Are Taxpayers Bailing Out Troubled Banks Twice?

With banks in trouble, interest rate hikes, penalties being scrutinized.

ByABC News
May 9, 2009, 5:13 PM

May 9, 2009 — -- The federal government is taking up the fight against credit card companies accused of taking advantage of consumers.

In taking aim at what he called "abuse that goes unpunished," President Obama has asked Congress to send him a bill by Memorial Day that prevents credit card companies from suddenly raising rates on everyday customers.

"Americans know they have a responsibility to live within their means and pay what they owe," Obama said. "But they also have a right to not get ripped off by sudden rate hikes, unfair penalties and hidden fees."

Congress is moving swiftly to comply with the president's request. A credit card holder's Bill of Rights has already passed the House. The bill would prohibit retroactive rate increases, prevent companies from issuing cards to anyone under 18 and eliminate what's called "double-cycle billing."

Double-cycle billing is a little known calculation used by many companies. The company looks at your current monthly balance, as well as your previous months' spending, and averages them both, charging you a higher interest rate.

Although the practice is considered deceptive, credit card holders often consent to it when they sign a contract.

"Most of these credit card companies have a little clause left somewhere in the back on page 28 in language that says, 'we can charge you any amount we want, at any time we want, for no reason at all,'" said Elizabeth Warren, a law professor at Harvard.

Warren chairs the Congressional Oversight Panel, an independent agency that tracks the hundreds of billions in taxpayer dollars already being used to help the banks survive.

On the heels of this week's stress tests, which showed 10 of the nation's 19 largest banks will need a further injection of cash to survive, she said it's no secret where the banks will get the money.

"We've seen a sharp rise in interest rates in the last few months on good customers who are paying. It's coming from banks taking taxpayer dollars." Warren said.

In essence, that means the banks will raise rates on taxpayers who helped them out in the first place.