Congress tackles credit card reform

NEW YORK (CNNMoney.com) -- A pair of lawmakers on Thursday urged Congress to move forward with legislation aimed at remedying what they view as questionable practices of the credit card industry that keep consumers mired in debt.

Speaking before a panel of the House Financial Services committee, Senator Carl Levin, D-Mich. and Sen. Ron Wyden, D-Ore., urged action as Americans face rising unemployment and sluggishness in the overall U.S. economy.

"If this is going to be resolved, it has to be resolved here in Congress," said Levin.

The credit card industry has come under fire from lawmakers in recent months for what some critics have labeled "unfair" practices such as raising interest rates on debt even when consumers pay on time or when their credit scores change.

The focus of Thursday's hearing, the Credit Cardholders' Bill of Rights, was proposed earlier this year by subcommittee chairwoman Rep. Carolyn Maloney, D-N.Y.

Levin, who was among a group of 15 different witnesses scheduled to testify, introduced a similar bill in the Senate last year. If passed, the law would stop credit card issuers from charging interest rates on debt that is paid on time and require that interest rate hikes apply only to future credit card debt and not debt already incurred.

The issue has also garnered the attention of the Federal Reserve, which has proposed separate action, including requiring credit-card issuers to notify consumers at least 45 days notice if they plan on raising interest rates.

Credit card companies have argued, however, that such a law would have dire consequences on all consumers by making credit more expensive and less easily available. At the same time, issuers, and some federal regulators, have argued that new legislation could have unintended consequences.

"In short, if this bill is enacted, the financial burdens associated with the higher-risk customers will be spread across all customers," said John Carey, the chief administrative officer and executive vice president of Citigroup Inc.'s credit card division.

At the same time, some of the nation's largest credit card companies have attempted to shore up their practices. A year ago, Citigroup put an end to the practice of "universal default" which allows an issuer to raise interest rates on if you are late paying any other bills. Last fall, JPMorgan Chase announced it would work to help its customers better understand and manage their accounts through clearer pricing.

Still, lawmakers, including Rep. Maloney, stressed the need for greater protection for consumers.

"Credit cards are important part of economy, we just want them to be fair to consumers," she said.

Lawmakers on Thursday also heard tales from three consumers, including Susan Wones, a Denver woman who said the rates on her multiple credit cards spiraled higher even though she stayed below her credit limit.

"I don't believe that is fair for me to pay my bills on time and live by the rules of the contract and still be penalized," said Wones. "This system must be reformed so that customers like me are treated fairly and equitably."

Based on the most recent data from the Federal Reserve, the average American family carries an average of $2,200 in credit card debt.