Jun 17, 2008 8:24 pm US/Eastern
It's Possible: Credit Card Rates Of 50 Percent
NEW YORK (CBS) ―
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Imagine trying to pay down your credit card bill with an interest rate of more than 50 percent. It's happening to one Staten Island man and it could very well happen to anyone else.
AP
Americans currently have more than $900 billion in outstanding credit card debt, much of it accruing interest at a rate of about 15 percent. As if that's bad enough, imagine trying to pay down your credit card bill with an interest rate of more than 50 percent.
It's happening to one Staten Island man and it could very well happen to anyone else.
To help make ends meet, Sam Mahmoud, a father of five, often uses his credit card to take out cash advances.
"It started when I lost my job almost 2 years ago," he admits.
A Citibank card carrier for more than two decades, Mahmoud says he's always been a good customer, with a $25,000 credit line. But when he fell on hard times, he missed a few months worth of payments.
That's when, unbeknownst to Mahmoud, the interest rate on his $16,000 debt jumped to nearly 29 percent on credit card purchases and a whopping 56 percent on cash advances.
Believe it or not, it's common practice tucked away in the fine print, and now Citibank is suing him for the outstanding balance.
But there's a twist.
"In the pleadings, Citibank had said their address was a Kansas City, Mo. Address, yet they are a South Dakota corporation," said attorney Steven Crowe.
South Dakota has no cap on interest rates. But Missiouri and New York do at 25 percent. That's why a Staten Island judge agreed to a hearing.
"The judge is trying to protect the citizens of New York," said Crowe.
Congress has taken on abusive credit card practices, but advocates insist tougher laws are still needed.
"This could happen with anyone tomorrow because the contracts are so one-sided that the credit card companies can change the rules at any time in the game," said Ruth Susswein of Consumer Action.
At the end of July, the judge will decide whether Citibank is a truly a South Dakota corporation and whether the interest rates they're charging are proper. That ruling could have long ranging ramifications.
In the meantime, check your statement each month making sure to read the fine print carefully.
To avoid rising interest rates all together, experts say you have to pay the minimum balance on time each month.
(© MMIX, CBS Broadcasting Inc. All Rights Reserved.)
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