Milestones: A check on crazy credit card fees

A landmark victory for consumers

On May 22, 2009, PIRG’s Ed Mierzwinski stood beside Rep. Carolyn Maloney (N.Y.) and Sen. Chris Dodd (Conn.) in the White House Rose Garden as President Obama signed the Credit CARD Act into law.

It was a landmark victory for consumers. The new law prohibited a wide range of abusive practices that some banks and credit card companies had been doubling down on year after year after year. Bumping a family’s interest rate to 27.99% even though they had never been late on a payment; charging a $39 fee for being a few hours late paying off a $70 balance — tactics for squeezing more money out of its customers had long ago passed into the realm of the outrageous. In 2009, the Credit CARD Act finally curbed the worst of these abuses — and PIRG helped secure the victory.

A corrupted business model

For decades, credit cards consistently have been the most profitable form of consumer lending for banks and credit unions. In 1999, however, banking deregulation allowed many players in the industry to employ new, more questionable tactics to keep those profits rising ever-higher. As Ed described in a 2013 consumer law hearing in Chicago:

“Credit card companies and their issuers began changing bill due dates, shortening the period between when bills were mailed and when bills were due, saying that payments that arrived after 11:00 a.m. on the due date were late, making bills due on a Sunday and declaring payments that arrived on Monday late — and that was all just to collect more late fees.

“They then began ratcheting up interest rates to as much as 36% APR and applying the new interest retroactively on existing balances. They imposed universal default, saying consumers who’d always paid on time but were late to any other creditor were in default and that their APRs must go up.”

And through it all, the industry’s lobbyists enjoyed significant influence in the halls of power. From 1989 until the run-up to the 2009 Credit CARD Act, Congress held only two hearings, and no votes, on reforming credit card practices. In 2005, Congress passed a bankruptcy reform bill that gave banks even more power over debtors.

Breaking through

Even as the prospects for credit reform were dim, Ed and our consumer team made an impact by providing information, tips and resources directly to the public. For example, U.S. PIRG and U.S. PIRG Education Fund published reports and guides to help consumers lower their credit card APR (annual percentage rate) and avoid predatory credit card solicitations and misleading terms. PIRG’s Christine Lindstrom ran a Truth About Credit campaign on college campuses across the country.

At the same time, PIRG and other consumer advocates, along with credit reform champions in Congress, kept pushing for legislation to give consumers relief.

In the late 2000s, the dominoes started to fall. First, credit card companies overreached by raising interest rates across the board with no stated reason. Second, the 2008 economic crash made an overdue review of bank and credit industry deregulation all but inevitable.

Enter Rep. Maloney and Sen. Dodd (the latter of whom was also heavily involved in the Dodd-Frank Act that created the Consumer Financial Protection Bureau) and the Credit CARD Act of 2009. The new bill promised strong protections against excessive fees, sudden changes to bill due dates, unannounced interest rate increases, and aggressive solicitations targeting younger consumers. Importantly, it also mandated that if a company does raise its rates, it must lower them if the consumer pays on time for six months.

Ed and the rest of the PIRG consumer team testified before congressional committees, submitted comments to the Federal Reserve on enforcement of the proposed regulations, and earned public attention through media outlets such as PBS Frontline. The campaign team celebrated the bill’s passage on that May day in the Rose Garden.

About this series: PIRG and The Public Interest Network have achieved much more than we can cover on this page. You can find more milestones of our work on financial protection below. You can also explore an interactive timeline featuring more of our network’s financial protection milestones.