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Published: Monday, 4/28/2008

Credit jungle

AMERICANS rely too much on credit cards, and in a bad economy that's likely to get worse. However, credit-card companies can stack the deck against consumers through unfriendly terms.

In the United States there are at least 1.3 billion credit cards in circulation, which averages about 12 cards per household. Without a doubt, many Americans need to develop greater discipline in buying on credit.

But consumer advocates fault credit-card companies with too often taking advantage of customers, and so favor stricter regulations. Such rules might not even hurt the credit companies. The Tobin Project, a think tank based in Cambridge, Mass., said, "companies offering safer products would be more likely to flourish."

Regardless, members of Congress are pushing action through a pair of sensible bills - HR 5244 in the House and S 2753 in the Senate - which would change some of the rules that govern America's heavy use of plastic.

Both measures would bar credit companies from charging interest on balances repaid during the grace period; requiring lower interest-rate balances to be paid off before applying payments to higher interest rate balances, and applying interest rate hikes retroactively. The legislation would regulate two other practices: changing contract clauses with little to no warning or reasoning and slapping late fees on payments made on time but processed slowly.

Credit-card companies say these regulations would increase the price of credit and limit the broad range of credit options available. Instead, they have endorsed the intent of the Federal Reserve Board to develop rules that will "prohibit unfair or deceptive" credit-card practices.

Consumer groups argue, though, that it's time for Congress to rein in certain practices by credit issuers. Whether it's a son who faces college expenses, a mother who needs to pay for medication, or anyone who uses credit to make ends meet, most Americans know someone who has felt victimized by credit-card offers containing terms that were not fully explained or understood.

The reforms proposed in the bills provide thoughtful regulations to protect Americans from excesses that favor the credit industry. Sensible rules, like requiring 45 days' notice before an interest rate hike and up-front disclosure of what warrants a contract adjustment, only make for a more transparent marketplace.

At a minimum, more consumer-oriented regulations would give card applicants greater information on their cost of using credit. That would be good for everyone.

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