By Alison Vekshin, Bloomberg
WASHINGTON: JPMorgan Chase & Co. and Citigroup Inc., two of the three largest US credit-card issuers, told Congress that they are changing some of the cardholder rates and fees that lawmakers say unfairly hurt consumers.
JPMorgan will stop charging customers who exceed their credit limit a penalty after 90 days, Richard Srednicki, chief executive officer of Chase Card Services, told a US Senate subcommittee in Washington. A Citigroup executive said his company decided last week to stop raising interest rates on cardholders who miss payments to other lenders.
“In this case, we simply blew it,” Srednicki said, apologizing to an Ohio man who testified he ended up with more than $10,000 (Rs4,43,928) in fees and interest on a $3,200 wedding debt.
The is the second hearing, the Senate has held on the credit-card industry this year, a sign that democrats who now control Congress are putting increased emphasis on consumer issues. The recent policy changes suggest the pressure is having an effect.
Credit cards “have brought families to their knees with excessive late and over-limit fees, making it harder for them to climb out of debt,” Senator Carl Levin, a Michigan Democrat who is chairman of the Senate’s permanent subcommittee on investigations, said.
‘More Needs to be Done’
Some banks have taken steps to improve their practices “but more needs to be done,” Levin said. Senate Banking Committee’s chairman Christopher Dodd, a long-time industry critic, held a similar hearing in January.
The sub committee’s lead witness was Wesley Wannemacher, who described how wedding expenses charged to a JPMorgan credit card in 2001 ballooned because of late fees, interest and other charges.
Wannemacher, who helps manage a family truck dealership, said in 2005 Chase rejected his offer to settle a then $4,600 bill for $3,000. Shortly after being invited to testify, Chase called to say it was forgiving the amount he still owed.
“There’s all kinds of more productive or positive ways I feel I could have been spending that money,” he said, including paying for his oldest son’s braces.
Said Srednicki of New York-based JPMorgan, the third-largest US bank,“Our policies and procedures failed, and we deeply regret it. We believe this case is an exception and not the rule.”
Vikram Atal, chairman and chief executive officer of Citi Cards NA, testified that the New York-based bank, the nation’s largest, would eliminate account provisions that allow it to raise rates and fees at any time for any reason.
Companies Take Risks
Bruce Hammonds, president of Bank of America Card Services, said the Charlotte, North Carolina-based bank, the second largest in the US, has never engaged in two practices criticized by lawmakers and consumer groups. The company doesn’t raise interest rates if cardholders miss a payment to another creditor and doesn’t charge interest based on the cardholder’s average balance over two billing cycles, he said.
Senator Norm Coleman of Minnesota, the subcommittee’s top Republican, criticized the disclosure documents that credit-card companies send to consumers.
“The disclosures contained in card agreements are written by and for lawyers with an eye more toward staving off litigation rather than educating consumers,” Coleman said. The bankers all said they could make the disclosures simpler.
Levin asked the bank officials about the standard industry practice of charging interest on money paid off the previous month if any balance remains.
‘What is Justification?’
“What is the justification of charging interest on debt that is paid on time?” Levin asked. “I don’t believe it’s fair.” He said he doesn’t think consumers understand the practice.
Hammonds said the practice is similar to car loans and other debts where “you pay interest as long as the balance is out there.”
Credit-card debt among US consumers is about $9,000 per household, according to Tamara Draut, program director at Demos, a New York-based public-policy group. About 40% of cardholders pay off their balance each month and don’t incur interest charges or late fees.
Alys Cohen, a staff attorney at the Boston-based National Consumer Law Center, told senators that industry practices are creating “a debt crisis in America” and urged Congress to “pass strong legislation.”
Levin said after the hearing he was glad the companies were changing their policies “under pressure and under the spotlight.” He added, “there’s a lot of companies out there that we can’t put under the spotlight every day.”
He said he intends to hold more hearings on the issue to explore consumer disclosures and misleading solicitations. “Obviously, aggressive oversight has a positive effect, but it’s going to take legislation, I believe, on top of it,” Levin said.