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Report: Consumer Protection
The Credit Card Trap
Credit card companies are flooding us with card solicitations, deceiving us with misleading offer terms, and gouging us with higher-than-ever fees. As a result, consumers are sinking further into high-cost credit card debt.
As credit card companies intensify their marketing campaigns to boost profits, consumers are being flooded with more flashy credit card offers than ever before. In the second quarter of 2000, credit card companies sent a combined total of 992 million solicitations, a record high. The average household receives eight credit card offers each month, and students, who often have no regular income, are encouraged several times a week by posters, fliers, and on-campus marketers to apply for credit cards.
At the same time, credit card companies are charging outrageous interest rates as high as 30% per year. Consumers, students, and others are subject to a host of unfair and deceptive terms and conditions, saddled with enormous fees, and encouraged by credit card companies to make low minimum payments so that the companies can earn more in interest. As a result, the average credit card debt for Americans who carry balances reached $5610 in 2000, an increase of nearly one-third since 1995.
As consumers struggle, credit card companies are making bigger profits than ever. Between 1995 and 1999, thanks in part to aggressive marketing and misleading practices, companies’ profits skyrocketed from $7.3 billion to $20 billion.
In order to reduce their own debt losses and increase profits, the credit card industry is spending millions—more than $6 million in the first half of 2000––to pass further bankruptcy restrictions and to defeat pro-consumer bankruptcy legislation. The credit card industry is seeking to make it more difficult for consumers to declare bankruptcy and to increase the amount of debt for which consumers will be liable after declaring bankruptcy. Economic experts have pointed out that by making it more difficult for cardholders to default through bankruptcy, these industry-sponsored, anti-consumer bankruptcy restrictions will encourage credit card companies to be more predatory in lending, because the risk of issuing cards to higher-risk consumers such as students and those with low incomes will decline.
An additional measure of the problem with credit card marketing is increased attention by regulators. In June 2000, the Treasury Department’s Office of the Comptroller of the Currency (OCC) imposed a civil penalty and restitution order totaling over $300 million against the sixth largest credit card bank, Providian. In September 2000, the Federal Reserve Board issued new regulations requiring improved disclosures in credit card solicitations.
The state PIRGs conducted two surveys for this report. In a survey of 100 credit card offers during the summer of 2000, the state PIRGs found two major themes: (1) credit card terms and conditions are becoming less favorable to consumers; and (2) credit card marketing practices are misleading and deceptive. In an on-campus survey of college students, conducted during the current school year, the state PIRGs found that the marketing of credit cards to college students is too aggressive. The state PIRGs compared these results to those of a 1998 PIRG survey and found that the situation has not improved.
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