The Senate Permanent Subcommittee on Investigations conducted a hearing Tuesday at which credit card companies were criticized for using cardholders' credit ratings rather than payment history to justify arbitrary interest rate increases. "To me, if a person meets their credit card obligations to a credit card issuer and pays their bills on time, it is simply unfair for that credit card issuer to raise their interest rates," said Subcommittee Chairman Carl Levin (D-Mich). He and seven other Senate Democrats have proposed a bill designed to fight unfair credit card practices. "Dangers lurk that few consumers realize could damage their financial future," Levin said. Bank of America (NYSE:BAC) Card Services President Bruce Hammonds assailed the attempt to alter the industry's means of assessing risk. "Attempts to interfere... will inevitably result in less credit being offered," he said. "Risk-based pricing has democratized access to credit." Disregarding changes to a cardholder's credit rating "is like taking the batteries out of a smoke detector," said Roger C. Hochschild, president and COO of Discover Financial Services. "It's important criteria." Some institutions have indicated they would be willing to go along with a Federal Reserve proposal to give cardholders 45 days' notice that their rates are going up, a policy that Capital One has already adopted. Shares of credit card issuers were down Tuesday, including Mastercard (MA -3%), American Express (AXP -2.5%), Capital One (COF -2%) and Discover (DFS -1.1%).
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