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Sen. Amy Klobuchar, Published May 24 2009

Klobuchar: Credit card reforms will help

Once upon a time, credit cards were a luxury. Then they became a convenience. Now, for many Americans, credit cards are a practical necessity.

Today, 78 percent of all households have at least one credit card, and at the end of last year, the average household debt was more than $8,300. But it’s not just debt that families are paying – it’s fees and interest, too. In fact, in 2006, about two-thirds of credit card companies’ profits came from interest payments.

But even in these tough economic times, most people continue to play by the rules. They use their credit cards responsibly, make timely payments and earn good credit ratings. But then the rules change.

Many companies hide the terms of the agreement behind fine print and confusing language. They arbitrarily raise interest rates, often without proper notice. A recent national survey of the 12 largest credit card issuers found that “93 percent of credit cards allowed the issuer to raise any interest rate at any time by changing the account agreement.”

And it is happening in Minnesota – from Worthington to St. Paul to Detroit Lakes. I heard from one Mahtomedi man who had a great credit rating of 800. He has never made a late payment or been delinquent in any way on his credit card account. But he just got word in April that his fixed interest rate of 5.9 percent was no longer going to be fixed and the interest rate would go up to 10.9 percent in May.

He called the credit card company to complain. They told him he should be happy because his was one of the lower rate increases.

Last week, the Senate passed the Credit Card Accountability, Responsibility and Disclosure Act to help end abusive practices by the credit card industry.

I co-sponsored this legislation, which passed with strong bipartisan support. It was also backed by the National Federation of Independent Business and the National Small Business Association.

First, it protects consumers from arbitrary interest rate increases and prohibits credit card companies from increasing rates during the first year that a cardholder’s account is open.

Second, the legislation requires credit card companies to give 45 days notice of any increase in interest rates, fees or finance charges.

Third, it protects the rights of financially responsible credit card users by banning interest charges for debt paid on time or for late fees if the card company delayed crediting the payment.

Fourth, credit card companies will be required to show greater transparency. They must send bills to customers at least 21 days before payment is due. When people renew their cards, companies must disclose any changes in the terms of agreement.

Finally, this legislation strengthens oversight of the credit card industry by requiring the Federal Reserve to review the consumer credit card market and industry practices.

I believe Americans have a responsibility to pay the debt they owe. But to make it in difficult economic times, they also deserve to be free from abusive and deceptive credit card practices.

Klobuchar, D-Minn., was elected to the U.S. Senate in 2006.