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WASHINGTON -- Hearings began in the Capitol last week on credit card companies' lending and fee assessment practices. Headed by Senate banking chairman Christopher Dodd, it was unclear whether he would push for legislation against what he described as "far too many instances" where credit cards prohibit families from meeting financial obligations, the National Journal reported.
The hearing examined credit companies' billing, marketing and disclosure practices to its users. The average family held $5,100 in credit card debt in 2004, according to the report.
"If you currently engage in any business practice that you would be ashamed to discuss before this committee, I would strongly urge you to cease and desist that practice," Dodd said in his opening statement. "Irrespective of the current legality of such practices, you should take a long hard look at how you treat your customers, both in short term and the long term."
He also mentioned the use of interchange fees, and the impact it has on consumers:
"I would be remiss if I did not mention one issue likely not to be explored today -- credit card interchange fees. ... These opaque fees, assessed on merchants, are passed on, in part or whole, to consumers who have no knowledge or understanding that a fee is even a part of the cost of bread or milk, or any other consumer product," Dodd said.
Shortly after the hearing, the Merchants Payment Coalition issued a statement applauding the actions taken by Dodd. "We applaud the efforts of Senator Dodd, who called for heightened scrutiny into the credit card industry, and will be holding a series of hearings in coming months to investigate further among other topics the practice of hidden credit and debit card 'interchange fees,'" said legislative committee chairwoman Jennifer Hatcher. "The credit card companies have long profited from placing hidden fees and practices on unsuspecting merchants and consumers."
Hatcher noted that interchange fees retailers pay is one of the largest fees consumers do not know of. "Last year, Visa and MasterCard generated more than $30 billion in credit and debit card interchange fees -- a fee set in secret by Visa and MasterCard and imposed on merchants and consumers by the credit card industry and completely hidden from consumers."
Consumer advocates spoke out on the issue during the hearing, claming the companies get their profits from consumers that struggle to pay off debt. "They make their big-time profits from interest and penalties. An astonishing $79 billion for people who [are] paying minimum payments over time," said Elizabeth Warren, a law professor at Harvard University. "Today's successful credit card company puts its product in the hands in as many shoppers as possible, pulling in decent profits in each one, but always hoping for the sweet spot, the customer who stumbles but who doesn't quite collapse."
Possible legislation will focus on the restriction of soliciting and marketing, which is considered to be abusive by many consumer activists, and accounts for more than 6 billion mailings annually, the Journal reported. The consumers that companies target heavily also have become a concern for the committee. College students and younger are being solicited for credit cards, as well as senior citizens on fixed incomes and consumers right out of bankruptcy, all of whom have fragile economic standings. Senator Robert Menendez, (D-N.J.), said that the 2-year-old son of one staff member received a credit offer. "Evidently if you have a pulse and Social Security number you can get a credit card offer," Menendez said.
Other practices, such as universal default, where credit companies charge a higher interest rate if a customer missed a payment on another card of if their credit score has fallen; and double cycle billing, where the interest is charged on the entire amount unless it is paid in full, were singled out by Dodd, the report stated.
Representatives from Capital One Financial, Barclaycard US and JP Morgan Chase Co. attended the hearing. The American Bankers Association vowed to work with lawmakers and regulators to clear up confusion on disclosure requirements on monthly bills, the report stated.
Passing legislation would be difficult, as some senators represent states that are home to credit card companies, the National Journal reported. Dodd recognized this, and stated that he would like the industry to work with the committee to make reforms, which would eliminate the need for legislation. "I don't think any of us think it's necessary in writing legislation. ... We would rather get something done without going through all that process if we can," Dodd said.