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Tuesday December 4, 6:09 PMCongress to ask US banks to explain credit card 'abuses'
The Senate subcommittee on investigations has scheduled a hearing at which consumers are expected to relate how they were subjected to sharp rate hikes on their credit card bills despite paying the bills on time. The panel, headed by Democratic Senator Carl Levin, held an initial hearing on credit card practices in March, but the lawmaker told reporters Monday that "abuses" were still occurring. "People who have paid their bills on time, have paid the amount that they are required to pay, nonetheless may face these unilaterally gouging interest rate increases," Levin said. Many US banks and credit card companies use a process called Universal Default to justify sharp interest rate hikes on credit card bills. Under Universal Default, a bank will sometimes automatically hike a consumer's interest rate if they are late paying a bill to an unrelated third party such as a department store. Banks can track consumers' spending, debts and other financial relationships through reports compiled by the Fair Isaac Corporation which also puts together influential credit reports on millions of consumers. Representatives from Bank of America, Capital One and Discover Financial Services are due to testify before Congress on their respective credit card practices. Executives from Citigroup and Chase, part of JPMorgan Chase & Co., were invited to testify at the hearing, but declined. Citigroup stopped applying Universal Default before the March hearing and Chase has since halted the practice, but many other banks still use it to justify rate hikes. The second hearing also comes as consumer and activist groups have called for an end to what they say are unfair lending practices used by some banks and credit card companies. Congress heard in March from Chase customer Wesley Wannemacher, who charged 3,200 dollars to his credit card for wedding purchases. Wannemacher paid Chase 6,300 dollars as his charges and interest rates spiked, but still owed 4,400 dollars when he complained to Levin's panel. Chase subsequently cancelled Wannemacher's bill. Levin said more than 1,000 consumers had contacted Congress about their credit card bills and that more consumers will be relating their experiences at Tuesday's hearing. The lawmaker said he hopes to pass legislation early next year to address credit card practices. He said major banks had cooperated with the panel's investigation. "I believe as far as I know, that they've been very cooperative in terms of providing us with information," he said. Credit card debt across the United States jumped to 877.1 billion dollars in 2006 compared with 824.9 billion in 2005, according to the Federal Reserve. |
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