WASHINGTON, March 7 /PRNewswire-USNewswire/ -- National consumer
organizations today called on Congress to enact legislation to curb abusive
credit card lending practices highlighted in a hearing this morning by the
Senate Permanent Subcommittee on Investigations. The hearing was convened
by Subcommittee Chairman Senator Carl Levin and focused on how credit card
issuers assess interest rates and fees.
"We applaud Chairman Levin for holding this crucial hearing to shine a
light on the traps and tricks that some credit card issuers use to pump up
their profits," said Travis Plunkett, Legislative Director of the Consumer
Federation of America. "The next step is for Congress to stop credit card
issuers from charging unjustifiable fees and outrageous interest rates that
push consumer to the financial brink."
The hearing was based in part on a September 2006 report by the United
States Governmental Accountability Office (GAO). The report detailed
several questionable finance charges, fees and disclosure practices
associated with 28 popular credit cards. The report found that large
numbers of consumers were being charged fees, the number of new fees was
increasing and that the amount of the fees had risen much faster than
inflation. For example, the report found that the six largest credit card
issuers charged 35 percent of their card holders late fees averaging $33.64
in 2005, up from $12.83 in 1995. The report also found that current fee
disclosures are difficult to understand, important information is often
buried and that issuers often fail to tell consumers the specific reasons
and timing for charging late fees and higher "penalty" interest rates.
"When special fees are imposed on 35 percent of all card holders, this
shows that something is seriously wrong with credit card pricing," said
Norma Garcia, Senior Attorney at Consumers Union. "Credit card companies
and the policymakers who oversee them need to look at simplifying the
pricing by reducing the types of fees, so that consumers can make informed
choices based on the real price of using a particular credit card."
"What we need is better -- not more -- disclosure," said Linda Sherry,
Director of National Priorities for Consumer Action. "Getting accurate
information from credit card companies is difficult and exasperating.
Without clear information on all important fees and interest rates,
consumers can't steer safely around the fine print of cardholder
"Credit card companies can charge whatever fees and interest they want,
and change the rules at any time, for any reason, including no reason,"
said Ed Mierzwinski, U.S. PIRG Consumer Program Director. "All that's got
to stop and Senator Levin's GAO report and his hearing today will help us
make that case to protect consumers."
"Credit card companies push debt on people without caring about whether
folks can afford to pay it back," said Alys Cohen, Staff Attorney with the
National Consumer Law Center and a witness at today's hearing. "The
companies profit either way, but many Americans are being buried under a
mountain of debt. Policymakers must stop destructive lending and make
lending fair again. People have the right to expect that."
The groups called on Congress to adopt legislation that would:
-- Eliminate reckless and abusive lending by credit card companies, basing
each loan on the actual ability of consumers to repay the loan. This is
particularly important for loans to college students, other young
people and low-income borrowers.
-- End deceptive and unjust terms, interest rates and fees, including
changes in terms without the affirmative permission of the consumer and
higher interest rates because of an alleged misstep with another
-- Empower consumers with better information by prohibiting deceptive
credit card offers, simplifying pricing and updating the 1983 law
requiring disclosure of key credit card terms.
-- Give consumers strong protections to deter illegal acts by prohibiting
mandatory arbitration, increasing penalties under the Truth in Lending
Act and giving consumers the ability to enforce federal protections in
A detailed platform for credit card reform follows.
JOINT RECOMMENDATIONS OF CONSUMER GROUPS ON CREDIT CARD REFORM
Eliminate reckless and abusive lending by credit card companies
No unsound loans: Make issuers offer credit the old fashioned way,
using sound underwriting principles based on the ability of consumers to
pay and that ensure the cardholder is not overextending financially by
taking on more debt.
Restrict lending to youth without conditions. Young people deserve
credit, but only if they qualify. Yet right now, young people are the only
group that can obtain a credit card without either a positive credit
report, a job or other evidence of ability to pay, or, barring any of
these, a co-signer. No other adult can get a credit card without meeting at
least one of these conditions. Young people should have the same
No abuse of consumers in bankruptcy. Credit card issuers drive
consumers into bankruptcy with abusive terms and collection practices. Stop
issuers from collecting on these abusive loans in bankruptcy.
End deceptive and unjust terms, interest rates and fees
Ban retroactive rate increases. Stop issuers from changing the rules in
the middle of the game by raising interest rates on past purchases.
No unilateral adverse changes in terms for no reason: Credit card
company contracts currently claim the right to change terms for any reason,
including no reason. Any change in terms during the course of the contract
should require knowing affirmative consumer consent and reasonable notice.
Ban universal default in all its forms. Prohibit punitive "universal
default" interest rates based on alleged missteps with another issuer but
involving no missed payments to the credit card company itself. It is
unfair to impose a penalty rate on a consumer who has not made a late
payment to that creditor. Stop card companies from using a change in terms
clause to impose penalty rates.
Stop late fees for payments mailed on time. Require credit card
companies to follow the Internal Revenue Service (IRS) and accept the
postmarked date as proof of on-time payments. This will also eliminate the
tawdry practice of assessing late payment fees when payment is received on
the due date, because it did not arrive by a specific time (such as 11
Relate fees to cost. Ensure that all fees and other charges closely
match the true cost borne by the card issuer.
End roll-over or repeat late and over-limit fees. Ban fees that are
charged in consecutive months based on a previous late or over the limit
transaction, not on a new or additional transaction offense, even if the
consumer remains over the previous limit.
No fees for creditor approved transactions. Don't let the credit card
company charge a fee for a transaction it has approved. Ban over-limit fees
when the issuer approves the over limit transaction.
Empower consumers with more detailed information.
Ban deceptive credit card offers. Solicitations and "invitation to
apply" solicitations that do not make a truly firm offer of credit are
deceptive because they lead consumers to believe that they are pre-approved
for or have a good chance of getting certain interest rates. Most consumers
instead receive cards at much less favorable interest rates and terms.
Simplify pricing. Reduce the number and types of fees so consumers can
compare cards and understand the real cost of using the card.
Real minimum payment warning. Give each consumer a personalized warning
on his or her monthly statement calculating the length of time -- in months
and years -- and the total interest costs that will accrue, if the consumer
makes only the requested minimum payment.
Ban unfair teasers. Stop issuers from downplaying permanent interest
rates in advertisements and solicitations and from trumpeting temporary
rates as "fixed rates."
Enhance "Schumer Box" disclosures. Include a "Schumer box" disclosure
table in all cardholder agreements containing personalized information
about the terms of the card granted. The box should include the APR, the
credit limit and the amount of all fees, such as late charges, cash advance
fees, over limit fees and any other applicable miscellaneous fees.
Give consumers strong protections to deter illegal acts
Ban pre-dispute binding mandatory arbitration. No consumer should be
forced to waive his or her right to a court trial as a condition of using a
credit card. Prohibit binding mandatory arbitration for consumers' claims
and for collection actions against consumers.
Toughen Truth In Lending Act (TILA) penalties. TILA penalties have
stagnated since 1968.
Give aggrieved consumers a private right of action to enforce the
Federal Trade Commission Act to challenge unfair or deceptive practices by
businesses, including banks.
CONTACT: Travis Plunkett, Consumer Federation, 202-387-6121
Jennifer Fuson, Consumers Union, 202-462-6262
Ruth Susswein, Consumer Action, 301-718-2511
Ed Mierzwinski, USPIRG, 202-546-9707
Alys Cohen, National Consumer Law Center, 202-452-6252
SOURCE Consumers Union