Consumers need credit card laws, fast

Ed Myska works as executive vice president of El Segundo’s Bank of Manhattan, so it’s pretty fair to say that he knows a thing or two about keeping his financial house in order.

Yet he was among numerous people who have been notified by Citibank in recent days that the interest rate on their credit cards is soaring to almost 30%.

Letters being mailed out by Citi say only that the rate increase will allow the company “to continue to provide our customers with access to credit.”

Myska told me he seldom carries a balance for more than a couple of months and never misses a payment. He now plans to burn off the mileage accumulated on his plastic and then switch to another card.

“If we ran our bank the way Citi runs theirs, we wouldn’t be in business,” Myska said. “Our clients wouldn’t put up with it -- and they shouldn’t have to. Fees and rates should be fair.”

That’s precisely the purpose of the Credit Card Accountability, Responsibility and Disclosure Act, which President Obama signed into law in May. Most of the law’s protections aren’t scheduled to take effect until Feb. 22. Some won’t kick in until the end of next summer.

Now some lawmakers are weighing legislation that would accelerate introduction of the credit card reforms to Dec. 1 as banks like Citi turn the screws on customers with higher rates and less-favorable contracts.

Is that a good idea? Rep. Spencer Bachus of Alabama, the ranking Republican on the House Financial Services Committee, put that question to Federal Reserve chief Ben S. Bernanke. And the Fedmeister issued his response last week.

Speeding up the law “could benefit consumers by providing important protections earlier than scheduled,” Bernanke acknowledged.

But he said that “card issuers must be afforded sufficient time for implementation to allow for an orderly transition and to avoid unintended consequences, compliance difficulties and potential liabilities.”

And I’m thinking, yeah, I’d sure hate to see any unintended consequences for the credit card industry. Like maybe having to treat customers fairly.

The sole reason lawmakers are cracking down on card issuers, and are now thinking about picking up the pace, is that banks have consistently proved themselves to be unworthy of consumers’ trust.

Basically, if there’s money to be made via some new fee or strong-arm practice, the banks have done it. Tony Soprano and his crew pretty much operated the same way.

Take the case of Sherman Oaks resident Sylvia Weishaus, who received word from JPMorgan Chase & Co. recently that the United Mileage credit card she’d carried for more than 25 years was being canceled.

The reason, according to Chase, was that Weishaus had too much debt on too many credit cards.

In fact, her credit report shows that she had seven active cards at the time Chase decided to play rough, with a combined balance of less than $7,000.

“I don’t know what to make of it,” Weishaus told me. “I can’t figure it out.”

It’s not that hard, actually. With new consumer protections looming, banks are walking away from cards they deem too generous in terms or benefits, even if that means canceling the accounts of long-term customers who pay on time.

And Weishaus said she’s already getting solicitations from Chase encouraging her to open up a new credit card account. Apparently she’s not such a huge risk after all.

Tanya Madison, a Chase spokeswoman, said that “when necessary, we make changes to pricing, terms or credit lines based on borrower risk, market conditions and the costs to us of making loans.”

She also said the bank was “evaluating changes required due to pending regulations.”

Among other changes, the new law requires card issuers to give at least 45 days’ notice of any significant change to their offerings, and to ensure that cardholders have at least 21 days to pay their bills each month.

It also prevents issuers from boosting interest rates in the first year after an account is opened, blocks banks from raising rates on existing balances and requires that an increased interest rate return to its former level if the cardholder makes on-time payments for six months after a missed payment.

Many banks have scrambled to get ahead of the new rules by jacking up interest rates or converting fixed-rate cards to variable-rate plastic. Many also have slashed cardholders’ credit limits or changed contract terms.

In August, Citi introduced an annual fee for some cards that hadn’t carried such fees in the past. Cardholders were notified that they could pay as much as $90 a year unless they use their plastic for at least $2,400 in purchases.

Samuel Wang, a Citi spokesman, declined to comment on details of the new fee. He said only that “a small number of Citi customers were notified in August of changes to their card agreement which included an annual fee.”

For its part, Bank of America says it will soon start experimenting with annual credit card fees ranging from $29 to $99.

“We are testing an annual fee on a very, very limited number of consumer credit card accounts,” said Betty Riess, a BofA spokeswoman.

“Customers can reject the fee, but we will close the account.”

Will the fee be imposed on cardholders who pay off their bill monthly and don’t carry a balance?

“That’s not the basis for selecting accounts,” Riess answered. “But conceivably some accounts that typically pay off monthly could be in the test.”

Other banks have said they plan to introduce “inactivity fees” for credit cards that aren’t being used enough.

Is it any wonder that lawmakers are saying consumers need safeguards sooner than later?

So thanks, Mr. Bernanke, for fretting on banks’ behalf about the challenge of complying with all those new rules.

Now how about a little more sympathy for all the beleaguered bank customers who make those rules necessary?

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David Lazarus’ column runs Wednesdays and Sundays. Send your tips or feedback to [email protected].