Designed to Confuse
Credit card companies don't talk down to you. Instead, they assume you can read at a 10th to 12th grade level or higher. But don't take it as a compliment.
A Government Accounting Office study released yesterday listed the required reading level of credit card agreements as one of several ways in which the top six credit card issuers leave consumers in the dark about practices such as charging interest based on debt that has been paid off and punishing consumers for late payments with penalties of as much as $39 and higher interest rates.
The study looked at credit card solicitations and agreements for the 28 most popular cards issued by the six largest credit card issues, as of December 31, 2004: Citibank, Chase Bank USA, Bank of America, MBNA America (which is now part of Bank of America), Capital One Bank and Discovery Financial Services.
In addition to being written well above the recommended 8th grade reading level, credit card solicitations and agreements were poorly organized and buried consumers in overly complicated text.
In the industry's defense, the report said outdated federal regulations about disclosures were partly to blame. The Federal Reserve is reviewing regulations about credit card disclosures. Don't be shy about letting them know what you think.
There were plenty of other interesting tidbits in the report:
* Eighty percent of cardholders have cards with interest rates less than 20 percent. Almost half of cardholders paid little or no interest because they paid their balance in full. Thirty-five percent of cardholders were hit with late fees and 13 percent faced fees for going over their credit limits.
* Credit card late fees rose from an average of $12.83 in 1995 to $33.64 in 2005, a rise of more than 160 percent.
* Some of the credit card companies told GAO they had backed off "universal default," which is punishing consumers with a higher interest rate if they make a late payment on another, unrelated credit card. Four of the six companies said they still do jack up rates but they now give cardholders some notice before doing so.
* Laws in states where four of the companies are chartered require them to allow consumers to opt out of a change in interest rate. But consumers rarely take advantage of this option, possibly because companies make it hard for them to do so by, for example, making them pay off their balances in full.
* The most expensive debt on your credit card has a way of sticking around. Credit card issuers decide how much of your monthly payment to allocate to different balances, which carry different interest rates. For example, cash advances have different rates than regular purchases. For 23 of the 28 cards looked at, the companies allocate first to the balance with the lowest rate, which means the balance with the highest rate hangs around the longest.
* Two of the six issuers said they charged interest on debt that was paid off, a practice known as "double-cycle billing."
At more than 100 pages, the GAO report isn't exactly easy reading either. And it doesn't out the companies that are guilty of the most egregious practices. But it's worth dipping into for information you won't get from your card issuer, or at least not in plain English.
GAO wouldn't tell us which companies do what. But you can. Fill in the gaps for us here.
Please email us to report offensive comments.
Posted by: jane | October 12, 2006 9:29 AM
Posted by: Chris | October 12, 2006 9:37 AM
Posted by: charging interest on paid off debt? | October 12, 2006 9:41 AM
Posted by: PT Barnum | October 12, 2006 9:56 AM
Posted by: Southern Maryland | October 12, 2006 10:24 AM
Posted by: Betty | October 12, 2006 11:03 AM
Posted by: Wondering | October 12, 2006 11:05 AM
Posted by: cotopaxi | October 12, 2006 11:25 AM
Posted by: KJS | October 12, 2006 11:38 AM
Posted by: kebvc | October 12, 2006 12:02 PM
Posted by: Serge Lescouarnec | October 12, 2006 1:32 PM
Posted by: badams | October 12, 2006 2:27 PM
Posted by: Chasmosaur | October 12, 2006 4:32 PM
Posted by: Falls Church, VA | October 12, 2006 5:19 PM
Posted by: tschm | October 12, 2006 6:59 PM
Posted by: Cardbuster | October 12, 2006 8:01 PM
Posted by: Cardbuster | October 12, 2006 8:07 PM
Posted by: Anonymous | October 13, 2006 9:43 AM
Posted by: Nearly debt free | October 13, 2006 3:41 PM
Posted by: alexandria | October 13, 2006 4:27 PM
Posted by: CNickyD | October 13, 2006 6:28 PM
Posted by: Not true! | October 13, 2006 7:40 PM
Posted by: Not true again | October 13, 2006 7:45 PM
Posted by: Anonymous | October 13, 2006 7:51 PM
Posted by: Natalie | October 13, 2006 9:37 PM
Posted by: rfayhallock | October 16, 2006 10:02 AM
Posted by: had enuf | October 16, 2006 2:05 PM
Posted by: Omaha100 | October 16, 2006 2:32 PM
Posted by: Anonymous | October 16, 2006 5:08 PM
Posted by: damn the man | October 16, 2006 5:35 PM
Posted by: Gary Masters | October 17, 2006 4:27 PM
Posted by: Justin McHenry | October 19, 2006 8:48 PM
Posted by: Credit Bureau | November 1, 2006 6:00 PM
The comments to this entry are closed.