June 2 -- Consumers are now finding that it may not matter if they pay their credit card bill on time — the company that issued the card may still increase their rate.
Many banks are now raising rates based on a card holder's overall credit or debt. For example, take out a new mortgage, have an unexpected medical bill or miss a car payment, and you may find your credit interest jump or even double.
This is an issue that affects many Americans. Over 75 percent of Americans have at least one credit card and 44 percent of households with credit cards hold balances. Americans held a total of $721 billion in outstanding balances on credit cards, according to the Federal Reserve.
"As a result of this effort people are now going bankrupt, people are losing their shirts, and the consumers of this country should not be subjected to this outrageous practice," says Congressman Bernard Sanders (I-Vt.).
Industry Justifies Higher Rates
The industry says it's doing nothing wrong and that consumers who go into greater debt, or default on one payment, are higher credit risks, and that justifies the higher rates.
"If there's a sign that you have been less than perfect on those obligations, then it's a sign that there may be a problem and that there may be other credit problems in the future," says James Chessen, Chief Economist and Group Director of the American Bankers Association.
The reason these rate hikes seem to be happening more often today is that technology now allows bank to more easily check a consumer's credit history.
"Credit card companies are doing this now as frequently as once a month," says Travis Plunkett, legislative director at the Consumer Federation of America in Washington, D.C.
Some Lawmakers Outraged
As a result, some state and federal lawmakers are now considering new laws to restrict the rate increases and to limit a credit card company's access to credit report.
Congressman Sanders, who is a ranking member of the Financial Institutions and Consumer Credit Subcommittee with jurisdiction over this issue, plans to introduce the Credit Card Bait-and-Switch Prevention Act, which aims to prohibit credit card companies from increasing annual interest rates based on information reported by other creditors, such as a late payment on a car, home, or student loan.