Debating a Ceiling On Credit Card Fees
Bankruptcy Bill Would Shield People From Firms' Punitive Interest Rates
By V. Dion Haynes
Washington Post Staff Writer
Wednesday, March 25, 2009; Page D01
Seeking a new intervention for financially distressed consumers, a Senate Judiciary subcommittee yesterday heard debate on a measure that would wipe out credit card debt for people in bankruptcy.
Under current law, people filing for chapters 7 and 13 bankruptcy protection are obligated to pay credit card balances along with secured debts, such as house and auto loans. The measure is aimed at punishing credit card companies that raise their interest rates to a high level and at giving consumers who may be on the verge of bankruptcy greater leverage to negotiate better deals with those lenders.
The bill, introduced in January by Sens. Sheldon Whitehouse (D-R.I.) and Richard J. Durbin (D-Ill.), is another weapon the government is wielding against exorbitant rates charged by credit card companies. New regulations issued by the Federal Reserve targeting predatory lending practices are scheduled to go into effect next year.
"The standard credit card agreement gives the lender the power to bleed their customer through evolving and ever more crafty tricks and traps," Whitehouse said at the hearing. "Under this business model, the lender focuses on squeezing out as much revenue as possible in penalty rates and fees, pushing the customer closer and closer to the edge of bankruptcy."
The bill would apply to companies that raise rates higher than 15 percent plus the current yield on the 30-year Treasury bond. That combined rate currently is 18.5 percent.
Douglas Corey, a salesman from North Scituate, R.I., who was unemployed for several months, said that despite six years of on-time payments, Bank of America increased his rate to 29 percent from 13 percent after he inadvertently paid less than the minimum on his outstanding balance for two months. Corey said his interest payments shot up to $792 a month from $360.
Instead of rolling back the rate, Corey said the bank offered him loans that would have pushed him further into debt.
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