Americans for Fairness in Lending

"It makes no sense at all for the government to protect or increase the availability of credit card loans while allowing credit card issuers to continue to use unfair and deceptive practices," says Travis Plunkett, legislative director at the Consumer Federation of America.

Earlier this week, the U.S. Treasury and Federal Reserve announced plans to extend low-rate loans designed to help banks shore up their portfolios of credit card and other consumer loans. Consumer advocates and reform-minded lawmakers say that move should open the door to much stricter regulations on how banks charge high rates and penalty fees.

A USA TODAY two-part investigative series on credit traps revealed how banks sharply boosted credit card rates and fees, then enticed consumers to take out home equity loans to pay off high credit card balances. The series also explored how banks packaged credit card debt to be sold as securities to Wall Street investors.

Selling credit card debt as securities gave banks a powerful incentive to boost profits via high rates and penalty fees.

Banking industry officials say high rates and fees reflect how risky the borrower is. Now, as low-rate public loans get made to buttress banks' credit card portfolios, the federal government will enjoy unprecedented leverage to impose reforms, should it choose to do so, says Gail Hillebrand, senior attorney for Consumers Union. "We certainly should not be spending our tax dollars supporting rip-off practices while waiting for credit card reform," she says.

Robert Lawless, bankruptcy law professor at the University of Illinois, predicts credit card reform will become a high priority for the Obama administration.

"The credit card industry has built a profit model off of people's mistakes, and that's got to change," Lawless says. "The American people won't want to be co-owners of an industry that uses trickery to make money off the backs of the middle class."

Earlier this month, Sen. Chris Dodd, D-Conn., chairman of the influential Senate Banking Committee, vowed to strengthen protections for individual borrowers.

Sen. Robert Menendez, D-N.J., says the timing may be ripe. "We're seeing a confluence of issues," Menendez said in an interview. "We have a perfect set of circumstances that will drive not only transparency, but true reform."

He calls for restrictions on interest rate increases, a ban on the issuing of credit cards to unemployed juveniles and college students, and a ban on charging interest on penalty fees.