America's largest financial institutions to explain how they set interest rates

A US congressional panel will ask some of America's largest financial institutions to explain how they set interest rates on credit cards after hundreds of consumers complained to Congress. The Senate subcommittee on investigations has scheduled a hearing at which consumers are expected to relate how they were subjected to sharp rate hikes on their credit card bills despite paying the bills on time. The panel, headed by Democratic Senator Carl Levin, held an initial hearing on credit card practices in March, but the lawmaker told that "abuses" were still occurring.

Many US banks and credit card companies use a process called Universal Default to justify sharp interest rate hikes on credit card bills. Under Universal Default, a bank will sometimes automatically hike a consumer's interest rate if they are late paying a bill to an unrelated third party such as a department store. Banks can track consumers' spending, debts and other financial relationships through reports compiled by the Fair Isaac Corporation which also puts together influential credit reports on millions of consumers.