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The Wall Street Journal reports this morning on how the US Senate Permanent Subcommittee on Investigations held a hearing yesterday on the subject of credit card fees, and “told credit-card companies to change their practices related to late fees, penalty interest and disclosure and promised to keep a close eye on the industry, saying its practices keep millions of Americans in debt.”

"By nickel and diming tens of millions of consumer accounts, credit-card issuers reap large profits," Sen. Carl Levin (D-Michigan), chairman of the subcommittee, said during the hearings. "It is clear that credit-card issuers charge interest and fees in ways that produce enormous profit,” but only by creating unfortunate levels of consumer debt.

Investigations Subcommittee member Sen. Norm Coleman (R-Minnesota) said that “something must be done,” and he called for simpler and clearer disclosure notices to be issued by credit card companies.

This is the second Senate committee looking into banking practices; the Senate Baking Committee, chaired by presidential candidate Sen. Christopher Dodd (D-Connecticut), also has been looking into the issue.

The Journal writes, “The credit-card companies said in some cases they have already made changes. They stressed that their business provides a vital service to consumers that carries risk. They also highlighted innovations that they argued benefit consumers.”

One of the more controversial practices that some banks said they are eliminating is “universal default,” where a bank raises the interest rate on one credit card when a consumer misses a payment on another card.

Bruce Hammonds, president of Bank of America Corp.'s card services, told the committee, "The effective elimination of annual fees, universal acceptance of interest-free grace periods and 0% interest-rate loans are just a few examples of how millions of consumers have benefited from industry innovation spurred by competition.”

Mallory Duncan, senior vice president and general counsel at the National Retail Federation and chairman of the Merchants Payment Coalition (MPC), released the following statement after the hearings: “We are very pleased that the Senate is shining a bright light on one of most abusive credit card practices of all. Interchange is the biggest fee you’ve never heard of, costing American consumers more than $30 billion a year. But unlike other credit card fees, interchange never shows up on your monthly statement. Credit card companies make it virtually impossible for merchants to tell you how much you are paying in interchange fees, even though these fees increase the price of everything thing you buy.”
KC's View:
Hang ‘em high.