WTOC, Savannah, Georgia, news, weather and sports | Are Credit Card Companies Abusing Interest Rates?

Are Credit Card Companies Abusing Interest Rates?

WASHINGTON, D.C.-- It's that time of the year, the holiday season and many people are buying now and worrying about paying later. However, it may not be that easy or at least that's what some credit card users told congress today.

Janet Hard told the Senate panel, "My husband and I feel we have been robbed."

Millard Glasshof feels the same way, "I was getting frustrated, the more I paid the further behind I was getting."

That's because even though they're paying their bills on time, their interest rates are still going up. "When I look at the money we have paid Discover during just the last two years I feel sick," said Hard,  "of the $5,618 made in payments to Discover, $3,478.39 went to interest. It's hard for me to even get my mind around that."

Some Democrat senators want to ban what they call excessive fees. Senator Carl Levin of Michigan said, "Think about that, his account was closed for years, he made no new purchases. All he did for years was send in his payment for years, but his interest rate was automatically hiked 15 to 27 percent."

It seems unfair, but some credit card companies like Bank of America and Discover say they're not doing anything wrong. Roger Hochschild, Discover Financial Advisor said, "As risk increases we raise prices on those accounts, commensurate with increased risk."

But who's really at the highest risk? Is it the companies or the credit card users? Well according to credit counselor, Dean Baker, it spans out much farther than that. "We're going to see a credit crunch. A lot of people will be constrained and I think this means a recession and like a very severe rescission," said Baker.

Some credit card companies have already done away with this controversial practice. However, if the rest of the companies don't voluntarily do away with this on their own, some senators said they will try to change the law.

Reported by: Christy Hutchings, chutchings@wtoc.com