Released: October 12, 2006

Credit cards confusing, misleading, says GAO

Source: By Kathleen Day, Washington Post (Free Registration)

Credit card companies don’t clearly disclose penalties, variable interest rates and other fees, leaving consumers confused about the true cost of using plastic to pay for everyday transactions.

That’s the conclusion of a new congressional study that looked at the lending agreements and marketing brochures of the six largest U.S. credit card issuers, which account for 80 percent of the nation’s outstanding credit card debt: Citibank; Chase Bank USA; Bank of America; MBNA America, which is now part of Bank of America; Capital One Bank; and Discover Financial Services.

The report by the Government Accountability Office found many consumers do not understand that if a borrower is late on one payment, companies will not only impose a late fee, which can reach nearly $40, almost triple that of a decade ago, but also significantly raise the interest rate on past and future charges, possibly to as high as 30 percent.

Half of the companies surveyed charge interest on debt consumers have already paid. For example, if a consumer charges $500 and pays off $450 before the billing cycle ends, these companies will charge monthly interest for the entire $500, not just the remaining $50.

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