Historically, charging interest was a perilous business, especially at times when anti-Semitism was rampant. For instance, in 1290, all Jews were expelled from England, with "usury" cited as the official reason – charging interest was considered blasphemous.
Almost all their property went to the Crown.
Today, credit-card companies often charge interest rates to consumers that many would regard as usurious, that is, excessively high. Fortunately, the heads of these firms no longer risk banishment for what is a legal business, and one highly useful to most of their customers.
But Congress is on their case. Both the Senate and the House have held hearings this year on what consumer advocates regard as greedy practices by credit-card firms.
Last month, Sens. Carl Levin (D) of Michigan and Claire McCaskill (D) of Missouri introduced a bill "to put an end to unfair and abusive credit practices that outrage so many American families."
The Senate bill proposes 10 changes in favor of consumers. It would, for instance, prohibit interest charges on any portion of debt a card holder paid on time during a grace period, and interest on fees, such as late fees.
Senator Levin acknowledged the utility of credit cards to family life today. People use them to buy groceries, rent a car, shop on the Internet, pay college tuition, and even pay taxes, he noted. In 2005, the average American family had five credit cards. These households used nearly 700 million cards to buy goods and services worth $1.8 trillion.
The senators' bill has been sent to the Senate Banking Committee for consideration. That committee is chaired by Sen. Christopher Dodd (D) of Connecticut, who held hearings himself in January on credit-card practices. He warned banks and other credit-card companies to mend their ways, in what press reports saw as a move to raise his public profile and boost his candidacy for the Democratic Party's presidential nomination.
"It has had a little bit of effect on the marketplace," says Travis Plunkett, legislative director of the Consumer Federation of America. "Credit-card companies are trying to stay in front of Congress in order to avoid legislation."
For instance, Citigroup Inc. recently announced it would stop a controversial practice called "universal default." Under the practice, if a customer's credit quality deteriorated with another creditor – say, because of failure to make a timely payment on a car loan – the bank would raise its interest rate on his or her credit card.
Whether Senator Dodd will actually cherry-pick various credit-card reform proposals to push a bill he likes himself remains to be seen. "[It's] too early to tell," says Mr. Plunkett.
One complication is the generosity of the banking and finance industries in making political campaign contributions.
In 2006, for example, commercial banks gave $25 million to federal candidates and parties, according to OpenSecrets.org. New York Sen. Hillary Clinton got the biggest chunk of money given to a senator, $378,000; Dodd was eighth with $176,000. Bank of America alone gave $2 million. In addition, financial and credit companies gave almost $7 million in campaign contributions.
Very few industries in this country have the influence in Congress of the credit companies, says Plunkett. In 2005, he charges, Congress gave the credit-card industry "a gift" – a bill making it more difficult for card users to declare bankruptcy.
Plunkett figures that credit-card companies can afford to trim interest rates and fees. For commercial banks, he says, their card business provides a rate of profit two or three times greater than other aspects of banking.
The US Federal Reserve got into the act last month, proposing more relevant and readable disclosure of credit card terms.
Many Americans are forced by joblessness, medical bills, or other problems to resort to what Tamara Draut of Demos, a New York think tank, calls "a plastic safety net – in the absence of a public safety net."
Emergencies of all sorts are one reason the average credit-card debt for households with at least one credit card is more than $9,000. That's huge, compared with the median household income of $46,000.
A single woman we'll call Margaret is an example of a credit-card user who would benefit from reform. (She asked that her real name not be used to protect her financial privacy.)
Margaret was jobless for about nine months last year. Her slim unemployment insurance payments ran out after six months. In paying rent and other bills, Margaret piled up thousands of dollars of debt on four credit cards from Citibank and Bank of America.
Today she has a good job. But because of late payments, her credit rating has slid badly. She pays between 18 and 32 percent interest on outstanding balances, with the total monthly interest bill exceeding $900. And she's slapped with a $36 late charge if she hasn't managed to make a payment on time. "Fees are enormous," Margaret laments.
At this time, she intends to consolidate her debts through Money Management International, a nonprofit organization that should be able to help her reduce interest charges and avoid excessive fees.
MMI, partly financed by credit-card companies, helped 170,000 debtors last year.