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"Tricks and traps" with Senate Banking

“Tricks and traps.” Those were the terms used to describe credit card industry practices to snare vulnerable and lower-income people into a vicious cycle of credit card interest payment and fees. Sound familiar? Sounds like the credit card issuers are likely to get similar treatment to those “predatory lenders” — i.e., lenders who provide credit to higher risk consumers at higher interest rates. Today, at Senate Finance Committee hearings titled “Examining the Billing, Marketing, and Disclosure Practices of the Credit Card Industry, and Their Impact on Consumers,” Committee Chairman Christopher Dodd (D-CT) put the industry on notice that policymakers are examining their rates and fees and disclosures with a view to possibly setting limits. Senators seemed to love the testimony of Professor Elizabeth Warren of Harvard Law School who said that card issuers are trying to “catch consumers who stumble or mistake those traps for treasure and find themselves caught in a snare from which they cannot escape.” Industry representatives tried to explain that they want their customers to make their payments on time. They don't deliberately set out to find customers who will pay late, make only minimum payments, or exceed their credit limits. But when customers do pay late, they will charge late payments. When they only pay the minimum on their debt, their interest charges will keep adding up. If their credit risk increases, their interest rate may rise. It sounded too as if the senators on the panel and the “consumer advocates” on the witness stand wish that credit card issuers would only provide credit to the “prime” and “ultra-prime” customers — especially those that pay their balances in full each month. Wouldn't it be nice if poor people didn't have to use credit? Ah, but if that were the case, wouldn't the Senate Banking Committee be quick to hold new hearings on “Discriminating Against Low-Income Consumers: How Credit Card Issuers Seek to Serve Only the Rich”?