Banks' stepped-up reliance on fees in a sputtering economy makes it "abundantly clear that we do need new laws and rules to protect consumers, to protect the market," says Rep. Carolyn Maloney, D-N.Y.
"Financial institutions have a right to make a profit, but they don't have a right to make an extra profit because they messed up elsewhere," says Maloney, who plans to introduce a bill to combat arbitrary interest rate increases and to ban issuers from applying such increases to existing debt. Sens. Hillary Rodham Clinton and Barack Obama have also made credit card reform an issue in their presidential campaigns.
Read the fine print on rates
Overall, falling interest rates are expected to reduce banks' cost of capital. In theory, that should lead to lower loan rates for consumers. Many credit card rates are pegged to short-term rates that fall when the Fed cuts rates.
But that doesn't stop issuers from changing an interest rate. Their contracts typically say they have the right to change a rate "at any time, for any reason."
A Federal Reserve survey of senior loan officers last month found that 13 of the 53 banks surveyed have widened the spread — which could boost their profits — between what it costs them to borrow and what they charge on certain consumer loans. Four of 39 banks surveyed widened spreads on credit cards.
Loren Cooley, 39, of Toledo, Ohio, saw the rate on her Chase credit card nearly tripled late last year, to about 20%. Why? Her overall debt had swelled, and her credit score had dropped, mainly because of medical bills. Her issuer raised her rate, Cooley complains, even though she usually paid on time and hadn't increased her debt on the card.
After USA TODAY contacted Chase, it offered to cut Cooley's rate on her existing balance to 7.99%. Chase wouldn't discuss the rate increase but says it's working with the consumer to resolve the issue.
Chase has also raised the rate paid by new customers of its popular Chase Freedom card — even as the Fed has cut rates. The card's rate soared as high as 17.2% in December, compared with 14.2% in September, before slipping back to 16% in January.
Card rates exceeding 30%?
Advocates say they fear that as employers shed jobs and housing values sink, more people will see their credit card rates raised to as much as 32%.Such penalty pricing can kick in if consumers pay late by just one minute or exceed their credit limit once.
Consumers can also be slapped with penalty rates if they pay late to some other creditor, because "a lot of issuers are still re-pricing accounts based on credit scores," says Curtis Arnold of CardRatings.com.
The New York State Banking Department says it's fielding more complaints about credit cards, many of them from people who feel their rates have been unfairly jacked up, says spokeswoman Jacqueline McCormack. The state agency refers such calls to federal regulators that oversee card companies, she says.
On a national level, data about card complaints are mixed. Complaints to the Federal Deposit Insurance Corp., which oversees state-chartered banks, rose 53% from 2006 to 2007. Janet Kincaid, head of the FDIC's consumer-response center, says she expects complaints to rise further this year because of the soft economy. Meantime, the Office of the Comptroller of the Currency, which supervises national banks, says it hasn't seen a noticeable rise in such complaints.