CNN is reporting that congress is planning to examine credit card company practices. One of the main policies under scrutiny is that many credit card companies have started raising the interest rate if the card holder’s credit score declines — even if they have never made a late payment on the card. If congress outlaws some of the more abusive practices like this, it may hurt the P2P lending market since many of the people borrowing are attempting to refinance credit card debt. From the article:
At a hearing Tuesday, Levin’s subcommittee, which has been investigating the industry, plans to look at how credit-card issuers raise consumers’ rates, to as high as 30 percent, when their so-called FICO credit scores decline – even if they’ve paid credit card bills regularly and promptly. In many cases, consumers have little notice of the increased rate, which is automatically triggered by declines in FICO scores for reasons left unexplained, the subcommittee found.
In some cases, just opening another account, such as a department store credit card, could trigger the downgrade in credit score.
Some interesting debt statistics from the article include that Americans have $900 billion in credit card debt — $2,200 per person. With debt statistics like that, why can I have trouble finding someone to extend a loan to at Lending Club?
congress, credit cards, debt
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I think the universal default clause is much more insidious. It’s because the borrower went late (whatever you think of the justification), but can have a huge impact on all debts.
A person could get into just a little financial trouble where they pay one debt late and that policy would likely trigger a complete downward spiral causing financial ruin.