Consumer Credit Fairness Act

Lenders that seek to charge excessive interest rates have become the target of Democratic Sen. Sheldon Whitehouse of Rhode Island. The new legislation, which was introduced in January, is called the Consumer Credit Fairness Act.

Last week Whitehouse told a Senate hearing on credit card practices that the “standard credit card agreement gives the lender the power to bleed their customers through evolving and ever more crafty tricks and traps.”

Basically the legislation would prohibit lenders from making claims on borrowers in bankruptcy if the interest rates they were charged are deemed to be excessive. Whitehouse made the point that in these tough economic times many Americans are relying more and more on their credit cards to get by while banks and credit card issuers are trying to squeeze as much profit as they possibly can from them.

The bill would set a threshold with a base rate of 15% plus the current yield of the 30 year treasury bond. This threshold will include all penalty fees and charges. This bill not only targets the credit card companies but also retail stores that offer layaway plans, overdrafts at banks, automobile loans and payday loans.

While the bill seems to gain support from Whitehouse’s Senate colleagues one Republican on the subcommittee expressed his reservations by stating, “they are a cold-blooded bunch out to make a profit, but I’m not comfortable about capping interest rates.”

Financial institutions such as credit card companies have come under fire recently for their practices. As the recession deepens and more more Americans are losing their jobs and homes, the finger is being squarely pointed at the financial sector as the root cause of the current economic woes.

Credit card practices have become the central focus of Congress recently and several new bills attempting to offer the consumer protection are in the offing.

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