Connecticut Attorney General's Office
Press Release
Attorney General Blasts Banks For Raising Credit Card Interest Rates, Fees On Low Risk Consumers To Cover Losses, Calls On Fed To Roll Back Increases
January 4, 2010
In a letter today to U.S. Federal Reserve Chairman Ben S. Bernanke, Blumenthal called the practice "offensive" and urged the Fed to use rulemaking authority under the Credit Card Accountability and Disclosure Act (CARD Act) to roll back credit card interest rates and fees to January 2009 levels.
Blumenthal wrote, "I urge that you use your rule-making authority to require that interest rate increases instituted since January 1, 2009 be rolled back where there has been no adverse conduct by the card holder.
"Before seeking more regulatory power, the Fed should use the power it has now to protect consumers and the economy. The Fed has the historic opportunity to be a strong consumer ally, rather than adversary. It should be part of the solution, not the problem.
"The banks are compelling creditworthy consumers to rescue them twice -- once through taxpayer-funded bailouts and a second time through exorbitant credit card interest rates and fees. Beneficence to the banks cannot be boundless. These credit abuses mock congressional purpose and sound public policy.
"In recent correspondence with my office, the American Bankers Association ("ABA") acknowledges that its member banks are attempting to offset their financial losses by raising fees and interest rates on 'borrowers, many of whom pay their bills on time and handle their credit obligations wisely.' Neither Congress nor Card Act supporters like the President intended that consumers with good credit histories should be asked to shoulder the burden of recouping the banking industry's self-inflicted financial losses, caused by its own abysmal judgment. We cannot countenance such unconscionable predatory practices. Why should consumers with good credit histories be asked to pay for the mistakes of the banks?
"Such a 'failure tax' imposed on consumers by the banks must be rolled back. Consumers who manage their credit properly and who prudently pay credit obligations on time should be rewarded, not saddled with arbitrary and abhorrent interest rate and fee hikes. Should not consumers with good credit histories be awarded lower interest rates?"
The CARD Act, which restricts credit card companies' right to raise rates on existing balances and imposes other curbs, passed in May, but goes into effect on February 22. Some of the nation's biggest credit card issuers have used the interim to drastically hike card fees and interest rates on existing balances to as high as 30 percent, even for consumers with spotless credit.
Blumenthal last month wrote the American Bankers Association, the nation's biggest banking lobby, and 11 major banks and financial institutions demanding they explain the increases and reverse them.
Blumenthal also wrote Chairman Bernanke last month asking him to reverse the hikes by using a section of the new law empowering the Fed to cancel unjustified interest rate and fee increases imposed on existing balances between the statute's approval and its effective date.
Blumenthal wrote a second letter today Chairman Bernanke urging again him to use his rulemaking authority to roll back fee and interest rate increases since January 2009.
Blumenthal wrote, "No doubt the banking lobby is focusing persuasive force on the Federal Reserve Board to draft rules to implement Section 101(c) of the CARD Act that are friendly to the industry. The banks argue that the recent rate increases -- even on borrowers with good credit histories -- are justified due to higher default rates and decreased profits. I respectfully call on the Federal Reserve Board to resist pressure from the banking industry.
"I urge the Board's rules be written to require that interest rate increases instituted since January 1, 2009 be rolled back where the statutorily required review indicates no adverse conduct by the card holder. The banks should not be allowed to place undue weight on amorphous factors such as 'market conditions' that can be manipulated to justify rate increases on borrowers with good credit histories. Consistent with Congressional intent, the focus of the required review should be on actual credit risk of the individual borrower."
The rules are expected to be published in late January, at which time the public will be allowed to comment. Blumenthal said he will submit comments.