Thank you, Mr. President. I rise today to introduce the Credit Card Minimum Payment Warning Act. I greatly appreciate the significant contributions Senator Durbin made to this bill and I thank him, Senator Leahy, and Senator Schumer for cosponsoring this legislation.
Americans are carrying enormous amounts of debt. In 2003, consumer debt increased for the first time to more than 2 trillion dollars, according to the Federal Reserve. This is a 28 percent increase since 2000. According to the Daily Bankruptcy News, consumer debt is now equal to 110 percent of disposable income. Ten years ago, it was 85 percent, and 20 years ago, it was 65 percent. A key component of household debt can be attributed to 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.
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.
As household debt has increased, bankruptcy filings have surged to record levels. In 2003, more than 1.6 million consumers filed for bankruptcy. This staggering amount is an increase of 5.6 percent over the previous record set in 2002. Bankruptcies disrupt the lives of consumers and limit their ability to access credit in the future. In addition, bankruptcies lead to significant financial losses for creditors. It is imperative that we 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 bankruptcy.
Even as we contemplate the consequences of more and more debt, it has become easier to access credit. Pre-approved credit card offers are now a routine piece of mail. Students are offered credit cards at earlier ages, especially in view of the success that credit card companies are having with their aggressive campaigns targeted towards college students. Mr. President, 55 percent of college students acquire their first credit card during their first year in college, and 83 percent of college students have at least one credit card. Forty-five percent of college students are in credit card debt, with the average debt over $3,000.
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.
Our legislation will provide a wake up call for consumers. It will make it very clear what costs consumers will incur if they make only the minimum payments on their credit cards. 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 their balance.
This bill 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. 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. These provisions will make individuals much more aware of the true costs of their credit card debts.
The bill 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, 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 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. 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.
The Credit Card Minimum Payment Warning Act has been endorsed by the Consumer Federation of America, Consumers Union, and U.S. Public Interest Research Group. I request unanimous consent that a letter of support and fact sheet from these organizations be included in the Record.
I also ask that the text of the Credit Card Minimum Payment Warning Act be printed in the Record following my remarks.
I urge my colleagues to support this legislation that will empower consumers by providing them with detailed personalized information to assist them in making informed choices about their credit card use and repayment. 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.
Thank you Mr. President.
