Tuesday, October 27, 2009

Credit card usury

Our reps in Congress arent't exactly protecting us from predatory banks. The new law preventing outrageous credit card practices (see description here ) does not go into effect until June of 2010. So, of course, the credit card companies are trying to squeeze in as much customer abuse as they can before then.

You may have heard from your friendy credit card issuers recently that they have changed the terms of your contract, or that they have increased your rates. We recently got such a note telling us that our annual percentage rate (APR) had increased to 25.99% (and the rate for a cash advance to 29.95%). This was from CitiBank -- one of the worst-performing banks around. They were obviously hoping to pick up a few shekels from their credit card customers to make up for their other major inadequacies.

How are banks allowed to charge these rates? Here in Massachusetts, the usury rate is set at 20% APR: charging more is illegal. Unfortunately, there is a Supreme Court decision from 1978 that says a bank only has to obey the laws of the state in which it is chartered. That's all credit cards come from South Dakota, Virginia, etc -- a handful of states that have mostly no usury limits -- see this map,

Apparently there used to be national usury law, but our protectors in Washington repealed it after the Great Depression. The banking, healthcare and pharmaceutical industries are the largest contributers to Congress: surprise surprise! Collecting money from them is a bipartisan national pasttime.

One thing to do is to write to your senators and representative and demand protection (my rep is, fortunately Barney Frank). Ask them to pass a law making the Credit Cardholders Bill of Rights of 2009 effective retroactively to the date it was passed. Ask them to support a national usury law limiting APRs to a few points (max of 10) above prime.

Another thing to do is to cancel extra credit cards like ones from department stores, then let the store know why you cancelled it. These merchants send you the cards in order to attract you to their stores. If the cards get cancelled and they receive irate letters, they may put some pressure on the banks.

It's worth a try anyway.

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