Freeze in Use of Credit Cards Urged to Lower Interest Rates

Americans should stop using their credit cards or “cut them up and mail them back” until charge card companies lower their interest rates, a House subcommittee chairman said Tuesday.

“What I am proposing is that the nation’s 91 million credit card holders put their plastic (cards) in their pockets and leave them there until interest rates drop,” Rep. Frank Annunzio (D-Ill.), chairman of the House consumer affairs subcommittee, said at a hearing on high consumer interest rates.

“If enough consumers take their credit cards out of circulation or, better yet, if they cut them up and mail them back to the issuer, not only will rates go down but you will see credit card issuers vying to see who can cut their rates the lowest and to attract the disenchanted credit card users,” he said.

Rates Average 18.6%

Annunzio said that even though interest rates paid by banks for the money they loan out have dropped to about 8% from their 1980 peak of about 20%, credit card interest rates have remained at an average of 18.6%.

Recent surveys show that Montgomery Ward charges 21.6% on its credit cards and Sears 21%.

The subcommittee is considering two bills requiring lower interest rates.

A bill by Rep. Mario Biaggi (D-N.Y.) would cap credit card interest rates at 5% above the federal discount rate--the interest rate charged by the Federal Reserve Board to lending institutions. Biaggi said that consumers are being overcharged “to the tune of $2 billion a year” and called the high credit card rates “gouging, pure and simple.”

The other bill, by Rep. Charles E. Schumer (D-N.Y.) would cap interest rates at 6% above the interest rate for three-month Treasury bills, adjusted quarterly.

Under either bill, the interest rate on credit card balances would fall to about 13%, sponsors said.

David Hunt, representing the American Bankers Assn., urged the committee not to adopt any cap because it “could result in a significant reduction in available credit, services and choices for consumers.”