Watchdog calls for store card 'wealth warning'

Britain's retailers could be forced to display a "wealth warning" on their store cards, alerting consumers to the extortionate rates of interest they charge, according to proposals from the Competition Commission.

Publishing its provisional findings and recommendations yesterday after an 18-month inquiry into the sector, the Commission criticised retailers for not providing adequate information to consumers, saying a lack of competitive pressure in the market had left consumers at risk.

Credit card payments to rise

Consumers who make only minimum payments on their credit cards are in for a shock. Spurred by a new federal mandate, card companies over the next three months plan to raise - in some cases double - the amount card holders must pay each month. A consumer carrying a $10,000 balance, for example, may see a minimum payment jump from $200 to $400. The new minimums are designed to prevent consumers from being hobbled for decades by credit card debt. An estimated one-third to one-half of American families carry credit card debt, with many making only minimum payments. "Many credit card borrowers don't realize that if they just pay the minimum monthly payment, they may never pay off their card," said Mike Peterson, vice president of the Salt Lake City-based credit counseling group, American Credit Foundation.

It would take a consumer making only the minimum monthly payment nearly 30 years, for example, to pay off a $2,000 credit card balance at 18 percent interest. Total interest payments over that period would be about $5,000, Peterson said. Increasing the monthly payment from 2 percent to 4 percent of the outstanding balance will require only 10 years and $1,100 in financing costs to pay off the same amount. "This is a positive for consumers," Peterson said. "They won't be able to carry as much debt and they will get out of debt faster." While long-term benefits of the change are clear, Peterson and others worry about how families will react in the short term.

Increased payments certainly will catch most families by surprise. And short-term costs may be more than many low- to moderate-income families can bear, said Glenn Bailey, executive director of Crossroads Urban Center, a low-income advocacy group in Salt Lake City. Many low-income families use credit cards for emergencies or just to get by, he said. "Some aren't in a position to make a higher payment. A change like this could drive a lot of people into food pantries."

In any event, it will cause some card holders - already affected by record gasoline prices - to make hard choices. Andrea Pearson of West Jordan, for example, pays only the minimum payment of about $70 on her credit card each month so she can afford to put some money into a savings account. "If I have to pay more on my credit card, I won't be able to save as much," she said. While the federal Office of the Comptroller of the Currency said it is giving credit card companies some leeway in how they raise monthly payments, all are required to do so by the end of December. "This isn't optional," said Comptroller spokesman Dean DeBuck. "We will be making sure they comply." Credit card companies have indicated they will, even if several have said they would not have mandated the increase on their own. The companies will notify card holders in coming months of when to expect higher monthly payments - and how much higher they will be. "Ultimately it's the right thing to do for our card holders," said Betty Riess, Bank of America spokeswoman.

Drawing your interest
A consumer with a $2,000 credit-card balance will pay about $5,000 in interest over nearly 30 years to retire the debt with a 2 percent minimum monthly payment. With a 4 percent minimum payment, that same consumer will retire that $2,000 card balance in 10 years and only $1,100 in financing costs.

Roberts v. Fleet Bank - Other Text in Credit Card Solicitation Letter Can Influence Whether Disclosures in Schumer Box Meet TILA Requirements

Reversing a summary judgment for defendant, the Third Circuit found material questions of fact existed as to whether a bank’s credit card solicitation materials failed to disclose clearly the annual percentage rate. Defendant sent plaintiff a credit card solicitation offering a 7.99 annual percentage rate. The offer said that the rate was not introductory or temporary. The solicitation’s “Schumer box” (Truth in Lending Act (TILA) disclosures) said that the rate could change if the cardholder failed to meet repayment requirements or upon closure of the account. The cardholder agreement that plaintiff received next reserved the right to change the terms of the agreement at any time. Thirteen months later defendant raised the annual percentage rate. Plaintiff filed a class action, charging violation of TILA and Rhode Island’s consumer protection act, breach of contract, and unjust enrichment. The Third Circuit found that a consumer could reasonably conclude from the Schumer box that the annual percentage rate could change only due to nonpayment or closure. While TILA applied only to required disclosures in the Schumer box, the court found that the solicitation letter’s text could be considered in determining whether TILA-required information was clearly disclosed. The Third Circuit upheld the district court’s ruling that the transaction was exempt from the state consumer protection act; the contract was not breached; and no unjust enrichment claim could stand since the parties’ relationship was governed by the contract.

Sanders introduces Credit Card Protection Act

Rep. Bernie Sanders, I-Vt., on Tuesday announced legislation aimed at ending what he called "some of the most egregious anti-consumer practices of the nation's credit card companies." "Too many Americans have been taken advantage of by the deceptive advertising of the credit card companies," Sanders said in a news release. "Charging economically vulnerable Americans outrageous interest rates and fees is simply not acceptable."

The Consumer Credit Card Protection Act of 2005 would stop some of the most egregious practices by:

Prohibiting "bait and switch" scams that raise consumers' interest rates for events wholly unrelated to the consumer's credit card account. For example, by law, credit card issuers can raise a person's interest rate for a late payment on a telephone bill that occurred before that person applied for, received and potentially transferred a balance to, a so-called "fixed rate" credit card. This bill would prohibit that practice.

Requiring credit card companies to provide real notice to consumers before raising interest rates or charging fees (not hiding rate increases or fees provisions in the small font of a "terms agreement") and waiting for consumers to notice that their rates have jumped or that they have been charged an astronomical fee.

Prohibiting credit card issuers from raising interest rates on preexisting balances for "fixed rate" cards. New terms should apply only to new purchases