Demos Urges House to Pass Landmark Credit Card Bill

New York, NY — Today, Tamara Draut, Vice President for Policy and Programs at the non-partisan policy center Demos, sent a letter to all members of the House of Representatives urging full support for H.R. 5244, The Credit Cardholders Bill of Rights Act, when it comes to a vote on September 23, 2008.  This legislation, introduced by Rep. Carolyn B. Maloney (D-NY) and co-sponsored by 155 other members of the House, would end some of the most abusive and predatory tactics of the credit card industry.

Draut urged members of Congress to support the bill as written and to reject any further amendments that would weaken the bill and its efforts to protect American families from abusive lending practices.

In her letter, Draut wrote:

"It has been nearly two decades since the credit card industry was deregulated with the promise of bringing greater competition and lower prices to consumers.  In addition, innovation in underwriting practices--commonly referred to as 'risk-based pricing'--has widened the market for credit cards to lower- and moderate-income consumers.  However, while credit cards have provided some households with an economic safety valve to deal with the growing gap between their incomes and their day-to-day costs of living, this debt may often aggravate financial distress rather than relieve it as mainstream credit card practices have become increasingly punitive and costly.

"Under the shield of deregulation, credit card companies have shifted the cost of credit to individuals least able to afford it, while at the same time reporting some of the highest profits in the entire banking sector.  Today, almost all of the top 10 issuers of credit cards reserve the right to change the APR on the account 'at any time, for any reason.' A single late payment--even by as little as minutes--can result in penalty interest rates that average nearly 27 percent.  Even consumers who are meeting their obligations with their credit card company may be penalized because of a supposed problem with another creditor or a drop in their credit score.  These unjustifiable rate increases are made all the more punitive by the fact that the new higher rate is applied to the cardholder's existing balances.  In doing so, card companies are essentially changing the terms retroactively on consumers and, in essence, raising the price of every item or service purchased previously with the card.  It is also common practice to charge interest on balances paid off during the monthly grace period and to require that payments are allocated to lower-rate balances first to maximize finance charges.

"Demos research shows that low-income families and households of color, primarily African Americans and Latinos, bear the brunt of the cost of credit card deregulation through excessive fees and high interest rates.  From 1989 to 2004, credit card debt among very low-income (under $9,999) credit card-indebted households quadrupled from an average of $622 to $2,750.  In 2004, 46 percent of very low-income households spent more than 40 percent of their income to pay off debt.  Among cardholders who carry balances, those with household incomes below $25,000 are five times more likely than households earning over $100,000 to pay penalty interest rates higher than 20 percent. 

"While white households carry more credit card debt, African Americans and Latinos have a higher percentage of credit card-indebted households.  In 2004, of those with credit cards, 84 percent of African-American households and 79 percent of Latino households carried credit card debt compared with 54 percent of white households.  Over 90 percent of African-American families earning between $10,000 and $24,999 had credit card debt.  Meanwhile, only seven percent of white cardholders are charges interest rates over 20 percent, but 15 percent of African-American cardholders and 13 percent of Latino cardholders pay such rates.  

"H.R. 5244 would level the playing field between borrower and lender by putting an end to some of the most arbitrary, abusive, and unfair credit card lending practices that trap consumers-particularly disadvantaged and minority borrowers-in an unending cycle of costly debt. 

"The bill would:

• End arbitrary and unfair interest rate increases on existing balances,
• Prevent credit card companies from gaming consumer payments,
• Prohibit unfair and hidden interest rate charges on balances repaid during the grace period, and
• End unfair late fees for on-time payments.

"In the current regulatory environment, bargaining power between lender and borrower is heavily tilted toward the lender.  The fact that the highest consumer costs are disproportionately borne by low-income families, African Americans, and Latinos raises additional moral questions and underscores the need to enact the fair regulatory standards laid out in H.R. 5244. We look forward to working with you toward final passage of this important legislation."

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