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Buried by credit-card fees? Washington is on it.

Obama is to meet this week with banks about card-holder complaints. Congress is weighing a 'bill of rights' for borrowers.

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One mistake equals a fee and a rate hike

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Even sophisticated borrowers can get nailed if a payment is late. Bill Hardekopf, CEO of, recalls being two days late with a payment, after a credit-card bill got stuck in a pile of mail that collected while he and his wife were on vacation.

“The next month there was a finance charge, a late fee, and the APR went up 4 percentage points for messing up once,” he says.

Credit-card companies are likely to hear about these complaints when they meet with Obama. The president has some leverage.

“The biggest banks are also recipients of taxpayers' and other government monies to shore them up,” Mierzwinski says. “We anticipate some announcement.”

Some consumer groups do not oppose moves by banks to make credit less available for some people. “It’s a more reasonable way to deal with risk than tripling [those individuals'] interest rates,” argues Mierzwinski. “The lowering of credit limits is defensible as long as it is done fairly, which means not lowering to just below your balance or just above it.”

Banks see delinquencies rise

Banks are likely to show the administration their rising credit-card losses. As of the end of 2008, the delinquency rate – a measure of cardholders who are 30 to 90 days late on their minimum payments – was 5.56 percent, the highest level since record-keeping began in 1991, according to the Federal Reserve. Two years before that, losses were at 3.92 percent.

“The higher the unemployment rate, the more people are hurting [and] the more delinquent they are on their loans – and credit cards are a big part of them,” says Hardekopf.

Credit-card companies, however, are also closing accounts and cutting credit limits. Cardholders who pay only the minimum on their cards are getting their rates hiked so fast, says Hardekopf, “it’s almost driving them to close their accounts.”

In Dallas, Jerry Curtis of Burt and Associates, a collection business, recently helped a woman locked in a credit-card trap. The woman and her husband owed $1,400 on a Chase credit card, Mr. Curtis says. Both individuals became ill and could not keep up with their payments. Every month they would pay $33, while Chase hit them with a $39 late fee.

Finally, Curtis found a Chase supervisor who agreed to categorize the cardholders as “hardship” cases. She removed the late fees and froze the account for six months so they could pay it down. The card-holder "was at 24 percent interest, and we wanted to get it down to 8 percent,” says Curtis, who took the case on as community service.

The reviled 'universal default' rule

If Curtis’s clients had had more than one credit card, they might have discovered an issue that irks consumers the most: the “universal default” rule, in which a late payment on one card results in higher interest rates on other cards.

Some of these credit-card company practices, such as the universal default issue, will be banned under new Federal Reserve rules that go into effect in a year.

“The Fed’s new rules eliminate most of the areas of concern” among lawmakers, says Mr. Garuccio of the ABA.

Nevertheless, Congress is racing ahead with its own legislation. A House bill includes a Credit Card Holders’ Bill of Rights that would outlaw arbitrary increases in interest rates on existing card balances. In addition, it would eliminate “double cycle” billing by disallowing credit-card companies from charging interest on debt that consumers have already paid on time.

The legislation also tackles “subprime” credit cards, in which yearly fixed fees exceed 25 percent of the credit limit, by preventing those fees from being charged to the card itself. A House version of the bill will have to be reconciled with a Senate version, shepherded along by Sen. Christopher Dodd (D) of Connecticut. Obama indicated during the election campaign that he favors reform legislation.