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Consumers Union urged the Federal Reserve Board today to stop credit card companies from unfairly hiking interest rates and engaging in other unfair practices designed to get around new consumer protections set to go into effect in early 2010.

The Fed is currently considering a set of proposed regulations to implement the Credit CARD Act passed by Congress earlier this year. Most of the new rules are due to go into effect on February 22. In the meantime, however, credit card companies are raising interest rates on many customers and implementing new changes to contracts in order to circumvent the protections of the new law.

“There’s no question that many credit card companies are using the long implementation time before new regulations go into effect to gouge consumers and test new ways to evade the law,” said Lauren Bowne, staff attorney with Consumers Union. “The Fed should use its power to make sure consumers are protected from these unfair practices that undermine the safeguards Congress intended to enact.”

In a letter submitted to the Federal Reserve Board today, Consumers Union outlined a number of unfair credit card practices that have emerged since Congress passed the Credit CARD Act. The group urged the Fed to stop these abusive practices along with adopting other protections, including:

Stop credit card issuers from coercing customers to accept interest rate hikes that will be illegal under the new regulations: Chase bank has drastically raised minimum payments twice in the past 12 months on many customers with credit cards that had a promotional fixed interest rate for the life of the loan. Many card holders with large balances have been faced with the difficult choice of accepting a 250% hike in their minimum payment or a higher interest rate that will soon be prohibited by law. In most cases, the Credit CARD Act prohibits card issuers from raising interest rates on existing balance unless the customer has been more than 60 days late.

Prevent card issuers from using “interest-back programs” to raise rates that will be illegal under the new regulations: Citibank has been changing customer contracts to raise rates to as high as 29.9% but offering to credit back 10% of the interest if customers pay on time. This “interest-back” promotion disguises an interest rate increase that would be prohibited under the Credit CARD Act unless the customer was seriously delinquent.

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Source: Consumers Union