Rate hikes pique Titus’ interest

Tuesday, May 8, 2007 | 7:38 a.m.

CARSON CITY - Credit card companies' practice of ratcheting up customers' interest rates for seemingly unrelated financial mistakes - such as paying a utility or phone bill late - has recently caught the attention of consumer advocates, journalists and now state Sen. Dina Titus, D-Las Vegas.

A bill to prohibit the practice, Senate Bill 302, passed the Senate and was on its way to passage in the Assembly on Tuesday, where it's supported by Speaker Barbara Buckley, D-Las Vegas.

A team of banking lobbyists scrambled Monday to find a compromise with Titus.

The compromise language would allow issuers to change a customer's interest rate as his or her credit score declined. That would still protect someone who paid a power bill late because that wouldn't tend to affect a credit score.

In return, Titus has demanded that issuers not be allowed to change an interest rate based on a credit score until one year after the card has been issued. Also, if a bank were to raise the interest rate, it would have to inform the customer in a letter that would come in a different envelope than a monthly bill. It also would have to allow the customer to shut down the account and pay the balance at the original interest rate.

Titus said she was willing to compromise because the law would have the most effect on Nevada banks as well as two national banks that issue cards in the state: Washington Mutual and HSBC. They said they would be at a competitive disadvantage because of the law, she said.

Nevertheless, Titus said she had committed to nothing yet.

Banking industry lobbyists and spokespeople wouldn't comment on the record but privately said they support a compromise.

Louis Freeh, general counsel of former credit card issuer MBNA, told The New York Times in a report on the practice that the company was "being prudent by raising rates when it had reason to think the risk of not being repaid had increased."

Edward Yingling, executive vice president of the American Bankers Association, told The Times that bankers must have the flexibility to change terms on short notice.