Minimum due: Fairness: 12/11/07
Credit card companies must end deceptive practices or face tighter regulation
Detroit Free Press, December 9, 2007
Editorial
It was not easy for Janet Hard to air her family’s financial laundry in the very public setting of a U.S. Senate hearing last week. But the Freeland, Mich., woman helped expose one of the more onerous and underpublicized practices of credit card companies.
A registered nurse who has chosen to give up an income and be a stay-at-home mom to her two teen sons, Hard, 42, told U.S. Sen. Carl Levin’s investigations subcommittee how she and her husband, Bill, a steamfitter/welder, “used credit cards to make ends meet when we needed to.”
“Maybe this wasn’t the best decision,” she said. “Maybe we could have been more frugal with our money, but we were paying our bills on time and keeping our heads above water.” Then Hard noticed that despite always paying more than the minimum balance on a Discover card, she was hardly denting the balance. A check with the company revealed Discover had raised her interest rate from 18% to 24.4% after deciding, based on a credit check, the Hards were becoming a higher risk. Based on what? Other credit card debts and available balances on inactive accounts. As a result, $176 of every $200 Hard was sending in was going for interest.
“When I look at the money we have paid in interest, I feel sick,” Hard said. “… We were never expecting to shirk our debt. … We held up our end of the agreement but have found that they have been able to change the rules to benefit themselves.”
This is just one of the unfair credit card practices that have come to light in the past year, chiefly because of Levin’s subcommittee work. Michigan’s senior senator deserves credit for the exposure that already has driven some changes in the industry. But Levin clearly needs to wield the hammer of more federal regulation if other practices are not stopped.
At the very least, credit card companies should have to adhere to some standards for notifying their customers of alterations in credit agreements. Letters with pages of complex terms in tiny print — several examples were read at the hearing — are obviously designed to be ignored by consumers who are just glad they’re not getting another bill.
How about requiring a message in big letters on the envelope (or atop the e-mail, for folks who pay bills that way) that says: NEW TERMS FOR YOUR CARD and that the largest type in the text must be: YOUR OLD RATE WAS XX%; YOUR NEW RATE IS XX%.
Is that too much to ask?
The bottom line on credit cards is still caveat emptor. The best advice is still to use them carefully and pay the balance each month. But that’s not always possible. The average U.S. household now carries $2,200 in credit card debt. The national total is $900 billion, and that will certainly be higher once the holiday shopping season ends. Credit card spending is crucial to the U.S. economy. But there’s also a fairness issue.
“When a credit card issuer promises to provide a cardholder with a specific interest rate if they meet their credit card obligations, and the cardholder holds up their end of the bargain, the credit card issuer should have to do the same,” Levin said.
Credit card companies say they have to be concerned with credit risk and keep tabs on the status of their customers. But maybe they shouldn’t invite so much risk by so aggressively marketing credit cards to people, many of whom have no idea how to manage money. Maybe the companies shouldn’t be encouraging people to swipe their credit cards everywhere for everything, even to the point of TV commercials that mock people for holding up the line by paying cash.
A recent congressional study also found that about a third of credit card users make at least one late payment a year, and late fees have risen way faster than inflation, from an average of $13 in 1995 to $34 by 2005.
Janet Hard says her moment in the national spotlight at the Senate hearing “felt like a lot longer than 15 minutes.”
“The toughest part was that feeling like you were in a public confessional,” she said. But Hard also is hearing from people with similar stories. And countless more have surely checked their most recent credit card statements after hearing what happened to her.
So kudos to Janet Hard. And let the credit card industry take note: It’s time to be as bold about terms and billing as you are at enticing people to use plastic.