Ellison’s first bill would end controversial credit card practice

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WASHINGTON — Rep. Keith Ellison’s first bill would ban credit card companies from raising interest rates on customers because they’re behind on payments to other creditors, the first in a series of bills he says will focus on consumer justice.The practice, known as “universal default,” has come under attack by consumer groups and some members of Congress. Ellison, a freshman Minnesota Democrat, plans to introduce the bill on Thursday.“If you are late on a credit card, then it might be fair to address your credit worthiness for that credit card,” Ellison said in an interview. “But if you’re on time for somebody else’s credit card, it’s not fair to jack you up if you’re not late on that card. It’s just a basic issue of fairness.”The bill appears to have decent prospects in the House. The chairman of the House Financial Services Committee, Rep. Barney Frank, supports the bill, said committee spokesman Steve Adamske.He added that the committee will be looking into credit card practices, which could lead to legislation, and that Frank “expects Mr. Ellison’s bill to be a part of that mix.”Ellison, who serves on the committee, said he chose this as his first bill because he believes it’s important to bring back balance between corporations and consumers.“I’m pro-business — businesses help supply jobs — but the government does have a role to make sure that there’s some fairness for consumers,” he said. “We’re going to spend a lot of time doing that.”Citigroup Inc., the nation’s largest financial institution, and some others have already eliminated the practice.The American Bankers Association, a Washington-based trade group for banks, including those that issue credit cards, has concerns about the legislation.“It’s very important that banks be able to price for risk,” said Ken Clayton, a lobbyist for the group. “The risk profile of individual borrowers can change at any point. So what was a $1,000 borrowing without any other outstanding credit that’s not risky at one point, may be a lot more risky where there’s $50,000 of credit outstanding somewhere else.”He said that banks need to have the ability to make risk-based judgments.“Unfortunately, the bill would take that away,” Clayton said.Ellison said that just because someone is late on a credit card payment doesn’t mean that person is necessarily a bad credit risk.“I don’t think it should harm their ability to obtain credit,” he said. “And I also think it’s unfair to raise their rate on a card that they’re not late on. People already have enough trouble as it is if they’re behind on a credit card.”Minnesota Sen. Norm Coleman helped look into credit card practices in March as the top Republican on the Permanent Subcommittee on Investigations. In a statement, Coleman said he’s been pressuring the credit card issuers to re-evaluate their practices, and is currently reviewing universal default, which he called “fundamentally unfair to the consumer.”“We should give the issuers a chance to develop more consumer-friendly policies before we add even more layers of federal regulation,” Coleman said. “If the credit card issuers don’t take the initiative and clean up their act, legislation might be the next step.”Ellison said he also wants to pursue other areas aimed at helping consumers, such as limiting high-interest rates on credit cards and making it easier for people who have legitimate needs to file for bankruptcy.“I’m concerned about issues that are wrapped up in a family’s ability to put food on the table, shelter over their heads, heath care,” he said. “This is the beginning of a whole credit reform effort we’re going to be pursuing.”
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