If you're overwhelmed by the numerous and mysterious fees that appear on your credit card statement, and the statement is so incomprehensible that it might as well be written in hieroglyphics, you're not alone.
"Unfair or confusing credit card practices take advantage of working families," said Sen. Carl Levin (D-Mich.), who commissioned a report by the Government Accountability Office (GAO) that found credit card fees and interest rates are rising while disclosure statements remain largely inpenetrable.
"This report shines a needed spotlight on excessive credit card fees, unfair interest rates, and inadequate disclosure practices that ought to be stopped," Levin said.
The published the report after surveying six of the major banks in the United States, which account for 80 percent of the nation's total credit card debt. The banks included J.P. Morgan Chase, Bank of America, and Capital One.
"Although credit card issuers are required to provide cardholders with information aimed at facilitating informed use of credit and enhancing consumers' ability to compare the costs and terms of credit, we found that these disclosures have serious weaknesses that likely reduced consumers' ability to understand the costs of using credit cards," the GAO reported.
Among the report's findings:
• Credit card charges in the United States exceed $1 trillion dollars
as of 2005, with an estimated 691 million cards issued to American
citizens. Total American household debt, including credit card debt,
came to $830 billion by the end of 2005.
• Penalty fees for actions such as late payments have more than
doubled in the last ten years, from $13 in 1995 to as much as $34 in
2005.
• Card issuers now charge a variety of "hidden" or additional fees,
such as charging for payments made over the phone, cash advances, and
balance transfers. These fees can range from $10 to $31, depending on
the transaction.
• Exceedingly high interest rates -- often as much as 30 percent -- are
charged when customers miss a payment.
In addition, the report found that many lenders will charge borrowers interest on balances already paid, by calculating the interest against the total debt on their card in the monthly billing cycle. This tactic, called "trailing interest," is often compounded by banks charging late fees on the unpaid interest.
Cardholders who take advantage of "convenience checks," checks written against the card's account balance, often find themselves paying additional interest charges and overlimit charges if they already have a balance on the card.
Convenience checks' terms are often not disclosed in the solicitation, and check holders have to call the bank to find out what the conditions really are.
The banks surveyed in the report claimed that the penalties and fees came as a result of issuing cards to "riskier" customers.
By pricing interest rates according to the borrower's "credit quality," the banks could offer cards to those who would otherwise have no access to credit, while retaining the lowest interest rates and most favorable terms for their "best" customers.
The banks also claimed that 80 percent of their cardholders had interest rates of 20 percent or less on their cards, with half of the active account holders paying their balances in full.
The data provided to the GAO by the banks indicated that a "small minority" of cardholders -- 35 percent -- were affected by late fees and interest hikes, but comprehensive data on the percentage of Americans paying penalty fees was unavailable.
The GAO concluded that there still was not enough comprehensive data to effectively link high interest rates and late fees to consumer debt, including filing for bankruptcy. While banks were seeing lower revenues from higher cardholder payoffs, this may be offset by increased gains from late fees and penalties.
The GAO recommended that all credit card disclosures be written in easily understood English, with clear emphasis on all actions that could lead to increases in interest rates and fees, as well as the fees themselves.
