With the threat of new regulations looming, some credit card issuers on Wednesday promised lawmakers they would ease penalties and simplify tiny-print disclosures that few consumers read.
At a Senate hearing on credit-card practices, a top executive with JPMorgan Chase & Co.’s Chase Bank USA apologized to a 29-year-old Ohio man who repaid twice the amount of a $3,200 bill because of interest and fees.
“It just seemed like there was no end in sight,” Wesley Wannemacher told the Senate Permanent Subcommittee on Investigations.
Wannemacher, director of operations at his family-owned Double A Trailer Sales Inc. in Delphos, Ohio, said he was trapped in a cycle of ever-growing fees and penalties for wedding-related purchases. A few days ago, Chase erased another $4,400 he owed as of February 2007.
“Our policies failed, and we deeply regret it,” Richard Srednicki, chief executive of Chase Bank’s card services, said.
Democrat Carl Levin (news, bio, voting record), the Senate panel’s chairman, said legislation may be needed to stop what he called predatory practices by credit cards, such as when companies charge interest and fees on money that has already been repaid.
“Our investigation found that even accounts in good standing are socked unfairly by little known … practices that inflate interest charges,” Levin said.
The high-profile hearing was held a week after Citigroup, the third-largest card issuer, said it will stop automatically raising rates for people who default on payments not directly related to their credit card. The practice is known as “universal default.”
Bank of America Credit Card Services President Bruce Hammonds said his company has never used universal default.
Sen. Norm Coleman (news, bio, voting record) of Minnesota, the top Republican on the subcommittee, said he was concerned about some industry practices. Coleman praised Chase for erasing Wannemacher’s debts and eliminating a practice known as double-cycle billing, which includes tacking on fees based on two prior months.
Alys Cohen, a consumer advocacy attorney, said credit card practices are predatory because of the payment structures. “They can’t pay back the small amount of principal and they’re buried by the fees and interest,” she said.
Outstanding U.S. credit card debt amounted to more than $750 billion in November 2006, according to estimates based on Federal Reserve figures. The industry has more than 640 million credit cards in circulation.
The Federal Reserve is already working on new requirements for companies to disclose various payment and fee schedules, lawmakers and executives said.
“We believe it should be a priority to shorten and simplify disclosure language and to focus on the most relevant terms and conditions,” Bank of America’s Hammonds said.
Levin said he would work with the Senate Banking Committee on legislation to protect consumers from overzealous credit card companies.