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 statements.”
“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 creditor.
- 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 court.