Reform in the Age of Plastic (Sen. Chris Dodd)

"Consumers, by definition, include us all," said President Kennedy in an address to Congress in 1962. Delivered only four years after the first widely-accepted charge card was issued, he could hardly have imagined the credit card boom to come -- or how much Americans would come to rely on them.

Americans know they have a responsibility to live within their means and to pay what they owe. But they also have a right not to be deceived, misled, or ripped off by unfair and arbitrary credit card industry practices that have become commonplace. That's especially important when one considers how credit card use has expanded in the US.


Today, three-quarters of American households have at least one credit card. And where only about 16 percent of U.S. households used credit cards four decades ago, with fewer than a million merchants accepting them, purchases made with credit and debit cards now outnumber those made with cash and check.

Unfortunately, as the use of credit cards has soared, so too has the list of predatory practices, hidden fees and sudden interest rate hikes to which the industry has increasingly resorted -"any time any reason" interest rate increases, "double cycle billing" that charges interest on balances that the consumer has already paid, deceptive marketing to young people, and skyrocketing penalty interest rates, some as high as 32 percent.

The industry has profited handsomely; between 2007 and 2008, credit card companies raised interest rates on nearly one out of every four accounts -- 70 million cardholders in all who were charged $10 billion in extra interest.

Put simply, this is an industry that has thrived in part on misleading its customers. Consumers should not have to live in fear that a clause buried in the fine print of their credit card contract might someday be their financial undoing.

Even the federal financial regulators finally recognized the threat posed to consumers and our economy alike, finalizing rules that would curb some of these unfair and deceptive practices.

But with our economy in deep recession and layoffs mounting, the time has come for broad reform -- to insist on consumer protections that are strong and reliable, rules that are transparent and fair, and statements that are clear and informative.

Those principles are the very essence of the Credit Card Accountability, Responsibility and Disclosure (CARD) Act, legislation the Senate will vote on today.

Protecting millions of Americans not covered by the Federal Reserve's rules, the legislation prevents unfair increases in interest rates and changes in the terms of credit card contracts -- prohibiting the kind of unjustifiable rate increases on existing balances that the Pew Charitable Trusts found were allowed by 93 percent of cards surveyed, while preventing the kind of "gotcha" tactics that say if you pay late once, you're penalized forever.

The bill puts an end to exorbitant and unnecessary fees that drive families further into debt--requiring that any penalties be proportional to the violation and prohibiting issuers from charging fees when customers make a payment by phone or unknowingly exceed their credit limit.

The Credit CARD Act protects the rights of financially responsible credit card users -- so that if the credit card company delayed crediting your payment or charged you for debt paid on time, you aren't charged for their mistake.

This legislation also requires far better disclosure of card terms and conditions. Cardholders should not need a microscope to read what a statement says and a law degree to understand what it means.

Importantly, the bill includes robust protections for young people who credit card companies have shamelessly and aggressively targeted for years. According to Sallie Mae, college students graduate with an average credit card debt of more than $4,100, and nearly a fifth of students have balances over $7,000.

The Credit CARD Act limits the kind of prescreened offers that get so many young people into trouble and requires companies to take into account a young person's ability to repay before allowing them to take on what is all too often a lifetime of debt.

And finally, with fines as high as $5,000 per violation, credit card companies will understand that if they violate the terms of an agreement with their cardholders there will be serious consequences.

When given fair terms, credit cards can be a valuable financial tool for millions of Americans. But that's far from the case today. And with our economy in trouble, Americans do not deserve -- and cannot afford -- to be pushed down the economic ladder by credit card companies any longer.

Over and over we've heard that consumers should act responsibly when it comes to credit cards. I agree -- but it's time we held credit card companies to the same standard.

Cross-posted from The Huffington Post