by Joseph Kenny | 12/5/09

There are four consumer advocate groups that have sent a message to the Federal Reserve. The message basically says that the new Credit CARD Act has prompted banks and credit care companies to find ways to get round the provisions in the new law.

The Credit Card Accountability, Responsibility, and Disclosures Act does not take effect until next year, but already some of the credit card companies have come up with ways to charge consumers even more interest and fees without technically violating the new regulations. Making matters worse is the fact the loopholes are being taken advantage of now.

The purpose of the Credit CARD Act was to level the playing field between the credit card companies and consumers who have been charged unreasonable fees and rates. The four consumer advocate agencies addressing the efforts of credit card companies to continue to charge consumers high fees while avoiding the requirements of the new law are: 1) Consumer Action, 2) Consumer Federation of America, 3) National Consumer Law Center, and 4) U.S. PIRG.

What has infuriated the consumer advocate groups is that the credit card companies are developing “tricks” that are still hidden in the small print in disclosure notices included in credit card statements. In the opinion of these agencies, there is a real need for a new government agency that will regulate the credit card companies and enforce the rules. The new agency would be a watchdog agency that would be responsible for identifying underhanded efforts to bypass the law.

The ways credit card companies are bypassing the law are varied. For example, some companies are continuing to charge the over-limit fees without a specific consumer opt-in. But the fees are called late fees rather than over-limit fees.

In another example, the new regulations prohibit raising interest rates unless the consumer is over 60 days late. Citi is attempting to get around this limitation by charging 29 percent APR but agreeing to refund 10 percent if the payment is on time. What this does is give Citi the power to charge 10 percent on any late payment even if it is only one day late.

There are many other examples too. Credit card companies are changing the minimum payments in one month. Then in a different month they impose an interest rate increase. This is meant to get around the Credit CARD Act’s requirement that consumers be given a right to close their account and pay off the balance over a period of time when rate increases are put into effect.

The new law requires credit card companies to impose retroactive rate increases when the change in rates is beyond the control of the credit card company. Yet some of the credit card companies are only using variable rates that show increases as they pick and choose rate references to their advantage.

These are just a few of the examples of the types of credit card company activities going on that are clearly intended to get around the Credit CARD Act. The four consumer advocate groups are filing a statement with the Federal Reserve that points out these activities. The comments also ask the Federal Reserve to create anti-evasion rules so that the credit card companies cannot by-pass the intent of the law.