Credit card hearing warns issuers to change practices

Contact: Linda Sherry, 202-544-3088; Ruth Susswein, 301-718-2511

“Cardholders have no way of knowing what the terms on a credit card will actually be until it arrives in the mail," Consumer Action’s Director of National Priorities Linda Sherry told a House subcommittee today. Sherry testified before the House Financial Services Subcommittee on Financial Institutions and Consumer Credit about some of the hidden terms and conditions that credit cards issuers only divulge after a consumer applies for credit. Sherry criticized card issuers’ practice of changing the terms of the credit card contract in mid stream – even when a cardholder has a spotless record with that company. Consumer Action (CA) regularly hears from consumers who see their interest rates spike to more than 30% APR because they carry higher balances on other cards or have too many new accounts. Subcommittee Chair Carolyn Maloney (D-NY) opened the hearing by asking tongue-in-cheek if Americans had become 10 times less responsible last year, since the credit card industry was expected to earn 10 times more money in penalty fees in 2006 than it had in 1996. Maloney gave credit to issuers which have changed some bad practices, but warned that “if industry fails to make meaningful changes” legislation may be the solution. CA’s Linda Sherry testified that an increasing number of banks fail to quote a firm interest rate and instead provide a “meaningless” range of rates. “Every year it gets more difficult for consumers to get accurate information from card companies when they most need it - before they apply for credit.” Citing preliminary information from Consumer Action’s 2006-2007 credit card survey, Sherry told lawmakers that penalty fees and penalty rates continue to soar while grace periods are shrinking. CA’s latest survey found that late fees have more than doubled in the last decade, from an average of $13 to $28, with a high today of $39 per late charge. An industry representative argued that credit is much more available today, but that credit card disclosures need to be simplified and that the industry is spending a lot of time and money working on ways to improve the quality of the information that they provide to customers. The Federal Reserve is expected to release new credit card disclosure requirements under the Truth-in-Lending Act's Regulation Z in late May. Congresswoman Maloney plans to hold another hearing in June where regulators, like the Fed, will have a chance to explain the new disclosure rules. For a full copy of Consumer Action's testimony, click here. To watch streaming video of today's hearing, click here. [Windows Media Player required]

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