Originally published December 19, 2008 at 12:00 AM | Page modified December 19, 2008 at 12:22 PM
Comments (26)
E-mail article
Print view
New credit-card rules faulted
Consumer advocates in the Seattle area criticized new federal rules on credit-card companies for not taking effect soon enough and for not going far enough.
Seattle Times staff reporter
Information
Track credit-card delinquency rates by county: The Federal Reserve Bank of New York is posting the delinquency rate on credit cards and mortgages every quarter. http://data.newyorkfed.org/creditconditionsmap/
New federal rules announced Thursday limiting the ability of companies to increase interest rates on credit cards won't take effect soon enough and don't do enough to prevent rate jumps, said local consumer advocates.
Pierce County credit counselor Jennifer Hegstad dubbed one practice called universal default, "a mean little creature," because companies don't have to warn consumers that their interest rates are going to be increased. And universal default isn't entirely banned under the new rules.
Buried in the fine print of cardholder agreements, this provision gives companies the discretion to raise a card's interest rate if a credit report changes, even if that change is due to a new loan or because the customer was late once paying a different credit card.
The new rules will limit the practice some. William Ruberry, a spokesman for the Office of Thrift Supervision, said the rules will ban universal default on existing card balances and require advance notice on future balances.
Those changes mark the most sweeping clampdown on the credit-card industry in decades and are aimed at protecting consumers from arbitrary interest-rate increases or inadequate time provided to pay the bills. The rules were approved by the Federal Reserve, the Treasury Department's Office of Thrift Supervision and the National Credit Union Administration.
But the new rules also won't take effect until July 2010.
That's too late for Erin Engle, of Shoreline. In April she discovered on her Washington Mutual VISA credit-card statement that the interest rate on her balance was raised from 9.99% to 23.99%, which came as a shock because she said she always paid on time, sent in more than her minimum payment and had a good credit score.
After speaking to a supervisor in the credit-card unit, Engle said the only explanation she received was that the bank considered her account to be at higher risk of default. That didn't make sense: She and her husband were keeping up with their mortgage and other credit cards. Engle decided to transfer her balance to a lower-interest card.
"My conclusion was they were trying to scoop their losses from the people who actually paid their balances because they were taking such losses from people who were defaulting," said Engle, 31.
The universal-default provision is the reason many of her clients have filed for bankruptcy protection, said Everett attorney Mary Schmitt.
Universal default "causes everything to snowball," Schmitt said. "That's why they're all in bankruptcy."
If a cardholder is even one day late with a payment, the bank can raise the default interest rate so high — she's seen one as high as 52 percent — that an individual or family has no chance of paying it off, Schmitt said.
Credit-card issuers turn the accounts over to collections agencies, which get a judgment against the individual, whose wages can then be garnished. It's not long before the family defaults on their mortgage and is headed for foreclosure, she said.
Amid the recession and rising job losses, consumers have been defaulting at high levels on their credit cards. Bankruptcy filings in Washington state have spiked 40 percent since last year.
The proposals drew more than 65,000 public comments — the highest number ever received by the Federal Reserve. The rules also limit such lender practices as allocating all payments to balances with lower interest rates when a borrower has balances with different rates.
Sanjay Bhatt: 206-464-3103 or sbhatt@seattletimes.com
Information from The Associated Press is included in this report.
Copyright © 2008 The Seattle Times Company
UPDATE - 02:55 PM
Microsoft warns of serious computer security hole
Service sector shrinks less than expected in June
Tech execs double as scourges and sages at Allen & Co.'s media summit
UPDATE - 03:08 PM
Stocks end mixed; Oil slide hits energy shares

2009 fireworks time lapse
With strict parking rules enforced at this year's July 4th celebration on Wallingford Ave North, less cars and more spectators filled the streets.
Entertainment | Top Video | World | Offbeat Video | Sci-Tech
- Seattle may allow homeowners to build backyard cottages
- Landmark Smith Tower mostly vacant
- Police: McNair's girlfriend bought gun Thursday
- Mariners Blog | What the Seattle Mariners learned on their road trip
- Property taxes: Appeals shoot up in King, Snohomish Counties
- Climber who died in fall was Duvall woman
- New laws help tenants evicted due to foreclosure
- Palin links resignation to 'higher calling' and blasts media in Facebook posting
- Former NFL MVP McNair killed
- Hard times for tourist towns means good deals for travelers
- Palin links resignation to 'higher calling' and blasts media in Facebook posting
221 - What Mariners learned on this road trip
160 - Tent City on campus: UW stalls decision
118 - Seattle may allow homeowners to build backyard cottages
98 - FBI denounces rumors: Palin not investigated
91 - New laws help tenants evicted due to foreclosure
74 - Bellevue ordinance would fine retailers for not collecting runaway shopping carts
65 - Bicyclist fatally hit by SUV outside Bremerton
64 - 2 wounded in Central District drive-by shooting
63 - Man fatally shot by King County deputy during domestic-violence call
47
- Seattle may allow homeowners to build backyard cottages
- Property taxes: Appeals shoot up in King, Snohomish Counties
- Researchers stunned by inmates' success raising endangered frogs
- Hard times for tourist towns means good deals for travelers
- Landmark Smith Tower mostly vacant
- 250 gather in field near Twisp for fairy congress
- New laws help tenants evicted due to foreclosure
- Microsoft warns of serious computer security hole
- Plasma and LCD beware; OLED screens ready to go mainstream
- Home sales climb in June in King County; median price drops from year ago to $395,000


