The credit card industry is heading toward a well-deserved day of reckoning as Congress takes aim at hidden fees, unexpected rate hikes and complicated contracts.

Members of the industry are warning that strict limits on the way they do business could make credit more expensive, and harder to get. But the deceptive and exploitive tactics that the industry has long practiced make reform necessary and inevitable. The Credit Card Holders’ Bill of Rights passed by a wide margin in the House this week, and Senate passage is expected  before Memorial Day.

There is little doubt that President Obama would sign such a bill. At a meeting with industry executives last week, he called for fair and simple credit terms and an end to “anytime, any-reason rate boosts and late-fee traps.”

Efforts to rein in the industry comes at a moment of heightened awareness of credit problems. Card issuers are facing the same credit squeeze as the rest of the financial industry and they have been slashing credit lines, raising rates, closing accounts, and imposing fees on even sound customers.

But the industry has been making difficulties for consumers for years, shrouding cost-gouging practices in the fine print of its advertisements and contracts. Even diligent customers, for instance, can find themselves crossed up by firms’ complicated, and lucrative, rules covering late payments. Retroactive rate hikes are frequently imposed on customers who are judged to be “in default,” simply if they are late on a payment to another lender, or if their credit score drops.

Such unfair interest rate hikes are banned by the House proposal, which also requires that customers be given 45 days notice before their rates are increased. As well, the bill outlaws double-cycling billing, a practice that penalizes consumers who carry a balance on their cards from month to month.

Credit cards are an essential financial tool for about three-fourths of U.S. households. The government should take care in drafting new regulations, and avoid imposing a one-size-fits-all approach on this vitally important marketplace for unsecured debt. Reforms should not discourage credit card companies from serving either low-income customers, or those who rely on high credit limits for business expenses.

The most important elements of reform will be to make card companies’ rules and rates clear to borrowers. Eventually, motivated lenders and informed consumers will both benefit for a fair and competitive market in consumer credit.

— Questions? Comments? Contact Publisher Drew McMullin at 282-1535, Ext. 326 or  dmcmullin@gwi.net, or Managing Editor Nick Cowenhoven at 282-1535, Ext. 327 or cityeditor@gwi.net.

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