New Legislation Would Curb Common Credit Card Practices

The solicitations come in the mail, with an enticing offer - an interest rate of as little as 5.9 percent.

But six months down the road, that tiny interest rate becomes as big as the numbers on the outside of the envelope that touted the original deal. Consumers can find themselves paying 20 percent, or even 25 percent, in interest.

Legislation introduced Thursday would force credit card companies to make it easier for consumers to discover how high their interest rates will be after the initial short-term deal.

“Credit card companies shower consumers with new credit cards, often luring them in with teaser rates and easy credit,” said the bill’s sponsor, Rep. Joseph Kennedy, D-Mass. “Then, once a consumer has run up a significant level of debt, they lower the boom.”

The bill also would ban credit card companies from charging customers for paying off their balances in full each month, as General Electric is doing to holders of its GE Rewards card. It would allow consumers to cancel their cards and pay off the balances under the old terms if companies raise interest rates or fees. And if a consumer runs a balance, the company could not charge interest on new purchases until after the normal grace period.

Kennedy’s bill “levels the playing field and gives innocent consumers a chance to beat the banks,” said Ed Mierzwinski, program director of the U.S. Public Interest Research Group.

But credit card companies objected to Kennedy’s proposals.

“MasterCard believes that the competitive marketplace should determine how credit card products are priced,” the company said in a statement. “Restricting how financial institutions can price their products will mean less choice for consumers.”