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Under scrutiny, some banks change fees


Amid heightened scrutiny from Congress, some major banks recently have begun to eliminate or temper some complex billing and interest-rate practices for credit cards that confound consumers and can push them deeper into debt, two senators said Tuesday.

An investigation by a Senate Homeland Security and Governmental Affairs subcommittee found "abusive" and confusing practices by credit card issuers that can deepen millions of families' financial pain, said Sen. Carl Levin, D-Mich., the panel's chairman. "The penalties are repeated and they keep you in debt," he said.

While the credit card practices in question are legal, Levin is holding out the club of possible legislation to outlaw them as a spur to the banking industry for voluntary changes.

"The presence of legislation will put pressure on them to comply," he told reporters at a briefing. Stricter rules for banks laid down by regulators such as the Federal Reserve also may be needed, Levin said. He was joined by Sen. Norm Coleman of Minnesota, the investigative panel's senior Republican.

In a similar vein, Senate Banking Committee Chairman Christopher Dodd and other Democratic senators challenged credit card executives at a hearing in January over rising late fees and other penalties and marketing practices they portrayed as predatory. Dodd, D-Conn., said he was putting the industry on notice that if it doesn't improve practices on its own, legislation may be warranted.

Since Democrats assumed control of Congress in January, they have put a number of consumer issues on the agenda in the House and Senate. With Americans weighed down by some $850 billion in consumer debt, the practices of the robustly profitable credit card industry is a compelling subject for scrutiny.

Levin and Coleman denounced practices they said brought in tens of millions of dollars to banks issuing credit cards, such as charging interest on balances that are paid on time but not in full, and so-called double-cycle billing &

which eliminates the interest-free period of a consumer who moves from paying his full balance every month to carrying a balance.

"This investigation has already had some impact," Coleman said. At a hearing by the panel on Wednesday, executives of Citigroup Inc., Chase Bank USA and Bank of America Corp. are scheduled to testify.

Citigroup, the nation's largest financial company, announced last week that it was eliminating the practice of so-called universal default &

raising interest rates for card customers because of their failure to pay other creditors on time. In addition, Citigroup said it would no longer make "any time for any reason" increases to the interest rates and fees charged to customers before a card expires and a new one is issued.

Credit card issuers will raise customers' rates and fees, for example, when they believe it is warranted by conditions in the financial markets.

Under Citigroup's new policy, rates and fees will be increased before a card expires only if the customer pays late, exceeds his credit limit or pays with a check that bounces. If the rate is linked to the prime interest rate, it would rise or fall in tandem.

Carter Franke, chief marketing officer of Chase Bank, said Tuesday the company has decided it will no longer charge over-the-credit-limit fees to customers who have been "in a chronic overlimit position" for 90 days.

Aides to the Senate subcommittee highlighted the case of Wesley Wannemacher of Lima, Ohio, a Chase card customer who they said got into trouble in his account and ended up paying interest of 30 percent with a $4,400 balance as of Feb. 1.

Wannemacher had $3,200 in purchases, interest charges of $4,900, 47 overlimit charges totaling $1,500, late fees of $1,100, for total charges of $10,700, according to the subcommittee. He paid $6,300, leaving the $4,400 balance &

which Chase agreed to waive after he contacted the subcommittee staff.

Betsy Weinberger, a spokeswoman for Bank of America, said "We have never engaged in universal default or double-cycle billing."

A report issued in October by Congress' Government Accountability Office found that late fees for credit card payments have jumped while card issuers have done a poor job of explaining their policies on fees and penalties to consumers.