May 13, 2004
Dear Senators Akaka and Durbin,
The undersigned national consumer organizations write to strongly support the Credit Card Minimum Payment Warning Act. The Act would require credit card issuers to disclose more information to consumers about the costs associated with paying their bills at ever-declining minimum payment rates. The Act provides a personalized “price tag” so consumers can understand what are the real costs of credit card debt and avoid financial problems in the future.
Undisputed evidence links the rise in bankruptcy in recent years to the increase in consumer credit outstanding. These numbers have moved in lockstep for more than 20 years. Revolving credit, for example (most of which is credit card debt) ballooned from $214 billion in January 1990 to over $750 billion currently. As family debt increases, debt service payments on items such as interest and late fees take an ever-increasing piece of their budget. For some families, this contributes to the collapse of their budget. Bankruptcy becomes the only way out. (See the attached fact sheet for more information about the scope and impact of credit card debt.)
Credit card issuers have exacerbated the financial problems that many families have faced by lowering minimum payment amounts, from around 4 percent of the balance owed, to about 2 percent currently. This decline in the typical minimum payment is a significant reason for the rise in consumer bankruptcies in recent years. A low minimum payment often barely covers interest obligations. It convinces many borrowers that they are financially sound as long as they can meet all of their minimum payment obligations. However, those that that cannot afford to make these payments often carry so much debt that bankruptcy is usually the only viable option.
This bill will provide consumers several crucial pieces of information on their monthly credit card statement:
● A “minimum payment warning” that paying at the minimum rate will increase the amount of interest that is owed and the time it will take to repay the balance.
● The number of years and months that it will take the consumer to pay off the balance at the minimum rate.
● The total costs in interest and principal if the consumer pays at the minimum rate.
● The monthly payment that would be required to pay the balance off in three years.
The bill also requires that credit card companies provide a toll-free number that consumers can call to receive information about credit counseling and debt management assistance. In order to assure that consumers are referred to honest, legitimate non-profit credit counselors, the bill requires the Federal Reserve to screen these agencies to ensure that they meet rigorous quality standards.
Our groups commend you for offering this very important and long-overdue piece of legislation. It provides the kind of personalized, timely disclosure information that will help debt-choked families make informed decisions and start to work their way back to financial health.
Travis B. Plunkett
Consumer Federation of America
Consumer Programs Director
U.S. Public Interest Research Group
See facts about credit card debt