Connecticut Attorney General Richard Blumenthal asked Federal Reserve Chairman Ben Bernanke Monday to roll back increases in fees and interest charged to credit card holders.
Blumenthal said banks are raising credit card interest rates and fees on creditworthy customers to recoup losses. He asked Bernanke to use his authority to cut credit card interest rate and fee increases to the levels of January 2009.
"The banks are compelling creditworthy consumers to rescue them twice _ once through taxpayer-funded bailouts and a second time through exorbitant credit card interest rates and fees," he said.
A spokeswoman for the Federal Reserve in Washington declined to comment Monday.
The American Bankers Association, an industry trade group, said credit card issuers are coping with historically high defaults as consumers such as those who have lost their jobs are unable to pay their credit card bills. The proportion of credit card charge-offs _ or the value of loans removed from the books and charged against loss reserves _ was 10.2 percent in the third quarter of last year, according to the Federal Reserve.
That was up from 5.7 percent in the same quarter in 2008 and about 4 percent in the comparable periods in 2007 and 2006.
"While there are a number of factors that contribute to rate increases, current increases are primarily a function of the significant number of borrowers nationwide who are not repaying their bills and the continued increased risk of nonpayment in the future," Edward L. Yingling, president of the bankers association, wrote to Blumenthal last month.
Credit card loans are "enormously risky" because they are unsecured, he said.
However, Blumenthal said banks are drastically raising credit card fees and interest rates in advance of new federal rules that take effect Feb. 22.
Don Klepper-Smith, chief economist and director of research at DataCore Partners in New Haven, questions how effective demands by Blumenthal and other public officials will be in prodding the Federal Reserve to roll back interest rates.
Despite aggressive cuts in the interest rate to near zero by the Fed, interest rate declines "have not made their way into the credit card market," he said.
"Legislating that sort of thing, I question how effective it will be," Klepper-Smith said.
Instead, consumers can avoid costly interest charges by paying credit card balances in full each month, he said.
"We are a society living beyond its means as consumers, government, businesses," Klepper-Smith said.