WECN Front Page
WECN Archives
Contact Us

April 2007

U.S. Senate Investigates Credit Card Practices

“Credit card issuers are making more of their money from climbing fees, complex interest charges, and poor disclosure practices that take advantage of working families,” according to a report released by U.S. Senator Carl Levin (D–MI). The study, performed at Levin’s request by the Government Accountability Office (GAO) and released in late 2006, included an examination of 28 popular credit card brands.

According to the GAO, Americans used nearly 700 million credit cards in 2006 to purchase more than $1.8 trillion in goods and services, including essentials such as groceries and gas. The report found that the average household uses six credit cards and, by 2004, owed credit card debt of more than $5,100. In addition, the report states American households are bombarded by more than 3 billion mailed credit card solicitations.

The GAO determined that many consumers do not understand that if they are late on one payment, even if by only a few hours, companies will impose both a late fee that can be as much as $40, and they will also raise the interest rate on past and future charges to as much as 30 percent. According to the GAO, half of the surveyed credit card companies charge interest on debt consumers have already paid. In other words, if you pay $1,000 on a $1,200 debt, the company will charge you interest on the entire $1,200, not just on the remaining $200.

The U.S. Senate Permanent Subcommittee on Investigations held hearings in early March of 2007 on unfair credit practices, and Senator Levin, the committee chair, announced plans to introduce corrective legislation. He argues the major credit companies often engage in unfair and deceptive practices and need to be stopped. He believes that regulations governing credit cards have not kept up with changes in industry practices and that there is a need for new federal laws.

Reputable businesses voluntarily disclose the important terms and conditions consumers need to know. However, in the case of credit cards, it’s not the lack of disclosures that is the problem. Rather, the disclosures are far too long, too complicated, and are not stated in plain terms that are easily understood by consumers. As a result, it is very difficult to compare credit cards. I hope Senator Levin and Wisconsin’s members of Congress will focus on making the important disclosures more easily understood by the average consumer.

The U.S. Federal Reserve Bank publishes a helpful consumer guide on choosing credit cards at: http://www.federalreserve.gov/pubs/shop/default.htm and the GAO report is available on the web at: http://www.gao.gov/new.items/d06929.pdf.

Copyright ©2006 Wisconsin Energy Cooperative News
All rights reserved. Reproduction in whole or in part without permission is prohibited.