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WASHINGTON -- The new Democratic Congress is taking aim at the credit card industry. Two senators are seeking legislation against what they perceive as tactics used to force Americans further into debt, Congress Daily reported.
However, the credit card industry has seen success in the past. A bankruptcy bill was passed that made it harder for borrowers to escape debt, as well as a measure that prohibits states from enforcing tougher credit reporting standards, the report stated.
With a Democratic majority, the industry -- which is controlled by 10 large banks that hold 90 percent of the $1.8 trillion U.S. market -- could see backlash from senators that believe the industry allows unfair fees, confusing disclosure statements and interest rates, ultimately resulting in increased debt in American families, the report stated. The average family credit card debt is $5,100, according to Congress Daily, which cited information from the Federal Reserve.
"I don't want to paint with a big brush. The abuses here are serious enough that you can paint with the appropriate width brush and still uncover enough abuses and hopefully will produce some legislation and regulation as well as education to correct this," said Michigan Senator Carl Levin, who plans to hold hearings on the industry as soon as next month.
The investigation's goal is to spark enough dissent that Senate banking chairman Christopher Dodd can introduce legislation. With the Democrats holding a slight majority, consumer groups told the Daily it may be difficult to convince lawmakers with big banking interests, such as Senators Thomas Carper of Delaware and Tim Johnson of South Dakota, whose states are home to major card operations.
"It's a very powerful industry. There will need to be bipartisan support for any legislation, especially in the Senate. That's only to occur if a consensus starts to develop," said Travis Plunkett, legislative director for the Consumer Federation of America.
Levin plans to use consumer complaints concerning the credit industry against the practices, including:
-- Double-cycle billing, where the bank assesses interest on the entire amount charged during one month unless the bill was paid in full;
-- Additional fees charged for payments made on-line or by phone; and,
-- Confusing payment rules where banks assess different interest rates for charges and balance transfers.
Ken Clayton, managing director of the American Bankers Association's card policy council, defended the industry. "We actually do think that the card product is a success story for the American economy," he told the Daily, noting that it has helped consumers that are not well-off financially. "The fees that Levin is complaining about were all within the control of the consumer. They don't have to incur any of those fees. Just pay your card bill on time, and nearly half of Americans incur no fees, the Government Accountability Office found," Clayton said.
"My hope is that I could get some real leadership in this country on this issue," Dodd said. "I'm not interested in legislating if things can be done without doing that. I'm not running around trying to come up with additional regulations and laws on this stuff. I just wish the industry in many ways would exercise more responsibility. If not, we will certainly have to act," Dodd said.