On the campaign trail, Democratic presidential hopeful Barack Obama is attacking predatory credit cards.
Last month, Obama and fellow Senator Ron Wyden (D-RO) introduced legislation designed to educate and protect consumers from abusive lending practices, while providing incentives to credit card issuers to improve their practices.
The Credit Card Star Safety Act of 2007 (S. 2411) awards "stars" to each card based on a points system. Cards with fair and friendlier terms and conditions are awarded more stars, with five stars given to the safest cards. These star ratings would be required on all marketing pieces, agreements, statements and applications. The idea is that consumers would naturally gravitate toward using the cards with more stars, creating competition among credit card companies to keep and attract new customers by changing abusive practices.
The rating system doesn't measure how good the interest rate is, but rather the safety of the credit card agreement itself. For example, card issuers that state they can change the terms of the credit agreement "at any time" without notice or employ "fee harvesting" techniques would earn one star. Those that provide 90 days' notice to cardholders before changing their terms, or have agreements that are easy to understand, would earn more stars.
This program is based on the success of the five-star crash test ratings system for new cars. Initially, no car was given more than two stars; today, a number of vehicles are earning five stars. While most of the credit cards today would probably rate an average of one to two stars, Obama and Wyden expect this program will have a similar, positive impact on credit card practices.
It's a pressing issue that many voters can relate to. According to data from the Federal Reserve and the U.S. Census Bureau, in September 2007, U.S. consumers were carrying close to $880 billion in credit card debt – nearly $2,900 for every man, woman and child in the country. Credit card debt has increased by almost $163 billion since 2004, an increase of over $500 per person in the U.S., or 23% in just 3 years.
