Considering how the economy is going gang-busters, it's ironic how many credit card holders are simply going bust. Despite general prosperity, a growing number of consumers are being financially squeezed by what many contend to be the blatantly unfair and misleading practices of the $1.2 trillion credit card industry.

Industry observers share this concern, and argue that credit card practices represent a staggering range of abuses and excesses, many of which would be unthinkable in other industries. "Today's credit card offers are like a mine field," says Robert McKinley, a noted analyst and CEO of Cardweb.com, a company that tracks the credit industry for both consumers and the industry itself. "If you pay attention you can get a great deal, but make one mistake and you'll get your legs blown off."

To wit:

• After First USA, the nation's second-largest card issuer and the bank behind the popular Mileage Plus card, failed to mail out October 1999 bills due to an internal glitch, customers were hit with $29 late charges for not paying on time. Regular monthly bills are a mere "courtesy," the bank said, and not getting one is no excuse not to make a payment.

• Meanwhile, over at Capital One, mail and check processing goes on 24 hours a day, yet the bank has long considered any payment posted after 9 a.m. on the due date to be late.

• Card issuer Advanta, faced with a consumer revolt over the company's having raised supposedly fixed introductory interest rates, blithely announced that anyone canceling their card would be assessed a $25 fee.

• Most banks consider a large credit balance grounds for raising a customer's interest rate, while several penalize cardmembers who don't use their card often enough.

• Just about all banks lure consumers with attractive single-digit interest rates, sometimes as low as zero percent; but once the customer is onboard, most invoke complex, vague fine-print provisions to raise those rates to loan-shark heights as high as 30 percent.

Overall, credit card issuers have been able to execute an aggressive profit-making strategy that critics say stays essentially within the confines of the law but badly exploits consumers. "Credit card solicitations are designed to sell, not to educate," says Sen. Charles Schumer, D-NY, a member of the Senate Banking Committee and leading advocate of reform. "With something as important as credit cards and financial management, solicitations should clearly show rates consumers will pay, and they should not be as misleading as sweepstakes forms."

Consumers, critics charge, are wooed through heavy promotions, permitted and even encouraged go into debt, then penalized for doing so, run through a gauntlet of punitive fees and usurious interest rates, and treated like criminals when they have trouble meeting the financial demands. Despite mounting complaints in recent years, bills by congressional reformers have been repeatedly stymied by the powerful banking industry, for whom credit card business is a huge component. Total national credit card debt is projected to have reached $590 billion last year, up from just $220 billion in 1990.

Credit Card Crunch

When Robert Darling, 70, a retired radiology technician from Clovis, California, paid his Capital One card late by one day, the bank jumped his interest rate from 7 to 21 percent. When Darling underwent open-heart surgery and fell behind in his payments to Discover, the company's interest rates began climbing in spurts -- from 7 percent to 12, 14, and 16 percent, finally settling in at a jaw-dropping 26 percent. When Darling explained that he had had surgery, not one of his numerous creditor banks showed the slightest compassion.

"Unfortunately, penalty pricing is a goldmine for credit card companies, and perfectly legal," says Rep. John LaFalce, ranking Democrat on the House Banking Committee. And yet, when LaFalce and some colleagues introduced corrective legislation, they got exactly nowhere. "The Republicans would not even give us a hearing on this bill in the last congress," says Rep. Robert Menendez of New Jersey.

That's no surprise. The banking industry put more than $11 million into GOP congressional candidates and party committees during the last election cycle, according to the Center for Responsive Politics, and more than $5 million to Democrats. As a result, the credit card industry is almost completely unregulated. It's little better at the state level. Many states don't cap interest rates, and even those that do, like New York and Arkansas, can't stop banks that solicit their residents from locating their credit card operations in states such as South Dakota and Delaware, where pretty much anything goes.

Incredibly, congress last year not only failed to offer consumers any relief, it moved to penalize them further. The so-called "bankruptcy reform act of 1999," passed by the House, actually strengthens the banks' hand, making it more difficult for consumers to include credit card debt in bankruptcy filings.

The industry insists that it's a two-way street, and that the system can work well for informed consumers. "With credit comes responsibility," says Janet Eissenstat, spokeswoman for the American Bankers Association. "Credit is a very powerful tool, but as with any tool, you've got to read the instructions carefully." Calls seeking comment from Citibank and Capital One, which are among the largest individual credit card issuers, were not returned -- the exact formulas for establishing high, "penalty pricing" on interest rates are considered proprietary. Discover spokesperson Cathy Edwards says that the company is willing to work with individual cardmembers on their problems. "We do make exceptions," she says.

Profiting from Confusion

The industry certainly hasn't suffered from the consumer confusion. In 1998, pretax credit card industry profits were $11.4 billion, way up from $6.4 billion in 1990. Competition, however, has increasingly cut into margins. So companies have decided to go for volume. This has resulted in a deluge of solicitations and ever more clever marketing arrangements, including co-branding and incentive cards.

As the economy sails merrily along, credit card debt continues, paradoxically, to grow. The average American who carries a credit card balance owes about $7,500, up from $3,100 in 1990. Typical is Gregory Land, 43, a truck driver from Poplar Grove, Illinois. As his income went up, so did the number of credit card offers. "It was an endless river of credit," he says. Using cards, he bought school clothing for his three growing children, as well as furniture and carpeting. Land, who considers himself a responsible citizen, took one company up on its suggestion that he pay for a vacation with its card - and took his family to Disneyworld. The result? After five years, Land had $30,000 in credit card debt ,and is now working with a credit counseling agency to pay it off.

Consumers have grown tired of the tons of direct mail, and so companies have devised increasingly tricky methods of getting them to open the envelopes. Capital One sends out envelopes that look an awful lot like IRS notifications. They have also disguised the identity of the card issuer, in part to attract customers who may already be mad at the company, and in part to lure consumers to increase their credit lines by offering new cards with enticing introductory pricing.

"Credit card issuers continue to dangle lots of carrots in front of consumers but what you see is not what you may get," says McKinley. Several top issuers promote single digit interest rates with no annual fee and credit limits as high as $100,000. But, in reality, people with an annual income of $30,000 and reasonably good credit will rarely qualify for an interest rate of 10% and can expect no more than a $6,000 credit limit. If they apply for the no-fee, single digit interest card, they will most likely be bumped up automatically to the card issuer's primary interest rate range of 15% to 18%. Issuers whose cards offer extremely low introductory rates usually approve less than 5 percent of all applicants, according to McKinley.

Banks invoke all kinds of reasons for raising interest rates. The most noxious and hard-to-predict are increases based on a complex calculation of your overall financial situation, taking into account how much overall credit you have, and how much of it has been used up. So, for example, someone who has four credit cards with a total credit limit of $20,000 might be penalized when his outstanding balances reach more than two-thirds of the limit -- even if his payment history is perfect.

And banks reserve the right to levy all kinds of fees and rate changes, all in the fine print, of course. "The print was so fine, if you don't have a magnifying glass, you can't read it," says Darling. And once established, fees have a way of growing exponentially. Fees on a cash advance of $1,000 have tripled from an average of $10 three years ago to $30 today. Late fees are up from $7 a few years ago to $29 today.

Who Suffers Most?

Not everybody is easily victimized. Those with abundant financial resources usually have the cash flow to pay off and cancel any credit card when fees or interest rates become onerous. It's the financially vulnerable and youngest consumers who suffer the most. Those on limited incomes get caught in a pincers movement: once rates escalate, they have no means to pay off the cards and move on. The high rates, combined with low required minimum monthly payments, mean that some people will be paying off debts for years. "There are a lot of folks on a treadmill," says Gary Klein, a consumer credit specialist with the Boston-based National Consumer Law Center, which publishes Surviving Debt: A Guide for Consumers. "Payments never seem to bring down the balance."

College students are also among the victims, eager to spend but not cognizant of the implications of the fine print. Credit card companies love students because they spend extravagantly while mom and dad guarantee that the bill will be paid (about 70 percent of college students now have cards, and one-fifth of those carrying balances owe more than $10,000). Abuses, though, have grown so commonplace that some universities have banned card solicitations on campus. The feverish competition has expanded to high schools, where web mavens are urged to get the Cybermoola card, a prepaid virtual credit card strictly for Internet purchases. And last year, First USA, in a ludicrous incident underlining the bank's hunger for new cardholders, issued a card to a toddler, even though the mother wrote in response, "Thanks for the great offer but I'm only three."

The economics of the credit card business is replete with irony. Although credit card companies consider less-affluent customers their greatest risks, they are also the most profitable -- provided they do not default -- because they lack the means to pay off and cancel a card when the terms become oppressive. So banks play a complicated game of trying to extract maximum income from consumers without pushing them to the point of no return. When consumers find themselves seeking the help of credit counseling agencies, which are industry-financed middlemen who consolidate bills and negotiate lower rates, they end up paying interest rates similar to what consumers with better credit might have been paying in the first place.

Despite all the hype in ads for credit cards, issuers do less for their customers than almost any other industry. A credit card balance is merely a loan, with monthly billing. The actual transactions with merchants are handled for the banks by associations like VISA and Mastercard. As for the touted perks, consumers complain that although some -- like Gold Cards that cover basic insurance on auto rentals - are handy, others turn out to be extremely disappointing. Airline miles, for example, are worth mere pennies, and often prove uneconomical when coupled with high fees and interest rates. Gregory Land got a Ford Visa/Driver's Ed credit card because of a promised rebate on Ford cars, then concluded that the $250 price reduction was an insignificant savings in comparison to the whopping fees and late charges he ended up paying over the years.

Fighting Back

Consumer outrage, if not at WTO/Seattle-level, is growing. And consumers are turning to an increasingly reliable advocate, the class action attorney. Lawsuits over late fee practices, overlimit and foreign currency transaction fees are currently pending against First USA (owned by Chicago-based Bank One), Chase Manhattan, Citibank, and Providian, among others. (The industry as a whole took in $18.9 billion in assorted fees in 1998) "Class action is the best way to deal with this," says consumer advocate Ralph Nader.

"We've had so much deregulation, I think most observers think its time to consider re-regulation," says Klein, noting how difficult that will be to pull off without significant campaign finance reform. Still, taming the banks seems a terrific, nonpartisan, populist political issue, waiting for the right savvy politician to jump on it. Even some banks tacitly acknowledge the unfairness of their credit practices. Referring to its practice of effectively levying late fees on people who haven't paid late, Tom Kelly, a vice president at Bank One, parent company of First USA, says: "We shifted to a due-date-plus-one day system. It will reduce late fees but will improve customer satisfaction." In other words, now your interest rates can't quadruple unless your payment actually arrives the day after it's due.

San Francisco-based Providian, which has a reputation as perhaps the baddest of the bad boys, and has been under pressure from both a district attorney's probe and consumer lawsuits, recently brought in a top PR firm, and has in the last few months sought publicity for being a good corporate citizen -- providing new jobs, helping the homeless -- deeds which have little to do with the operating practices that angered the public in the first place. But the company clearly got the message. "Complaints about late fees have dropped 90 percent, because we have a policy of reversing any fee that a customer feels was wrongly charged," says Laurie Cole, vice president at Providian.