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.