Yesterday, representatives from five of the nation’s biggest credit card companies found themselves forced to explain one of their most confusing, egregious and potentially catastrophe-producing practices. Led by Senator Carl Levin (D-Mich.), the Senate Homeland Security and Governmental Affairs Sub-Committee held hearings as a part of its investigation into how credit card companies use falling credit scores to raise interest rates significantly, without adequate warning or clear notice, even on customers who have consistently pay on time for years. Worst of all, credit card companies retroactively apply this higher interest rate to previously accumulated debt.

Credit card companies typically run automated credit checks on their millions of customers every 30 to 90 days; if a customer’s credit score has dropped, the customer’s rate can be increased significantly, even if the customer has a perfect payment history. There is no limit on how much the rate can shoot up due to a change in a customer’s credit score, even though the score is based on a complex formula that includes a wide number of small and large factors.

Senator Levin threatened legislation that would regulate this and other practices, urging the companies to change voluntarily. When forced to justify their practices, these companies struggled. According to the New York Times, Citigroup, JPMorgan Chase and Capital One said they will discontinue the practice. Citigroup's change already is in place and JPMorgan Chase's will take effect in March. Congress should craft legislation to get other companies to do the same.

The testimony at the hearings revealed how even customers with perfect payment histories can be thrust into destabilizing and overwhelming situation, with the interest rates on their card abruptly increasing by multiples while they remain clueless about why. Even attempting to context these changes involves navigating an intimidating labyrinth of credit-card company bureaucracy, so customers routinely find themselves in a situation they never bargained for, struggling to climb out of a deeper hole of debt through no fault of their own.

What was most striking to about what was said at the hearings was the incredible power disparity in the relationship between the credit card companies and the customer; the customers knew neither how their credit score could change, nor that their rate could be abruptly increased, nor how to contest the unfair result.

Several times over the past few years, I have waited at Banana Republic as a friend filled out a credit card application after being urged to do so in order to get a fifteen percent discount on her purchase. While we have mused aloud about the potentially harmful credit consequences, not once has someone interjected and said, “Wait! This might really hurt your FICO score, and thus all your credit card payments!” Instead each friend has been reassured that nothing bad could ever happen to someone because of a Banana Republic credit card.

But something as small as opening a new credit card account can change your credit score and thus your interest rate, without you even knowing it, even though it doesn't necessarily have any bearing on whether you can or will pay your credit card bill on time. In addition to discontinuing their rate-increasing practices, credit card issuers should be forced to inform consumers of the impact opening an account will have on their credit score.

Senator Levin said it best yesterday: 'The bottom line for me is this: when a credit card issuer promises to provide a cardholder with a specific interest rate if they meet their credit card obligations, and the cardholder holds up their end of the bargain, the credit-card issuer should have to do the same.”