Congress Looks at Lending Practices

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Congress turned a blinding spotlight on credit card companies regarding their sometimes pricey practices.

The focus this time: companies that seem to arbitrarily raise interest rates even though customers have done nothing wrong.

Congresswoman Carolyn Maloney says interest rate hikes are often unreasonable.

"It's a contract between the card holder and the card company but now it is very one-sided. The card company gets to make all of the decisions," she told ABC News.

The industry says new laws aren't needed to address rate hikes because competition works better.

"It's a very competitive market," said Nessa Feddis with American Bankers Association. "And people can simply choose to move to a different card company. People aren't married to their credit cards."

Mortgage Lending Credit Crisis

But skyrocketing credit card rates weren't the only financial problem Congress addressed today.

Treasury Secretary Henry Paulson said Thursday that a presidential working group wants stronger regulatory oversight of mortgage lenders to avert the kind of credit crisis that is dragging the economy down.

"The objective here is to get the balance right - regulation needs to catch up with innovation and help restore investor confidence, but not go so far as to create new problems, make our markets less efficient or cut off credit to those who need it," said Paulson, who heads the working group.

One recommendation calls for federal and state regulators to strengthen oversight of mortgage lenders.

Another urges state financial regulators to implement strong nationwide licensing standards for mortgage brokers.

The group also called for improvements by credit rating agencies that have been criticized for not accurately assessing risk on complex mortgage investments.

The working group also is calling for better disclosures and assessments of risks on investments.

Credit Meltdown

The recommendations come as the meltdown in the housing and credit markets has unhinged Wall Street, catapulted home foreclosures to record highs and forced financial companies to rack up multibillion losses on bad investments in mortgage backed securities.

The mess threatens to plunge the country into its first recession since 2001.

More recently, the President's working group has been looking into the causes of the current credit crisis and searching for ways to prevent a recurrence.

"The turmoil in financial markets clearly was triggered by a dramatic weakening of underwriting standards for U.S. subprime mortgages, beginning in late 2004 and extending into early 2007," the working group concluded.

"But the loosening of credit standards and terms in the subprime market was symptomatic of a much broader erosion of market discipline on the standards and terms of loans to households and businesses," the group said.

Paulson said market difficulties - like the one currently being endured - often expose weaknesses that can be overcome with experience.

"That experience often comes from lessons learned from prior challenges and prior mistakes," he said.

Source: ABC News, The Associated Press

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