Washington, D.C. - U.S. Senators Daniel K. Akaka (D-Hawaii) and Senator Richard Durbin (D-Illinois) have introduced legislation which would require that monthly credit card statements indicate the length of time it will take cardholders to pay off their balance at the minimum rate and the total costs in principal and interest if they only make the minimum monthly payment. The Credit Card Minimum Payment Warning Act aims to make individuals much more aware of the true costs of their credit card debt. Senators Patrick Leahy (D-VT) and Charles Schumer (D-NY) are cosponsors of the legislation.
Americans are carrying tremendous amounts of debt. In 2003, consumer debt increased to more than 2 trillion dollars, according to the Federal Reserve. A key component of household debt is the use of credit cards. Revolving debt, mostly comprised of credit card debt, has more than doubled from $313 billion in January 1994 to $753 billion in January 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 and has nine credit cards. As household debt has increased, bankruptcy filings have surged to record levels. In 2003, more than 1.6 million consumers filed for bankruptcy. This represents an increase of 5.6 percent over the previous record set in 2002.
"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 all of the information necessary to 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." Akaka said. "More and more working families are trying to meet growing financial obligations and are having difficulties surviving, financially. When interest rates do eventually rise, consumers' increasing debt obligations will be compounded further."
The Credit Card Minimum Payment Warning Act requires a minimum payment warning notification on monthly statements advising a cardholder that making the minimum payment will increase the amount of interest paid and extend the amount of time it will take to repay the outstanding balance. Consumers would have to be informed 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 costs in interest and principal if the consumer pays only the minimum payment would have to be disclosed.
The bill also requires that credit card companies provide cardholders information 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, the legislation 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 reputable 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.
"This bill makes clear the adverse consequences of uninformed choices such as making only minimum payments and provides opportunities to locate assistance to eliminate credit card debts," Akaka stated.
The Credit Card Minimum Payment Warning Act is endorsed by the Consumer Federation of America, Consumers Union, and U.S. Public Interest Research Group.
