Excessive credit card fees under scrutiny once more

Congressional hearings about excessive fees charged by credit card issuers have resumed in Washington. The topic attracted attention during the summer when the hearings started but was overshadowed by the mortgage market's plight.

The issue is back in the spotlight and the scrutiny could spur relief for credit card users.

Recently, Chase Bank, one of the top five credit card issuers, announced that it will stop its practice of increasing cardholders' interest rates if their credit scores decline, starting March 1.

This is an important step, because so many actions could hurt your credit score. For example, it might decline if you have too many credit-check inquiries, close an old account, increase your debt too much or pay a bill late.

Consumer groups are hoping Chase's move will trigger a ripple effect.

"It's still a very competitive industry," said Curtis Arnold, founder and director of CardRatings.com. "When Chase makes an announcement like this, it gives them a competitive advantage and prompts its competitors to make similar announcements."

This is actually the second major step Chase has taken to tame its rates and fees.

During congressional hearings last summer, Wesley Wannemacher of Ohio testified that he racked up $7,500 in interest, late-payment and over-the-limit fees on an original debt of $3,200. In response, Chase said it would stop charging over-the-limit fees on balances that remain too high for more than 90 days. Chase also dropped its two-cycle billing practice, a calculation that resulted in additional interest charges.

Citigroup, another major credit card issuer, also made changes after the summer hearings. The company stopped the practice of "universal default" rate increases; that is, raising cardholders' rates if they have a late payment on another company's credit card. The company also promised not to adjust a cardholder's original interest rate until the card expires, typically after about two years.

Both companies say they will adjust customers' rates based on their payment histories with them. So if you are late on a payment or go over your credit limit, you can still expect your rate to go up.

More help may be coming. This month's hearings led two senators to introduce the "Stop Unfair Practices in Credit Cards Act," which would protect consumers against some of the credit card companies' punitive practices. And the Federal Reserve is asking companies to give customers 45 days' notice before they raise rates, up from the current 15 days.

I am happy to see that these hearings have shone the light on some very harsh credit card practices and led major companies to make much-needed improvements. But there is room for more.

Bill Hardekopf, chief executive of LowCards.com, a consumer resource on credit cards, said there are still a number of harmful practices that credit card companies should address.

Positive steps would include applying monthly payments to the highest-rate balances first and making terms and conditions easier to understand, he said.

Despite recent changes, credit card issuers continue to find ways to increase rates. "They still have stockholders to report to," Hardekopf said. "If they are going to have revenue decreases in one area, they have to try to make up for that loss in some other areas."