Two U.S. senators are urging the Federal Reserve for stronger protection against steep interest rate increases for credit card users who fall behind on payments by more than 60 days.
Senators Charles Schumer and Tom Harkin sent a letter to Fed Chairman Ben Bernanke on Tuesday pushing the Fed to curb interest rate hikes as part of the proposed rules to implement reforms designated by the Credit Card Accountablility, Responsibility and Disclosure Act of 2009. The Fed proposed rules based on the act last month that will take effect on Aug. 22.
“Penalty interest charges are a dangerous source of abuse,” the senators wrote. “Credit card companies can still double or triple the interest rate when a consumer falls two months behind on payments.”
The Fed has implemented a number of changes in interest-rate regulations, such as requiring card issuers to provide 45 days notice before a rate increase may be assessed. However, the Fed has declined to address “penalty interest rates,” maintaining that the law does not give them the power to do so.
In the letter, the senators maintain that the Fed is clearly given the power to rein in the practice under Section 149 of the credit reform law, which states that any penalty or charge should be reasonable and proportional to the credit user’s violation. This is not to say charges may not be incurred but that there be a reasonable limit on penalty charges.
The senators said they are ready to pursue further legislation making the Fed’s authority explicit if the Fed does not introduce a new rule to curb this practice.
“The Fed has not been a strong consumer advocate in the past,” said Schumer. “They have agreed to be a consumer watchdog and this is their first test.”
A representative of the Fed declined to comment on the letter other than to say they will address Schumer in a more formal manner.
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