Posted on: Thursday, June 16, 2005
Revisions would help consumers better understand credit card terms
By Tony Pugh
Knight Ridder News Service
WASHINGTON — Growing consumer unease with credit card practices is fueling a call for action as lawmakers and regulators debate making changes.
For the first time since 1980, the Federal Reserve Board is considering major revisions to the clarity and content of credit card disclosures so consumers can better understand the terms of their cards and make more informed decisions about using them.
The Fed also is reviewing the effectiveness of consumer protections against unfair card practices and inaccurate billing in the wake of unprecedented growth in credit card usage and public outcry over rising interest rates and penalties along with costly, abrupt changes in card agreements.
The Fed recently sought public comment on a number of issues, including whether to make card disclosures more consistent so comparison shopping is easier, the costly trend of allowing borrowers to be over their credit limits for multiple billing cycles, whether minimum monthly payments should be raised so consumers would pay off their card debt more quickly and whether cards should provide more information about the cost of making only the minimum payments.
According to CardWeb, an online research firm, average house-hold credit card debt has more than tripled, from $2,966 in 1990 to $9,312 in 2004. If a family made the minimum 2 percent payment on that $9,312 at a 16 percent interest rate, it would take about 43 years to pay off the balance, at a total cost of $27,265.44. Of that amount, nearly $18,000 is interest.
Possible recommendations by the Fed, which could include calls for congressional action, aren't expected until next year. It's unclear in what direction the agency might go.
"Trying to guess what they'll do is like trying to figure out who the College of Cardinals is going to pick as pope. It's virtually impossible," said Travis Plunkett, the legislative director for the Consumer Federation of America.
Nessa Feddis, senior counsel for the American Bankers Association, said the card industry was getting a bad rap from a small group of "vociferous" cardholders and consumer advocates: "Everybody likes to pick on credit cards because they're such a successful product."
Some 55 percent of cardholders pay off their balances at the end of each month, Feddis said. More than 90 percent make their payments on time, she added, noting that those who complain about tough card terms have only themselves to blame for managing their money poorly.
Based on consumers' comments to the Fed, it's clear that many consumers think credit card companies are taking advantage of borrowers who don't fully understand the terms of their cards and feel powerless to contest changes when they're made.
"The people who are getting ripped off can't even understand what is being written on the back of their statements. They should just have it in the clearest possible language and not in a complicated chain of words," said Brad Hoffman, a 25-year-old mortgage loan officer from Philadelphia who wrote to federal regulators urging them to address the problem.
Those concerns found a sympathetic ear in Congress recently when several members of the Senate Committee on Banking, Housing and Urban Affairs said they also had trouble understanding their card disclosure forms.
"A magnifying glass and an attorney should not be necessary to understand a credit card agreement," Sen. Elizabeth Dole, R-N.C., testified at the hearing May 17.
