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Credit Card Reform: common sense rules for fairness

By Amy Klobuchar

Once upon a time, credit cards were a luxury. Then they became a convenience. Now, for many Americans, credit cards are a practical necessity. (Just try to rent a car or buy something through the Internet without one.)

Today, 78 percent of all households have at least one credit card, and at the end of last year, the average household debt was more than $8,300. But it's not just debt that families are paying - it's fees and interest too. In fact, in 2006, about two-thirds of credit card companies' profits came from interest payments.

At the same time that millions of families are facing financial hardships, rising health care costs and job losses, they are now also struggling with growing credit card bills.

But even in these tough economic times, most people continue to play by the rules. They use their credit cards responsibly, make timely payments and earn good credit ratings. But then the rules suddenly change.

Many companies hide the terms of the agreement behind fine print and confusing language. They arbitrarily raise interest rates, often without proper notice. A recent national survey of the 12 largest credit card issuers found that "93 percent of credit cards allowed the issuer to raise any interest rate at any time by changing the account agreement."

And it is happening right here in Minnesota - from Worthington to St. Paul to Detroit Lakes. I heard from one Mahtomedi man who had a great credit rating of 800. He has never made a late payment or been delinquent in any way on his credit card account. But he just got word in April that his fixed interest rate of 5.9 percent was no longer going to be fixed and, by the way, the interest rate would go up to 10.9 percent in May.

He called the credit card company to complain. They told him he should be happy because his was one of the lower rate increases.

I also heard from a woman from St. Joseph who has had her credit card for 12 years. She was never late with a payment and her monthly bill was automatically paid from her checking account.

She recently contacted her card company after she noticed that the interest rate had suddenly gone up a lot, with no advance notice. Her problems didn't stop there.

The company applied the new higher interest rate to her existing balance. This meant her account balance suddenly exceeded her available credit. As a result, she got hit with yet another hike in her interest rate.

Unbelievably, in the course of just 16 days, her credit card interest rate went from 8 percent to 19.3 percent to 27 percent.

In her letter to me, she asked some heartbreaking questions: "How is something like this legal? How can the credit card companies make it even harder in such times?"

They shouldn't and, thanks to new federal legislation, they won't be able to do it anymore.

Last week, the Senate passed the Credit Card Accountability, Responsibility and Disclosure (CARD) Act to help end abusive practices by the credit card industry.

I cosponsored this legislation, which passed with strong bipartisan support. It was also backed by the National Federation of Independent Business and the National Small Business Association.

This legislation will put common-sense rules in place to ensure fairness for consumers and help level the playing field with credit card companies.

First, it protects consumers from arbitrary interest rate increases and prohibits credit card companies from increasing rates during the first year that a cardholder's account is open.

Second, the legislation requires credit card companies to give 45 days notice of any increase in interest rates, fees or finance charges.

Third, it protects the rights of financially-responsible credit card users by banning interest charges for debt paid on time or for late fees if the card company delayed crediting the payment.

Fourth, credit card companies will be required to show greater transparency. They must send bills to customers at least 21 days before payment is due. When people renew their cards, companies must disclose any changes in the terms of agreement.

Finally, this legislation strengthens oversight of the credit card industry by requiring the Federal Reserve to review the consumer credit card market and industry practices.

I believe Americans have a responsibility to pay the debt they owe. But to make it in difficult economic times, they also deserve to be free from abusive and deceptive credit card practices.

Amy Klobuchar (D) is in her first term as U.S. Senator from Minnesota.