Levin Hearing Exposes Widespread Credit Card Abuses

Consumer Groups Call for Congressional Action on Unjustifiable Fees,

Outrageous Interest Rates and Questionable Lending Practices

Mar 07, 2007, 00:00 ET from Consumers Union

    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.
        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