Cordray calls on congressional delegation to push Fed to end ‘unfair’ credit card practices

State Treasurer Richard CordrayOhio Treasurer Richard Cordray, who has been selected by state Democrats as their nominee for attorney general, is calling on Ohio's Congressional delegation to push the Federal Reserve to end credit card practices he says are unfair, "downright hostile," and out of step with state law.

Cordray made his remarks to a meeting of invited members of the Ohio Association of Community Action Agencies, and asked them to join him in petitioning Ohio's congressional delegation for changes in the Truth in Lending Act.

Cordray said only the Federal Reserve, as the regulator of the credit card industry, can ban unfair and deceptive practices under the Truth in Lending Act, unless the Congress itself takes direct action.

"Most Ohioans are working hard and playing by the rules only to find that the playing field is neither level nor fair," Cordray said. "We must work to change that. Ohioans should be confident that by doing the right things, their hard work will be rewarded and their families will prosper."

Cordray's letter to Ohio's congressional delegations asks for them to advocate for three things.

The first is to require credit card companies to issue a 45-day notice before a holder's interest rates can be increased.

"It has become widespread in the industry to add interest to late fees on debt that has been paid off. I cannot see the justification for doing that," Cordray wrote. "Similarly, it is now common to increase interest rates when a borrower falls behind on an unrelated debt, even though the borrower is working to remain current on the credit card obligation itself."

Cordray said he could understand card issuer's motivations, but that doesn't make it good public policy and the result is the consumer is pushed into unsustainable debt.

The second agenda Cordray called for was to require credit card companies to end the practice of applying the cardholder's payments to the balance with the lowest interest rate where the customer is carrying multiple balances. Cordray called this practice "more egregious" than the first.

"Although it may help maximize profits for card issuers, it is downright hostile to those consumers who are doggedly working to pay off their debts," he wrote.

Finally, Cordray wants delegates to advocate requiring credit card companies to end the practice of increasing interest rates retroactively.

"This practice seems to me to be flatly inconsistent with allowing people to "play by the rules" in addressing their outstanding debts and is irreconcilable with the general thrust of Ohio law, which uniformly disfavors retroactivity," Cordray wrote.

U.S. Rep. Steven LaTourette (R-Chagrin Falls), who serves on the House Committee on Financial Services, said he hadn't yet received the letter.

"I'll be able to review Mr. Cordray's ideas when I receive them, but perhaps it would be better next time if the letter arrived before the press release," he said.

Those who wish to comment directly to Cordray, the Federal Reserve Board, the Office of Thrift Supervision and the National Credit Union Association about the issue of unfair credit practices are invited to do so here.