Do Credit Card Holders Need a "Bill of Rights?"

On March 18, 2008, Steven Pearlstein, business columnist for The Washington Post, wrote: “The story so far: With the acquiescence of federal regulators, Wall Street went hog wild, earned gobs of money and, in the process, created a whopping mess that the federal government now has to clean up.

“In the words of Nouriel Roubini, the New York University economist who's been predicting this debacle for more than a year, we've mastered the art of 'socializing risk and privatizing gain.'"

Pearlstein was discussing the Bear Stearns debacle; however, the above description also fits the behavior of banks that issue credit cards, the difference being a deliberate lack of Federal Government involvement.

Mother Jones' Dave Gilson, in “House of cards,” explains the machinery in darkly humorous detail. If you don't like Mother Jones (currently nominated for 2 national Magazine awards) then scroll down to the excerpt from financial author Liz Pulliam Weston's column “It's Time for a Credit Card Revolution,” in MicrosoftMoney.com. Weston also discusses pending legislation "HR5244 The Credit Cardholder's Bill of Rights."

From “House of Cards,” by Dave Gilson, September 01, 2007, Mother Jones:


“Signing up a new credit card customer: $58. Buying off Congress: $8.5 million. Keeping Americans in hock for life: priceless.”

“In 1970, 51% of Americans had a credit card, compared with 93% today. The average card-holder has 7 cards.

“Americans owe $850 billion in credit card debt. The world's 54 poorest countries owe $412 billion in foreign debt.

“A 'preferred customer,' according to one MasterCard vice president, is someone with a 'taste for credit' who's 'willing to make minimum monthly payments—forever.'

“60% of Americans have been in credit card debt for more than a year.

“The average U.S. household owes $9,659 on its credit cards.

“If you owed that much on a card with a 14% apr (the average interest rate) and made 2% monthly payments, it would take you more than 6 years to pay off—and you'd pay $4,922 in interest.

“1/3 of Americans claim they pay off their credit card bills in full every month. Inside the credit card industry, these customers are known as '30-day wonders' or 'deadbeats.'

“The average American household spends 14% of its disposable income paying off debts. It puts negative 0.5% into savings.

“Last year, banks sent out 8 billion credit card applications, a 30% increase since 2005. Credit card companies spend an average of $58 to sign up a new customer.

“Americans charged $51 billion worth of fast food last year, a 29-fold increase since 2001.

"1/3 of low- and middle-income households report going into credit card debt to pay for rent, utilities, and food.

“Since 1996, when the Supreme Court struck down limits on credit card fees, the average late penalty has jumped 162% and the average fee for exceeding credit limits is up 138%.

“Credit card companies earned $90.1 billion in interest last year. They earned $55.2 billion in fees.

“After Discover charged a woman more than $9,000 in interest, penalties, and fees on an initial bill of $1,900, an Ohio judge erased her debt in 2004, slamming the company for being 'unreasonable, unconscionable, and unjust.'

“Nearly 1/3 of bankruptcy filers owe an entire year's salary on their credit cards.

“In 2005, Congress tightened bankruptcy rules at the behest of credit card companies.

“In 2006, the top 5 credit card companies—JPMorgan Chase, Bank of America, Citibank, Capital One, and HSBC—made $8.5 million in congressional campaign contributions.

“Almost half of bankruptcies are due to medical expenses, according to a 2001 survey.

“As of late 2005, 900 soldiers injured in combat owed the military $1.2 million. Nearly 3/4 of these debts were due to errors. An Army sergeant paralyzed below the waist was saddled with $15,000 of debt.

“Soldiers with a Pentagon-approved Military Star card get lower interest rates if they are deployed in a war zone. All debts are written off if the cardholder is killed in combat.

“In 2001, First USA signed up two students as human billboards in exchange for paying their college tuition. The credit card company made late payments, almost forcing them to drop out.

“Installed in the cars of drivers with subprime auto loans, Payment Protection Systems' On Time device issues payment reminders and disables the vehicle if a payment is missed.

“The Koran forbids charging interest. In 2002, a bank in Bahrain released 'the first Islamic credit card that conforms to Sharia principles.'

“In 1978, the Supreme Court ruled that banks only have to follow the interest rate limits in the state they're based in—not the states where their customers live.

“After the ruling, Citibank's credit card division relocated to South Dakota, which had just lifted its usury laws. 'That was a good deal for us,' said then-Governor Bill Janklow. 'It was a hell of a deal for them.'

“In Dante's Inferno, usurers occupy the seventh circle of hell.

“Uh-Owe: Credit Cards' Sneakiest Tricks:

"Contract hits: A typical card's contract was less than a page long in the early '80s; it's now more than 30. Terms can change at any time, for any reason.

“Let's bounce: 20 major cards issue blank "convenience checks" that they may decide not to honor, for any reason. Cardholders are slapped with an average of $31 in fees for each rejected check.

“Growing rates: Almost all popular cards hike interest rates if users miss payments or exceed credit limits. The average "default rate" in 2005 was 27.3%. More than 2/3 of cardholders don't know about this.

“Outside interests: Some cards raise customers' interest rates if they miss payments to other banks or creditors.

“Double trouble: Several cards use "two-cycle billing" to charge interest on the original
amount spent—even if you've paid part of it off.”

Want to do something to protect yourself? E-mail your Congressman to support bill "HR5244: The Credit Card Holder's Bill of Rights." (Google “e-mail congress.”)

Liz Pulliam Weston says:

“It's time for a credit card revolution”

“Remember when banks weren't out to get you? I do. And with Congress' help, we can un-rig a system that's determined to make you fail. By Liz Pulliam Weston:

“A couple of years ago, consumers in the United Kingdom got a break when the country's Office of Fair Trading told credit card issuers that their late and over-limit fees were too high.

“Under U.K. law, penalty fees are supposed to bear some resemblance to the costs the card issuers actually incur. Regulators warned issuers that any fee over 12 pounds -- about $24 -- would be presumed unfair and would likely be challenged. The office estimated U.K. cardholders were paying at least 300 million pounds in excess penalty fees annually.

“The U.S. has no similar law limiting what credit card companies can charge, but until relatively recently that wasn't a problem. Before the mid-1990s, the typical late or over-limit fee was around $10.

“Then banks began to realize that fee income was a much steadier source of profit than interest rates, which had started to decline. By 2006, late fees averaged $34, the U.S. Government Accountability Office found, and today many of the biggest issuers charge $39. In 2006, 35% of credit card accounts were assessed a late fee; the GAO estimates consumers paid $7.4 billion in penalty fees that year.

“It wasn't always like this:

“Most of the credit card industry's worst practices are recent innovations. They include:

"Universal default penalties that allow issuers to crank up your interest rate if you miss a payment with any other lender -- or have a fight with an insurer or wind up in a medical collection, an increasingly common occurrence.

"Ever-shrinking grace periods that make it more likely you won't get your statement in time to make the due date.

"Due times on due dates that result in late fees and higher interest rates if your payment fails to make it to the issuer's processing facility by, say, 1 p.m. on the due date.

"Fixed rates that change on an issuer's whim, rather than because of any misstep on your part.

"Fat fees for foreign transactions that add as much as 3% to the cost of overseas purchases.

“Over the years I've advised readers on how to deal with these dirty tricks, starting with the obvious: Don't carry credit card balances because they leave you at the whim of issuers that feel no compunction to play fair.

“But I really think it's time we just turned back the clock to 1990 and codify into law what was standard practice then. We should:

“Ban excessive fees. Current late fees might make sense if credit card companies deployed fleets of employees to follow up with defaulting borrowers. But the vast majority of late fees are paid by folks who haven't defaulted -- that is, they haven't actually skipped a payment. They're just a few days late, and usually the issuer takes no action other than slapping on the fees.

“Over-limit fees make even less sense because the credit card issuer controls which transactions get approved and which don't. If issuers really cared about risk, rather than boosting profits, they'd simply deny any transaction that exceeded a cardholder's limit.

“And don't get me started on foreign-transaction fees. A 1% fee, charged by the Visa or MasterCard exchange that deals with the conversion, is probably excessive. There's no excuse for the extra 1% to 2% charged by many banks.

“Restore the 30-day grace period. In 1990, you typically got 30 days between the day your statement closed for the month and your due date. Even with snail mail, that was plenty of time to get your statement, write your check and mail it back. Today's 20-day grace periods all but require you to use electronic statements and onl-ine bill pay if you want to avoid late fees.

“Another option, codified in the Credit Cardholders' Bill of Rights that's been introduced in Congress, would require issuers to mail statements 25 days in advance of due dates. The current minimum is 14 days. And no more due times. In a 24/7 world, a due date is enough.

"'Fixed' means 'fixed.' I'll use language from the credit card bill of rights: 'Fixed . . . may only be used to refer to an annual percentage rate or interest rate that will not change or vary for any reason over the period clearly and conspicuously specified in the terms of the account.' Every other type of lender seems to understand what a fixed rate is; only credit card issuers have been unclear on the concept. It's time we fixed it in their minds.

“No more 'any excuse' re-pricing. Several issuers, including Chase and Citibank, have abandoned universal default as Congress started taking a closer look at credit card practices. Universal default needs to be banned altogether, and issuers must be forced to make it crystal clear what actions on cardholders' parts can lead to a rate increase. No more deliberate vagueness about 'actions that lead us to deem you less credit-worthy.' Issuers should give specifics: If you do this, then we do that.

“Instead of giving 15 days' notice of any changes in rates and terms, I endorse the bill of rights' requirement that cardholders be given 45 days' notice, plus the option to close the account and pay it off under the old terms.

“In fact, I think the bill, HR 5244, is a darned good start on helping us turn back time on the credit card companies. If you agree with me or want your voice to be heard, e-mail your congressional representatives now.

“This is your best shot at changing the system. Use it. Credit card issuers are overdue for some change.”

I agree.