Thank you, Mr. President. Mr. President, I rise to offer amendment # 15 to S. 256. I thank Senators Durbin, Leahy, and Sarbanes for working with me on this legislation, the Credit Card Minimum Payment Warning Act, and for cosponsoring the amendment.
Mr. President, during all of 1980, only 287,570 consumers filed for bankruptcy. As consumer debt burdens have ballooned, the number of bankruptcies have increased significantly. From January through September of 2004, approximately 1.2 million consumers filed for bankruptcy, keeping pace with last year's record level. The growth in use of credit cards can partially explain this surge. Revolving debt, mostly compromised of credit card debt, has risen from $54 billion in January 1980 to more than $780 billion in November 2004. A U.S. Public Interest Research Group and Consumer Federation of America analysis of Federal Reserve data indicates that the average household with debt carries approximately $10,000 to $12,000 in total revolving debt.
We must make consumers more aware of the long-term effects of their financial decisions, particularly in managing their credit card debt, so that they can avoid financial pitfalls that may lead to bankruptcy.
While it is relatively easy to obtain credit, not enough is done to ensure that credit is properly managed. Currently, credit card statements fail to include vital information that would allow individuals to make fully informed financial decisions. Additional disclosure is needed to ensure that individuals completely understand the implications of their credit card use and the costs of only making the minimum payments as required by credit card companies.
Mr. President, S. 256 includes a requirement that credit card issues provide additional information about the consequences of making minimum payments. However, this provision fails to provide the detailed information for consumers on their billing statement that our amendment would provide. Section 1301 of the bankruptcy bill would allow credit card issuers a choice of disclosures that they must provide on the monthly billing statement.
The first option included in the bankruptcy bill would require a "Minimum Payment Warning" stating that it would take 88 months to pay off a balance of $1,000 for bank card holders or 24 months to pay off a balance of $300 for retail card holders. It would require a toll-free number to be established that would provide an estimate of the time it would take to pay off the customer's balance. The Federal Reserve Board would be required to establish a table that would estimate approximate number of months it would take to pay off a variety of account balances.
There is a second option that the legislation permits. The credit card issuer could provide a general minimum payment warning and provide a toll-free number that consumers could call for the actual number of months to repay the balance.
Both of these options are inadequate. They do not require the issuers to provide their customers with the total amount they would pay in interest and principle if they chose to pay off their balance at the minimum payment rate. The minimum payment warning included in the first option underestimates the costs of paying a balance off at the minimum payment. Since the average household with debt carries a balance has approximately $10,000 to $12,000 in total revolving debt, a warning based on a much smaller balance, $1,000 or under in this case, will not be helpful. If a family has a credit card debt of $10,000, and the interest rate is a modest 12.4 percent, it would take more than ten and a half years to pay off the balance while making minimum monthly payments of four percent.
As we make it more difficult for consumers to discharge their debts in bankruptcy, we have a responsibility to provide additional information so that consumers can make better informed decisions. Our amendment will make it very clear what costs consumers will incur if they make only the minimum payments on their credit cards. If this amendment is adopted, the personalized information they will receive for each of their accounts will help them to make informed choices about the payments that they choose to make towards reducing their outstanding debt.
This amendment requires a minimum payment warning notification on monthly statements stating that making the minimum payment will increase the amount of interest that will be paid and extend the amount of time it will take to repay the outstanding balance. The amendment also requires companies to inform consumers of how many years and months it will take to repay their entire balance if they make only the minimum payments. In addition, the total cost in interest and principal, if the consumer pays only the minimum payment, would have to be disclosed. These provisions will make individuals much more aware of the true costs of their credit card debts. The amendment also requires that credit card companies provide useful information so that people can develop strategies to free themselves of credit card debt. Consumers would have to be provided with the amount they need to pay to eliminate their outstanding balance within 36 months.
Finally, our amendment would require that creditors establish a toll-free number so that consumers can access trustworthy credit counselors. In order to ensure that consumers are referred from the toll-free number to only trustworthy organizations, the agencies for referral would have to be approved by the Federal Trade Commission and the Federal Reserve Board as having met comprehensive quality standards. These standards are necessary because certain credit counseling agencies have abused their nonprofit, tax-exempt status and have taken advantage of people seeking assistance in managing their debts. Many people believe, sometimes mistakenly, that they can place blind trust in nonprofit organizations and that their fees will be lower than those of other credit counseling organizations. Too many individuals may not realize that the credit counseling industry does not deserve the trust that consumers often place in it.
Mr. President, our Credit Card Minimum Payment Warning legislation has been endorsed by the Consumer Federation of America, Consumers Union, U.S. Public Interest Research Group, and Consumer Action.
I urge my colleagues to support this amendment that will empower consumers by providing them with detailed personalized information to assist them in making better informed choices about their credit card use and repayment. This amendment makes clear the adverse consequences of uninformed choices, such as making only minimum payments, and provides opportunities to locate assistance to better manage their credit card debts. Thank you Mr. President.
