Sen. Levin: Credit Card Rates and Fees

Sen. Levin sent me this e-mail today that I felt was important to share. [emphasis added]

I thought you might be interested in the findings of a recent report released by the U.S. Government Accountability Office (GAO) that discloses excessive credit card fees, unfair interest rates, and disclosure problems. I asked GAO to look into this matter and issue a report on its findings to help shine a light on these practices that ought to be stopped. I believe this issue is a matter of simple fairness because so many American families depend on credit cards for everyday needs.

The report found several unfair or confusing credit card practices that take advantage of consumers. One abusive practice in which some credit card companies engage is charging interest on the full balance of debt incurred by a cardholder regardless of whether the cardholder has repaid a portion of that debt on time. For example, if a cardholder starts a cycle with a zero balance, charges $500 on his or her credit card, and makes a payment of $450 by the due date, some credit card companies charge interest on the full $500 instead of the $50 that is owed. That means even if a consumer pays 90 percent of his or her debt, he or she is still charged interest on the full 100 percent, not the remaining 10 percent. Compounding this problem is the fact that many consumers are unaware of these charges until they appear on their bill.

The report also found that credit card holders are subject to late fees that are higher than ever before. GAO reported that the average penalty in 2005 for making a late payment was $34. That's a 115 percent increase from the average late fee of $13 in 1995. The highest late fee was $39 per occurrence. That's a steep fee that can take a real bite out of a family's budget.

GAO also reported a number of hidden fees that are not disclosed in the materials provided to cardholders, such as charging families a $15 fee to pay their credit card bill over the phone before the late fee kicks in. It seems wrong to charge money to pay a bill. Additionally, GAO found that current fee disclosures are difficult to understand, bury important information, and often fail to convey to cardholders when late fees would be charged and what actions could result in penalty interest rates.

While consumers should make smart choices and do their best to avoid excessive debt, credit card companies should not exploit vulnerable consumers by imposing unnecessary and costly fees that can make it almost impossible for many to pay down their debt in a reasonable time. I plan to introduce legislation in the Senate to ban the abusive practices exposed in the GAO report and to protect consumers who seek to pay off their debts in good faith.

Further details on the GAO report, as well as a link to the report itself, can be found on my website at [http://www.levin.senate.gov/newsroom/release.cfm?id=264552]. In addition, you may be interested in a recent article published in The Washington Post on this issue, which can be found at [http://www.washingtonpost.com/wp-dyn/content/article/2006/10/11/AR2006101101850.html].

Sincerely,
Carl Levin

Another finding from the GAO recommends that federal regulators force the credit card industry to put key information in easy-to-understand English. The study revealed that while half of American adults read at or below an eighth-grade level, most disclosures were written at a high school level.

There's no denying that some people abuse or misuse credit, but many others find themselves turning to credit cards in order to pay for medical bills, utilities or food. Hitting consumers with unfair interest rates and fees is unfair no matter how you look at it. Thank you Sen. Levin for watching out for us at a time when most politicians in Washington serve the interests of big business.