The Truth About Credit

What's New

Over half of Americans carry total credit card debt averaging $10,000 each and totaling over $800 billion. Worse, deceptive credit card company practices, including high late fees imposed unfairly, as well as penalty interest rates of 35% APR or more, have hurt consumers. We are especially concerned about deceptive practices used to market credit cards to college students at on-campus tables and this fall launched a major new Truthaboutcredit.org campaign on campuses nationwide. The goal of the campaign is to urge colleges to adopt strong credit card marketing principles and to use counter-marketing educational tables of our own to teach students about safe credit card use.

This summer, after we testified before her subcommittee on unfair credit card practices, chairwoman Carolyn Maloney (NY) invited us to be participate in a small “credit card summit” in the U.S. Capitol, where key consumer groups faced off against credit card industry leaders on their unfair practices. She, along with Financial Services Committee Chairman Barney Frank (MA), is now preparing legislation to be introduced soon. We’re also working with Senate Permanent Subcommittee on Investigations Chairman Carl Levin (MI) on the next steps for his tough legislation to reform credit card companies, S. 1395, the Stop Unfair Practices in Credit Cards Act of 2007.

Overview

Credit card companies use a variety of unfair practices to trap consumers in a cycle of over-priced debt. The companies are allowed by regulators to raise your rates for any reason, including no reason. They are allowed to operate nationally out of states, like Delaware and South Dakota, with weak consumer laws and no limits on interest rates or fees.

Consumers should either pay balances in full, or make the largest payments they can afford, and always pay early in the cycle to avoid late fees. But for years the firms lowered minimum monthly payments and encouraged the use of cards for everyday expenses—through rewards programs—so that many consumers accumulated massive amounts of credit card debt. Until recently, a consumer who owed credit card debt of $5,000 at a common 16 percent APR, who only made the typical 2 percent minimum payment, would take 26 years to pay off the card, even if it was cut up and never used again. Even the federal regulators finally took notice, and recently ordered banks to increase minimum payments by a modest amount.

In 2005, Congress passed punitive legislation long sought by the powerful credit card industry to make it harder and more expensive to file for bankruptcy, and to force consumers to pay off more credit card debt if they do so.

The new law includes a weak yet-to-be-implemented disclosure of how many years it will take to pay off the card if you only make the minimum requested payment. S 393, the Akaka Credit Card Minimum Payment Warning Act, would replace that industry-approved disclosure with a specific, customized warning.

Although the ability of states to regulate the fees and interest rates (APRs) of credit card companies has been severely restricted by federal preemption doctrine, which has allowed the weak laws of Delaware and South Dakota to override the state laws where credit card customers live, states are taking action in one area. In response to the growing problem of aggressive credit card marketing to young people on college campuses, some states, such as California, have restricted campus credit card marketing. Several colleges and universities have taken similar actions at the local level.

Truthaboutcredit.org is a U.S. PIRG Education Fund and Student PIRG campaign launched in October 2007, asking colleges to adopt responsible credit card marketing principles.

News

Transcript of PBS Frontline Interview with PIRG expert

Consumer Program Director Ed Mierzwinski's interview on the "secret history of the credit card."

PIRG Testimony on Credit Card Practices

Our June 2007testimony at the House Financial Services Committee hearing, where we made recommendations that certain unacceptable practices should be banned.

PIRG Testimony on Credit Card Interchange Fees

Our July 2007 testimony before a hearing of the Antitrust Task Force of the House Committee on the Judiciary. Everyone, whether they pay with cash or plastic, pays more at the store and more at the pump because of these unfair banks impose on merchants.