World Business

Debt-strapped consumers vent their frustration with banks in the same proportion that they root for new rules to rein in card rates and fees

by Jessica Silver-Greenberg

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David Giantomasi says he vigilantly paid his credit-card bills every one month. Even if he could only force the minimum payment, he made sure to get all his monthly payments squared away. So he was shocked at the time the sympathy rate on his Chase credit card suddenly jumped to 19.99% from 7.99%. When Giantomasi called the card issuer to demand an description, he was enraged. He was told that overall huddle in the credit markets meant higher rates with regard to a number of customers.

Chase won’t make comments on individual cardholder accounts. "I felt completely helpless," Giantomasi recalls. "These credit-card companies are beyond the law and should be greater quantity tightly regulated."

Giantomasi isn’t alone in his desire to see the credit-card industry reined in. Lured by bank come-ons that sold a debt-fueled lifestyle of lavish vacations, sumptuous restaurant meals, and carefree shopping sprees, consumers piled up new debt during the credit boom: Consumer credit-card debt has skyrocketed to almost $1 trillion, double what one. it was in 1996. Unpaid credit-card debt is on the rise, too, up 22% in June from a year earlier, according to reports by the greater credit-card issuers, American Express (AXP), Bank of America (BAC), Capital One Financial (COF), JPMorgan Chase (JPM), Citigroup (C), and Discover (DFS). But when the saddle-cloth bubble popped and the established order slammed on its brakes, suddenly multiplied free-spending consumers were left holding the bag.

Now those same cardholders are rushing in to support rule changes proposed by dint of. the Federal Reserve Board back in May, to limit unfair or deceptive credit-card practices.

The proposed rules, which could be implemented as early as yearend, would represent the first time in over 20 years that a state agency has recommended banning certain credit-card industrial art practices. Regulation has been left largely to the card issuers, and the Fed and other banking regulators tended to stick to forcing card companies to disclose terms and conditions clearly to customers.

Under the proposed rules, though, banks would in no degree longer be able to hike up affect rates on existing debt, as Giantomasi accomplished. Card companies would have to split required monthly payments evenly between the high- and low-rate balances upon the body a card. (Currently, card companies allocate payments to the lowest interest-rate balance first, which foliage a allot of cardholders unable to make a dent in balances at higher interest rates. That’s a recipe for rapidly accruing engage and a fine feeling of helplessness about managing debt, say cardholders.) And consumers would get a longer grace period before they’re slammed with penalty fees.