Credit card lenders go on a rampage

By Liz Pulliam Weston

Credit card issuers have become a pack of dangerous dogs. Somebody needs to yank their collective leash.

Yet Congress has blown a chance to do just that.

The House recently passed a bill that would have moved up the implementation of the credit card reform act from Feb. 22, 2010, to Dec. 1, 2009. But Senate opponents blocked a similar bill, S. 1833.

Thank you, lawmakers. Now card issuers have way more time to maul consumers.

Lenders actually started jacking up rates, lowering credit limits and closing accounts well before Congress passed the Credit Card Accountability, Responsibility and Disclosure Act, or Credit CARD Act, in May. Soaring default rates and frozen credit markets led issuers to start pulling in their horns in early 2008, as I wrote in "The credit card party is officially over."

But that law's passage has touched off a frenzy of issuer retaliation. Angry at lawmakers, lenders decided to take it out on their customers, regardless of those customers' credit scores or payment histories.

Issuers seem oblivious to the fact that jacking up rates to 20% or even 30% is often a pointlessly counterproductive move, because savvy consumers with good credit can simply take their business elsewhere (check here for better offers), while others will be forced into default.

Banks no longer even pretend

The one silver lining is that the public is finally seeing how devious and untrustworthy credit card lenders truly are. When issuers limited themselves to beating up on folks with bad credit, it was too easy for the rest of us to dismiss their foul tactics as business as usual. Now that the schoolyard bullies are going after everyone, the need for putting restraints on the industry is ever more obvious.

Although virtually every issuer has participated in the madness, a few have managed to distinguish themselves and deserve to be called out. For example:

    * After promising to stop raising interest rates in advance of the Credit CARD Act's implementation, Bank of America announced it would start slapping annual fees on accounts -- a direct contradiction of its Oct. 5 pledge to stop "re-pricing" customer accounts.

    * Citibank has been raising rates, then promising to rebate a portion of the interest paid to customers who charge a certain amount every month. In other words, the lender will give customers a small kickback as long as they keep digging a bigger debt hole for themselves.

    * HSBC apparently lowered at least one customer's credit limit simply because he lives in California. (I know some people are mindlessly biased against Californians, but this is ridiculous.)

We've heard a lot of bloviating about how lenders are just trying to protect their business models now