Illinois AG Announces Proposed Changes for Credit Cards

Illinois Attorney General Lisa Madigan is urging federal regulators to take steps even stronger than the ones they have proposed to reform some of the practices of the credit card industry.

“It is more important than ever that consumers be treated fairly and understand their credit card terms so that they can manage their finances accordingly,” Madigan said in a prepared statement.

The proposed federal rule would give consumers more time to pay their credit card bills, require companies to allocate payments fairly between low-interest and high-interest account balances, and protect consumers from certain unexpected increases in the interest rate on their existing balances.

Madigan recommends that when allocating payments on a card with different annual percentage rates, credit card companies should be required to put all of the payment toward the balance with the highest interest rate. Under the current proposal, credit card companies would be allowed to divide a payment among multiple balances, including the balance with the lowest annual interest rate.

Like Minnesota Democratic Senatorial candidate Al Franken ("Al Franken Proposes Sweeping Changes to Bankruptcy and Credit Card Laws," Aug. 14), Madigan wants to ban the practice of universal default, which permits credit card companies to raise the interest rate on a card’s existing balance based on events that are entirely unrelated to the cardholder’s payment history on the account – such as when the cardholder is carrying a high balance on another credit card or makes a late payment on a utility bill.

Madigan said that limitations on late fees and other penalty charges are especially important for families trying to regain their economic footing. Average late fees on credit cards rose from less than $13 in 1994 to $35 in 2007, while over-limit fees more than doubled, rising from $11 to $26.

According to Madigan’s office, Americans are carrying $2.56 trillion in consumer debt, up 22 percent since 2000, and complaints related to credit and financial services ranked second among the top 10 consumer complaints filed with Madigan’s office in 2007. Of the 32,577 complaints Madigan’s consumer fraud bureau received last year, more than 1,000 concerned problems with credit card companies.