Holding Their Feet to the Fire

Credit-card companies routinely offer cards that have been loaded with traps that consumers don't know about or understand, causing millions of Americans to become hopelessly in debt. Those traps include hiking interest rates when a cardholder falls behind in payments to other creditors,(AKA Universal Default) charging fees for payment by telephone and a practice called double-cycle billing. That's when a cardholder, for example, pays $90 of a $100 charge but then next month the consumer is charged interest on the entire amount rather than just the $10 balance.

It takes a lawyer to figure out the terms and conditions and disclosure of most credit-card contracts, Credit-card companies are targeting college students, military personnel, senior citizens and the disabled with pre-approved offers. The Senate Banking Committee is holding hearings on various credit card industry practices. Below are some of Senator Christopher Dodd's (D-CT) statements.

"Credit card use has grown dramatically over recent years. Over 640 million credit cards issued by more than 6000 credit card issuers are currently in circulation. Between 1980 and 2005, the amount that American consumers charged to their cards grew from an estimated $69 billion per year to more than $1.8 trillion."

Let's simply think about those figures for a minute. Assuming a population of 300 million and say 20%-25% under the age of 18, although that doesn't mean the kids don't have cards, that at least 2 cards per person, and probably more. I think it's safe to assume that every American who could have a credit card has one. In other words -- credit is readily available to everyone.

"The present level of credit card debt in the United States is at record heights. Total consumer debt in America is nearly $2.4 trillion. Out of that, $872 billion is revolving debt, which is essentially credit card debt. The average American household has over $9,300 worth of credit card debt. Let me repeat that. The average family living in the United States has over $9,300 of credit card debt. In comparison, the median household income was about $46,000 in 2005."

Additionally, Americans have never paid more in interest, paying nearly 15 percent of their disposable income on interest payments alone.

It's about time someone in a position to influence policy started to talk about debt, because it is the engine of the current US economy. The average American has credit card debt equal to 20% of national median income. That's before we get into mortgage debt, which is another story altogether. That's a ton of debt. And that's the average. That means there are cases out there that are far worse.

In addition, Senator Dodd makes a great point about Americans are sending 15% of their income to credit card companies in the form of interest payments, payments that do nothing to reduce the principal amount of their debt. That is a pretty scary figure.

"Another area which I believe deserves examination is the massive increase and targeting of credit card solicitations. According to the Federal Reserve, an estimated 6.05 billion direct mail solicitations were sent by credit card issuers in 2005 alone.

Many of the solicitations target students, persons currently on the economic edge, senior citizens on fixed incomes, and persons who have recently had their debts discharged in bankruptcy. I have long believed that we have an added responsibility to protect the most vulnerable in our society - and I believe that examining the targeting of these groups is critically important."

People need to be responsible with their money. However, consider a person on limited income who suddenly has a really big medical payment. At the same time, they receive a credit card application. According to the Federal Reserve statistic cited above every US resident received one credit card solicitation by mail per month in 2006.

It's also easy to see the following chain of events. Companies deliberately target vulnerable consumers who run up tons of debt and then the same companies ram rod a bankruptcy "reform" package through Congress that literally makes slaves out of credit card holders.

"I also have concerns with the amount, type, and disclosure of certain fees imposed on consumers. Over the past 2 years alone, the amount of money generated by credit card fees has simply skyrocketed. In fact, the term "skyrocketed'' may be something of an understatement."

Banks collected a record $17.1 billion from credit card penalty fees from 2006, a 15.5% rise from 2004. This is a tenfold increase from 1996, when card companies raised $1.7 billion in revenues from fees.

We need to take a close look at these fees and how they fundamentally impact consumers.

"We must closely examine the current disclosure regime. The current system of disclosure is outdated, has not kept pace with the variety of credit card practices, and consumers have little understanding of the terms and conditions of their credit card contracts. Despite the significant work of many- including a number of the members of this Committee-- to provide consumers with clear, understandable, and consistent information, consumers are increasingly becoming confused and intimidated."

Miss one payment and the interest rate goes to 30%+. And the actual Credit Card disclosures on these topics are at best poorly written.

"In addition, the OCC issued an advisory letter in September 2004 to alert national banks to the agency's concerns regarding certain credit card marketing and account management practices. The OCC's letter outlines three credit card practices that "may entail unfair or deceptive acts or practices and may expose a bank to compliance and reputation risks. While the OCC has deemed these practices "unfair and deceptive," the agency has to this point declined to prohibit them. With the increase in the use of credit cards and the number of consumers who utilize them, the OCC, in my view, should recommit itself to protecting consumers."

It's about time we looked hard at these company's practices and hold their feet to the fire for their contribution to the consumer debt epidemic.