debt is caused not by consumers borrowing irresponsibly, but by the harsh – and exorbitantly expensive – tactics of the credit card industry.
Once credit card companies have consumers in their grasp, they set up an intricate trap of terms, fees, and penalties to keep consumers in as much debt as possible. One of the most destructive practices credit card issuers employ is the universal default scheme, in which they impose sky-high APRs for late payments to other creditors or a simple drop in credit score.
If retained in the final version of the 2006 treasury appropriations bill, Obey’s amendment will prevent companies from using that universal default scheme, and require credit card issuers to clearly and conspicuously describe to consumers the limited use they may make of credit reports.
The bill, which passed committee today, must still be considered by the full House and Senate before it can be signed into law by the President.
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