[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]





                    CREDIT CARDS AND OLDER AMERICANS

=======================================================================

                             FIELD HEARING

                               BEFORE THE

                 SUBCOMMITTEE ON FINANCIAL INSTITUTIONS

                          AND CONSUMER CREDIT

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                             AUGUST 7, 2007

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 110-56













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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                 BARNEY FRANK, Massachusetts, Chairman

PAUL E. KANJORSKI, Pennsylvania      SPENCER BACHUS, Alabama
MAXINE WATERS, California            RICHARD H. BAKER, Louisiana
CAROLYN B. MALONEY, New York         DEBORAH PRYCE, Ohio
LUIS V. GUTIERREZ, Illinois          MICHAEL N. CASTLE, Delaware
NYDIA M. VELAZQUEZ, New York         PETER T. KING, New York
MELVIN L. WATT, North Carolina       EDWARD R. ROYCE, California
GARY L. ACKERMAN, New York           FRANK D. LUCAS, Oklahoma
JULIA CARSON, Indiana                RON PAUL, Texas
BRAD SHERMAN, California             PAUL E. GILLMOR, Ohio
GREGORY W. MEEKS, New York           STEVEN C. LaTOURETTE, Ohio
DENNIS MOORE, Kansas                 DONALD A. MANZULLO, Illinois
MICHAEL E. CAPUANO, Massachusetts    WALTER B. JONES, Jr., North 
RUBEN HINOJOSA, Texas                    Carolina
WM. LACY CLAY, Missouri              JUDY BIGGERT, Illinois
CAROLYN McCARTHY, New York           CHRISTOPHER SHAYS, Connecticut
JOE BACA, California                 GARY G. MILLER, California
STEPHEN F. LYNCH, Massachusetts      SHELLEY MOORE CAPITO, West 
BRAD MILLER, North Carolina              Virginia
DAVID SCOTT, Georgia                 TOM FEENEY, Florida
AL GREEN, Texas                      JEB HENSARLING, Texas
EMANUEL CLEAVER, Missouri            SCOTT GARRETT, New Jersey
MELISSA L. BEAN, Illinois            GINNY BROWN-WAITE, Florida
GWEN MOORE, Wisconsin,               J. GRESHAM BARRETT, South Carolina
LINCOLN DAVIS, Tennessee             JIM GERLACH, Pennsylvania
ALBIO SIRES, New Jersey              STEVAN PEARCE, New Mexico
PAUL W. HODES, New Hampshire         RANDY NEUGEBAUER, Texas
KEITH ELLISON, Minnesota             TOM PRICE, Georgia
RON KLEIN, Florida                   GEOFF DAVIS, Kentucky
TIM MAHONEY, Florida                 PATRICK T. McHENRY, North Carolina
CHARLES A. WILSON, Ohio              JOHN CAMPBELL, California
ED PERLMUTTER, Colorado              ADAM PUTNAM, Florida
CHRISTOPHER S. MURPHY, Connecticut   MICHELE BACHMANN, Minnesota
JOE DONNELLY, Indiana                PETER J. ROSKAM, Illinois
ROBERT WEXLER, Florida               KENNY MARCHANT, Texas
JIM MARSHALL, Georgia                THADDEUS G. McCOTTER, Michigan
DAN BOREN, Oklahoma

        Jeanne M. Roslanowick, Staff Director and Chief Counsel
       Subcommittee on Financial Institutions and Consumer Credit

                CAROLYN B. MALONEY, New York, Chairwoman

MELVIN L. WATT, North Carolina       PAUL E. GILLMOR, Ohio
GARY L. ACKERMAN, New York           TOM PRICE, Georgia
BRAD SHERMAN, California             RICHARD H. BAKER, Louisiana
LUIS V. GUTIERREZ, Illinois          DEBORAH PRYCE, Ohio
DENNIS MOORE, Kansas                 MICHAEL N. CASTLE, Delaware
4PAUL E. KANJORSKI, Pennsylvania     PETER T. KING, New York
MAXINE WATERS, California            EDWARD R. ROYCE, California
JULIA CARSON, Indiana                STEVEN C. LaTOURETTE, Ohio
RUBEN HINOJOSA, Texas                WALTER B. JONES, Jr., North 
CAROLYN McCARTHY, New York               Carolina
JOE BACA, California                 JUDY BIGGERT, Illinois
AL GREEN, Texas                      SHELLEY MOORE CAPITO, West 
WM. LACY CLAY, Missouri                  Virginia
BRAD MILLER, North Carolina          TOM FEENEY, Florida
DAVID SCOTT, Georgia                 JEB HENSARLING, Texas
EMANUEL CLEAVER, Missouri            SCOTT GARRETT, New Jersey
MELISSA L. BEAN, Illinois            GINNY BROWN-WAITE, Florida
LINCOLN DAVIS, Tennessee             J. GRESHAM BARRETT, South Carolina
PAUL W. HODES, New Hampshire         JIM GERLACH, Pennsylvania
KEITH ELLISON, Minnesota             STEVAN PEARCE, New Mexico
RON KLEIN, Florida                   RANDY NEUGEBAUER, Texas
TIM MAHONEY, Florida                 GEOFF DAVIS, Kentucky
CHARLES A. WILSON, Ohio              PATRICK T. McHENRY, North Carolina
ED PERLMUTTER, Colorado              JOHN CAMPBELL, California




























                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    August 7, 2007...............................................     1
Appendix:
    August 7, 2007...............................................    31

                               WITNESSES
                        Tuesday, August 7, 2007

Billet, David, Director of Legislation and Government Affairs, 
  New York State Banking Department..............................    12
DeCelle, John T., Executive Vice President, State Employees 
  Federal Credit Union...........................................    16
O'Connell, Robert, Executive Council Member, AARP-New York.......     4
Porter, Katherine, Associate Professor, College of Law, 
  University of Iowa.............................................     6
Whipple, Barbara, Barbaruolo Law Firm, PC........................     9

                                APPENDIX

Prepared statements:
    DeCelle, John T..............................................    32
    O'Connell, Robert............................................    40
    Porter, Katherine............................................    48
    Whipple, Barbara.............................................    62






















 
                    CREDIT CARDS AND OLDER AMERICANS

                              ----------                              


                        Tuesday, August 7, 2007

             U.S. House of Representatives,
             Subcommittee on Financial Institutions
                               and Consumer Credit,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 1 p.m., in 
Halfmoon Senior Center, 287 Lower New Town Road, Halfmoon, New 
York, Hon. Carolyn Maloney [chairwoman of the subcommittee] 
presiding.
    Present: Representative Maloney.
    Also present: Representative Gillibrand.
    Mr. Emmette. We welcome you to a congressional hearing. We 
have people here who are interested in seeing that senior 
citizens are protected as far as credit is concerned and 
everything else. It's with great pleasure, not only will you 
meet Congresswoman Gillibrand, but I turn the floor over to 
Congresswoman Maloney, from the east side of Manhattan.
    Chairwoman Maloney. Thank you very, very much, Robert, for 
welcoming us and I want to thank everyone for coming and 
participating today, and I particularly want to thank the 
Halfmoon Senior Center for providing us with an area where we 
could have our hearing. I am Congresswoman Carolyn Maloney and 
this hearing will come to order officially. This field hearing 
of the House Financial Services Committee, Subcommittee on 
Financial Institutions and Consumer Credit, called, ``Credit 
Cards and Older Americans'' is the third hearing of this 
subcommittee in the 110th Congress examining credit card 
issues.
    I want to note that the record will be held open without 
objection for all members' opening statements to be made a part 
of the record. Congressman McNulty and Congressman Walsh had 
indicated their interest in coming, as well as Chairman Frank, 
and all members of the committee in Congress who wish to put 
into the official record their comments will be made part of 
the official record.
    This field hearing is being held at the request of 
Congresswoman Kirsten Gillibrand who wrote to me as the 
chairwoman of the subcommittee requesting this hearing 
regarding credit cards and their impact on older Americans. I 
am absolutely delighted to be here and I would like to thank 
Congresswoman Gillibrand and her staff, and the Halfmoon Senior 
Center for helping my office to organize it, and I should also 
publicly thank the legislative director of the subcommittee, 
Ms. Eleni Constantine, who has come here to be with us today 
from Washington.
    I also would like to thank all of the witnesses for coming 
to provide their expertise on this important issue. Many of 
them traveled quite a distance, and we are very thankful. This 
hearing, as I said, is part of a series of hearings that this 
subcommittee is holding to examine credit card issues. The 
first hearing on credit cards was held on April 26th and 
examined facts about the market, the practices that are most 
criticized, and the enforcement problems that confront card 
holders, as well as State and local authorities.
    The second hearing was held on June 7th and examined the 
changes to credit card disclosures and the Federal Reserve's 
proposed Regulation Z. In addition, I convened a roundtable 
discussion with consumer groups and the top six credit card 
issuers on July 30th. The discussion focused on the development 
of principles the credit card industry should consider when 
issuing unsecured credit. We took what we had learned at the 
roundtable and issued the principles last week. They focus on 
the key areas of underwriting, disclosure, notice and choice 
and help for those in trouble, and I would say that this 
hearing focuses on the fourth principle. Often, older Americans 
and college students have reported to our subcommittee various 
abuses that they have confronted.
    This hearing will focus on issues surrounding credit card 
issues facing older consumers including rising levels of 
personal debt, especially among fixed-income older Americans. 
The hearing will also focus on options older consumers have 
when trying to reduce credit card debt and the special 
challenges that they face in this effort.
    As with all consumers, the use and acceptance of credit 
cards are a great convenience for older Americans. Transactions 
using credit cards also add a security to transactions that do 
not exist with other forms of payment. Access to credit has 
also provided a crucial financial safety net in certain 
emergency situations, particularly health care. But problems 
occur when consumers' use of credit cards creates a cycle of 
debt that they are unable to escape.
    In September 2004, the consumer organization, Demos, 
released a report that documented increases in credit card debt 
held by older Americans between 1992 and 2001. Among the 
report's key findings were that average self-reported credit 
card debt among indebted seniors increased by 89 percent 
between 1992 and 2001, to over $4,000. That's quite a 
substantial increase. Seniors between the ages of 65 and 69 
years old, presumably the newly retired, saw the most 
staggering rise in credit card debt, 217 percent, to an average 
of well over $5,000. Female-headed senior households 
experienced a 48 percent increase in credit card debt between 
1992 and 2001, to well over $2,000 average debt.
    Among seniors with incomes under $50,000, which is 70 
percent of all seniors, about one in five families with credit 
cards are in debt hardship, spending over 40 percent of their 
income on debt payments, including the mortgage debt. 
Importantly, it is not just that older consumers have more 
credit card debt than before, but that many are buried in 
unaffordable debt. In a 2006 survey, AARP found that close to 
half of U.S. adults age 40 or older see their current level of 
debt as a problem. About 30 percent of retirees in a survey 
describe their debt as a problem, and only 7 percent of 
retirees said they did not have any debt. I repeat, only 7 
percent of retirees say they don't have any debt.
    During this same time period, the number of older Americans 
filing for bankruptcy tripled, making them the fastest growing 
group in the bankruptcy court. Conventional wisdom suggests 
that seniors with a lifetime of financial experience, high 
homeownership rates, and a record of thrift would be immune to 
the record debt increases of the 1990's among other age groups. 
Unfortunately, what the data suggests is that many older 
Americans use credit cards as a plastic safety net to make 
essential purchases they cannot otherwise afford, including 
out-of-pocket medical expenses, energy and utility bills, and 
rising property taxes.
    At the same time, the most important bulwark seniors have 
against debt, savings and assets, also has diminished. Finally, 
there are concerns about the level of financial literacy among 
older families confronted with rapidly changing financial 
service products. The growing debt level of this Nation's older 
consumers is a very real and growing concern. We are here to 
examine these issues in detail and I look forward to hearing 
from all of the panelists and hearing personal stories from the 
seniors. And with that, I'd like to recognize my colleague, 
Kirsten Gillibrand, who requested this hearing.
    Ms. Gillibrand. Thank you, Chairwoman Maloney. I really 
appreciate your leadership very much. I appreciate the fact 
that you've come to Saratoga County in order to hold this 
hearing on an issue that is very troubling for many seniors in 
our District. I want to thank all of the witnesses for 
testifying and for providing expertise: Mr. Robert O'Connell, 
executive council member, AARP, New York; Ms. Katie Porter, 
associate professor, College of Law, University of Iowa; Ms. 
Barbara Whipple, from the Barbaruolo Law Firm; Mr. David 
Billet, director of legislation and government affairs for the 
New York State Banking Department; and John DeCelle, executive 
vice president, State Employees Federal Credit Union. Your 
testimony will be very useful for today's proceedings.
    In addition, I'm very grateful for the AARP's help 
coordinating the hearing, and for Eilleen Pettis and Lisa 
Perry's assistance for the Halfmoon Senior Center, and to our 
president who gave the opening remarks. You've all graciously 
allowed the subcommittee to host this hearing here and for all 
of the seniors here in the room, it's wonderful to see you to 
represent our community so effectively and to lend your very 
important voice to this discussion. It's exceedingly meaningful 
and it's something that Congress very much relies on as we 
begin to write legislation to address some of our concerns.
    I recently expressed my concern to Chairwoman Maloney about 
the growing issue of credit card debt affecting senior 
citizens. I'm grateful that the chairwoman decided to hold a 
field hearing here in upstate New York to investigate this 
issue that affects such an important demographic of our 
country. Soon the Baby Boom generation will begin to retire and 
I believe that the prevalence of credit card debt among older 
Americans is an issue that needs to be studied further and in 
depth. A third of all seniors have at least one credit card and 
the Baby Boom generation is especially vulnerable as they 
approach retirement as evidenced by the fact that seniors 
between the ages of 65 and 69 years old who have either 
recently retired or are preparing to retire have experienced a 
217 percent rise in credit card debt between 1992 and 2001, and 
have an average credit card debt of $5,800.
    Credit cards play an important role in the lives of many 
Americans by offering convenience and financial security in 
unforeseeable situations. However, I'm concerned that too many 
seniors, after decades of hard work and service to this 
country, are drowning in unaffordable debt. Older Americans are 
the fastest growing age group to file for bankruptcy and I 
believe that increased financial literacy education is needed.
    It's important that seniors are not targeted for complex or 
confusing lending agreements and as a result become 
economically vulnerable. More than one third of the seniors 
depend on Social Security benefits for over 90 percent of their 
income and a high-interest rate fee can be devastating for a 
senior who lives on a fixed income. We are living in an era 
where pensions are no longer guaranteed and health care, 
energy, and housing costs are sky rocketing. It's important 
that seniors do not fall into the trap of relying on credit 
cards to survive. Credit card marketing needs to be accurate 
and honest and changing credit card term agreements are also 
causes of concern for the American seniors. It is critical that 
seniors clearly understand the contractual agreements that they 
enter into. Additionally, I'm very concerned about the effects 
that credit card issues have on women as they are more likely 
to experience financial insecurity, live longer, and rely on 
Social Security.
    I look forward to hearing from our witnesses on the causes 
of the increase in credit card debt amongst older Americans, 
any possible steps that Congress can take to protect our older 
Americans, and what seniors can do if they find themselves in 
unmanageable debt.
    Thank you again, Madam Chairwoman, for holding this hearing 
today. I'm very grateful.
    Chairwoman Maloney. Thank you. We have fine panelists and 
we're going to have 5 minutes of opening statements from each 
panelist, and then I'm just going to move the table in front of 
you and have everybody respond to questions jointly.
    So first up, Mr. Robert O'Connell, executive counsel, AARP. 
And thank you very much for really working with us on this 
hearing and giving us much needed information. Thank you.

 STATEMENT OF ROBERT O'CONNELL, EXECUTIVE COUNCIL MEMBER, AARP-
                            NEW YORK

    Mr. O'Connell. Thank you very much. By the way, I'm a local 
resident of Clifton Park, so I'm in your territory, 
Representative Gillibrand.
    Chairwoman Maloney, Representative Gillibrand, and members 
of the subcommittee, on behalf of AARP's 39 million members, I 
want to thank you for the opportunity to testify on credit card 
practices. An estimated 3 out of every 4 Americans age 65 and 
older have credit cards, and for many of these older Americans, 
the credit card is a great convenience. They can afford to pay 
their balance in full each month and generally enjoy lower 
annual percentage rates. These are the so-called ``convenience 
users'' who collect airline miles, reward points, and even can 
get cash back on their purchases. However, a growing number of 
older Americans find themselves deep in credit card debt or 
even filing for bankruptcy. Although older households long have 
been considered among the most frugal and resistant to consumer 
debt, changing economic conditions--particularly declining 
pension and investment income and rising costs for basics such 
as prescription drugs, health care, and utilities--have made 
credit card debt a more serious financial issue for older 
Americans.
    What is of greatest concern to AARP is not just that older 
consumers carry more credit card debt than ever before, but 
that more seniors are being buried in what may be considered 
unaffordable debt. You've already referenced the survey that 
AARP did about the number of people who, over the age of 40, 
find themselves with debt as a problem, and I won't go into 
those statistics any further.
    For those who are unable to make more than the required 
minimum monthly payments on their cards, industry practices--
including sky high penalty interest rates, high accumulating 
fees, and interest on fees--often push them into unmanageable 
credit card debt.
    Permit me to give just one example to illustrate this 
point: Ruth Owens was in her 50's, and on Social Security 
disability, when she found herself with a $1,963 balance on her 
Discover Card. At that point, Ms. Owens stopped using her 
credit card. She made no further purchases, did not take any 
cash advances, and resolved to pay off the debt. Over the 
course of 6 years, Ms. Owens made payments of $3,492 to 
Discover. From 1997 to May of 2003, when Discover sued Ms. 
Owens in court, not one penny of her payments went to reduce 
the principle. Instead, all of her payments went to pay 
penalties and interest, and her balance grew even larger. She 
incurred $1,518 in over-the-limit fees; $1,160 in late fees; 
$369.62 in credit insurance; and $6,008.66 in interest and 
other fees for a total of $9,056.28. In a handwritten note to 
the judge, Ms. Owens noted that she had no money to pay them 
and that she was very sorry. Luckily, the judge in this case 
barred Discover from collecting any more money from Ms. Owens. 
As this example illustrates, it is the customer who sometimes 
misses a payment, or sends a payment late, or simply pays the 
minimum due each month who generates the real profits for 
credit card companies. According to one estimate, interest in 
penalty fee revenues in 2005 added up to a staggering $79 
billion. Nearly $8 out of every $10 of revenue for the credit 
card companies comes from customers who cannot pay off their 
bills in full every month.
    While credit card companies have every right to earn a 
profit, AARP is concerned that the consumers in the marketplace 
be treated fairly and that credit card companies not reap huge 
financial rewards from the very practices that sink customers 
into deeper and deeper debt.
    AARP's key concerns are as follows: (1) the 
incomprehensible, and in some instances meaningless, disclosure 
procedures; (2) allowing certain practices such as going over 
the limit and then assessing penalty fees for engaging in such 
behavior; (3) penalty interest rates that average more than 27 
percent and can be as high as 32 percent even for relatively 
minor infractions such as being hours or just days late on a 
payment; (4) multiple and variable interest rates that make it 
difficult for consumers to know what interest rate they are 
paying for any particular purchase or cash advance; (5) 
universal default in which a card holder is penalized based on 
behavior with another creditor even if he or she has no 
blemishes on the credit card in question; and (6) mandatory 
arbitration for credit card disputes.
    Deregulation of the credit card marketplace has drastically 
changed the way issuers market and price credit cards to 
consumers of all ages. It is clear that in recent years, credit 
card companies have become far more aggressive in imposing 
questionable fees and practices. The result is that penalty 
interest rates, high and accumulating fees, and interest on 
fees can push consumers over the financial edge.
    AARP commends you for taking a serious look at these issues 
and endorses the following reforms: Improve the disclosure and 
conditions for credit cards; prohibit universal default (which 
I would note, Chairwoman Maloney has included in her principles 
that were published at the end of last week); limit penalty 
fees and interest rate hikes; and prohibit mandatory binding 
arbitration.
    I want to conclude by emphasizing that the growing debt 
level of this Nation's older consumers is a very real and 
serious concern. AARP urges Congress to prohibit the abuse of 
credit card practices that contribute to and exacerbate the 
financial concerns of this Nation's older population.
    Thank you very much.
    [The prepared statement of Mr. O'Connell can be found on 
page 40 of the appendix.]
    Chairwoman Maloney. I want to thank you, Mr. O'Connell, for 
your really excellent testimony. Businesses cannot raise prices 
retroactively without telling their customers, but credit card 
companies can. Your example of Ms. Owen really was a staggering 
example. I'm going to carry that back to Washington and maybe 
she'll be testifying before Washington. Her story shows a lot 
of what's wrong. So thank you for being here, and sharing your 
principles with me, and we'll take that into account when we're 
writing our legislation.
    The next witness is Ms. Katie Porter. She's an associate 
professor from the College of Law at the University of Iowa. 
She traveled a long way to be with us today, and we want to 
thank her very much for being here. Thank you very much for 
coming.

STATEMENT OF KATHERINE PORTER, ASSOCIATE PROFESSOR, COLLEGE OF 
                    LAW, UNIVERSITY OF IOWA

    Ms. Porter. Chairwoman Maloney, Representative Gillibrand, 
and members of the subcommittee, credit cards are not age 
neutral financial products. Older Americans face particular 
risks from credit cards that are not addressed by current law. 
Recent studies have documented several troubling trends: About 
70 percent of Americans age 65 or older have credit cards; of 
this group with cards, 3 in 10 seniors carry a credit card 
balance. These numbers have remained relatively steady over 
time. The alarming trend, however, is a sizable increase in the 
amount of credit card debt that older Americans carry. In 2004, 
households headed by people ages 55 to 64 had the highest 
credit card balances of any age group with the average card 
holding family owing nearly $6,000 in credit card debt. Between 
2001 and 2004, the credit card balances increased in all three 
cohorts of older Americans, those aged 55 to 64, 65 to 74, and 
over 75. The rising amount of credit card debt carried by older 
Americans was in contrast to the pattern among younger 
Americans whose credit card balances remained the same or 
decreased in that same period. Older Americans' credit card 
debts are on the rise.
    Part of the explanation for the upward trend in older 
Americans' credit card debts may be the failure of seniors to 
adopt debit cards. A 2006 Federal Reserve study found that only 
about half of Americans have debit cards and that debit card 
use is much less common among older Americans. Several studies 
have shown that when consumers use credit cards to pay, they 
spend more than if they pay with cash, check, or debit card. At 
an aggregate level, using data from several different 
countries, Professor Ronald Mann has established that a 
societal preference to use credit cards to pay even when credit 
card borrowing is held constant causes total consumer debt to 
increase. Because seniors prefer credit cards over debit cards, 
spending among seniors may be racheted up by their credit card 
use. This important credit card effect may cause seniors to 
exceed their budgets and leave them with fewer leftover dollars 
for savings.
    Eliminating the preferential consumer protections for 
credit cards and ensuring that debit card overdraft protections 
are fair would help encourage debit card use by older 
Americans. These changes would help seniors live within their 
means and use credit cards responsibly.
    Debit card use may have another advantage for older 
Americans which is to help them avoid the punitive charges 
imposed for many credit card practices. A recent Massachusetts 
Institute of Technology economics paper analyzed how consumers' 
financial decisions vary with age. The researchers found that 
older consumers are more likely than middle-aged consumers to 
pay credit card late fees, to pay fees for exceeding the limit 
on their credit card, and to pay cash advance fees on credit 
cards. The economists term these behaviors ``credit card 
mistakes'' because they are very, very costly and consumers 
would usually avoid the transaction if they understood the full 
cost of the charges.
    The researchers also found that older Americans were more 
likely to make sub-optimal and expensive decisions after 
transferring credit card balances such as making new charges at 
the very high rates on the new cards and apparently not 
understanding that credit card issuers first apply any payments 
to the low interest transferred balances.
    The research findings indicate that older Americans may be 
less adept at deciphering the extremely complicated pricing and 
penalty schemes used by credit card issuers. This means that 
older Americans disproportionately boost card issuers' profits. 
Quite simply, credit cards are more expensive financial 
products in the hands of older Americans.
    Disclosures made right at the point of sale, at the moment 
when customers can choose to use a different form of payment, 
could be very effective at deterring and preventing costly 
credit card mistakes and in curbing credit card spending. These 
point-of-sale disclosures would be similar to the receipts and 
information available at ATM terminals. For example, consumers 
could be alerted that a transaction would exceed their limit 
and warned of the amount of the over-the-limit fee. Consumers 
should also be given the current balance on their card after 
each and every transaction. These simple, but frequent 
disclosures could help consumers better manage their credit 
card use.
    The difficulties of older Americans in managing credit 
cards are also evidenced in the bankruptcy system. As has 
already been noted, older Americans are the fastest growing age 
group of bankruptcy filers. The bankruptcy rate of households 
headed by individuals 65 or older increased 213 percent between 
1991 and 2001 even after adjusting for changes in population 
size. The data also show a gradual, but troubling increase in 
the average age of bankruptcy debtors. As the Baby Boom 
generation ages into the next decade, the number of older 
Americans who file bankruptcy is poised to climb dramatically. 
Bankruptcy increasingly may become an older American 
phenomenon, rather than the middle age experience that it has 
been historically.
    Very high credit card debt is the single defining 
characteristic of bankruptcies by older Americans. Two studies 
using data from the U.S. Trustees Office found that older 
Americans who filed bankruptcy have extraordinary credit card 
debts even when compared with other families in bankruptcy. The 
average senior aged 70 and older in bankruptcy owed over 
$38,000 in bank credit card debt and approximately $3,800 in 
additional store retail credit card debt. Yet, at the time of 
their bankruptcy, the average senior had a net monthly income 
of only $1,500. Credit card debts had utterly overwhelmed these 
older families by the time they filed bankruptcy. Put in the 
most concrete terms, the average older American would have had 
to find a way to live absolutely free, incur no more debt, and 
magically halt all accruing interest and fees, and they still 
would have had to devote every penny of their income for more 
than 2 years just to pay off their credit card debt. Bankruptcy 
was a last option for these seniors and many expressed feelings 
of shame and depression that after decades of hard work, and 
good or perfect credit, high credit card debts led to their 
financial collapse in bankruptcy.
    Many older Americans are very troubled by the marketing 
practices of credit card companies. In interviews with Consumer 
Bankruptcy Project researchers, many seniors were shocked and 
angered that even after having to resort to bankruptcy to deal 
with unmanageable credit card debt, the card companies 
continued to send them dozens and dozens of solicitations. 
These older Americans described credit card offers ``coming out 
of the woodwork'' less than 1 year after filing bankruptcy, and 
expressed shock at being ``pre-approved more times than you can 
count.'' One woman told us that she ``felt like Donald Trump'' 
based on the way lenders would send her credit cards, and many 
consumers simply said they wanted the solicitations to stop. 
One man recounted his difficulty in getting the credit card 
issuers to halt the solicitations to his 81-year-old father 
even after he told them that his father had filed bankruptcy, 
had been diagnosed with dementia, and had enacted a power of 
attorney.
    Consumers are woefully unaware of the Fair Credit Reporting 
Act law that allows them to opt-out of receiving pre-screened 
credit card solicitations. Only 20 percent of all Americans 
have even heard of the law and only 6 percent have chosen to 
opt out. Consumers are deterred from opting out by fears of 
identity theft because the current system requires them to 
disclose their Social Security number to opt out. An opt-in 
system, in which consumers who wanted to get credit card offers 
could elect to do so, would eliminate this problem, and 
overcome the cognitive and behavioral barriers inherent in an 
opt-out system.
    Credit card debt is a serious financial risk for many older 
Americans. Seniors are more likely to suffer many types of 
credit card harms: Carrying higher card balances; having to pay 
late fees; over limit fees, and other penalty charges; and 
having such high credit card debts that they need bankruptcy 
relief. Compared to other age groups, older Americans are more 
likely to fall prey to the complex schemes that hide the real 
cost of credit card use, and they lack knowledge about 
financial alternatives to credit cards and consumer laws that 
can help them avoid credit card debt.
    Older Americans are particularly vulnerable to credit cards 
and the trends suggest that this problem will only worsen in 
the upcoming years unless Congress enacts laws to reform credit 
card practices.
    Thank you for inviting me to testify.
    [The prepared statement of Ms. Porter can be found on page 
48 of the appendix.]
    Chairwoman Maloney. Thank you, and we are working on 
legislation to curb these abuses.
    Our next panelist is Ms. Barbara Whipple of the Law Firm 
Barbaruolo and you are from this area also. It is very nice to 
see you. Thank you for coming.

       STATEMENT OF BARBARA WHIPPLE, BARBARUOLO LAW FIRM

    Ms. Whipple. Chairwoman Maloney, Representative Gillibrand, 
and members of the subcommittee, thank you for this opportunity 
to speak to you today.
    My name is Barbara Whipple and I am an associate attorney 
at the Barbaruolo Law Firm where I practice, primarily in 
consumer debt. Prior to my going into private practice, I also 
was a law clerk to the Honorable Robert E. Littlefield, the 
United States Bankruptcy Judge for the Northern District of New 
York, the Albany Division. I'd like to thank you for letting me 
come and speak to you about what I see in practice every day.
    What I can add to the subcommittee's examination of these 
issues are my experiences day in and day out and those of my 
colleagues across the country. The simple truth is that older 
debtors comprise a growing proportion of our bankruptcy 
clients. In fact, what has been researched and discussed over 
the last several years has come to bear out. The Consumer 
Bankruptcy Project found that the rate at which older 
Americans, those 65 years of age or older, filed for bankruptcy 
increased 213 percent between 1991 and 2001.
    This trend of rising bankruptcies among older Americans is 
likely to continue. The steepest increase in Chapter 7 
liquidation filings occurred among people older than the age of 
55. Although the U.S. population as a whole is getting grayer, 
as the Baby Boomer generation ages, the percent of older people 
seeking bankruptcy protection is rising even faster. As a 
matter of fact, yesterday, I had an opportunity to speak to a 
Chapter 7 trustee. His comment to me when I said I was coming 
here was, ``Barb, I've noticed that there have become two 
different categories of bankruptcy debtors, the elderly and 
everyone else.''
    The problem of rising debt among older Americans is 
exacerbated when the credit card debt is subject to exorbitant 
interest rates and a multitude of penalties and other fees. 
During the several years that Congress debated bankruptcy 
reforms, some of your colleagues referred to the debtors as 
``deadbeats'' and ``irresponsible.'' I must say I was with 
Judge Littlefield when the 2005 bankruptcy law was passed and 
my comment was, ``If all of our legislation in this country is 
passed based upon sound bytes and misinformation as this 
Bankruptcy Reform Act, we are in a world of trouble.''
    I can tell you the majority of the consumers I see in 
bankruptcy practice are not deadbeats. They do not 
irresponsibly ring up fees and a majority of my clients incur 
debt with every intention of paying it back. Often my clients 
file for bankruptcy only after paying the principle for years 
and years and still see no relief on the credit card debt.
    In 2004, a bankruptcy court in North Carolina ordered a 
credit card company to itemize the claims it filed in a Chapter 
13 bankruptcy case. In the findings, the bankruptcy judge 
listed claims filed in 18 separate cases broken down as between 
principle, interest, and fees. On average, interest and fees 
consisted of more than half of the total amounts listed in the 
claims. In one case, the card company filed a claim in the 
amount of $943.58--$199 was principle, and $743.95 was interest 
and fees.
    In another case, a claim of $1,100 was filed consisting of 
$273 in principle, and $738.64 in fees. A bankruptcy case from 
Virginia tells another story of the impact of credit cards and 
penalties on the ability of consumers to pay back the debt. 
During a 2-year period before she filed bankruptcy, a consumer 
made only $218.16 in new charges on her Visa. After making 
$3,000 in payments, all of which went to pay finance charges at 
the rate of 29.99 percent, over limit fees, bad check fees, and 
phone payment fees, the balance on her account increased from 
$4,888 to $5,357. On her Providien Master Card for the same 
period, she made only $203.06 in charges, while making over 
$2,000 in payments. Again, all of her payments went to pay 
finance and other charges and her account balance increased 
from $2,000 to $2,607.
    The scope of the problem here has been well-documented over 
the course of your hearings. Consider the case of the witness 
who testified at the Senate Hearing, the Ohio resident who 
exceeded his credit card's $3,000 limit by $200 and triggered 
what ended up being $7,500 in penalties and interest. After 
paying an average of $1,000 a year for 6 years, the man still 
owed $4,400. Two local cases that I've had recently include 
residents in this area who ran up--both people were retired--
over $100,000 in credit card debt in an attempt to fix and pay 
them, they took a home equity loan out on their house. When 
they came to see me, their house was valued at $80,000. They 
owed over $125,000, and their disposable income at the end of 
every month was a negative $800.
    Last week, I met with a woman who is 70 years old and 
simply cannot retire. Her disposal income consists of $1,400 
worth of credit card payments per month. I said to her, ``You 
need to retire.'' She responded, ``I absolutely cannot afford 
to do that. Barb, I have convinced myself I will be working 
until I die.''
    National studies show that more households headed by 
retirees or those near retirement owe money and the typical 
debt level is increasing. According to the Employee Benefit 
Retirement Research Institute in 2004, 60.6 percent of families 
headed by someone aged 55 or older owed money. In 1992, 53 
percent of similarly situated families owed money, and the 
average debt level rose from $29,000 in 1992, to $51,000 in 
2004. Debt grew fastest among the poor, and among families 
headed by someone over 75 years old.
    My experience is that credit card debt is one of the top 
reasons seniors seek bankruptcy protection. The older retirees 
are less accustomed to credit cards and more vulnerable to 
falling into a cycle of credit card debt led by raising 
interest rates, late fees, and other penalties. Other consumers 
who turn to me are embarrassed, ashamed, and often do not talk 
to their children about their financial problems. The biggest 
complaint I hear is, ``I pay every month and the debt doesn't 
go down, even when I don't make a purchase.'' It eventually 
becomes evident that they may never pay off their debt due to 
the interest rate, penalties, and fees.
    Finally, in conclusion, I would just like to say that every 
time I have met with an elderly debtor, I have had the 
experience where they're absolutely heartbroken and mortified. 
My sermon to them in an attempt to make them feel better is, if 
you have worked your entire life, you are 70 years old, you are 
set to retire, and you cannot because of credit card debt, you 
have not failed; the system has failed you. And I would like 
for that to be noted because there's no way that these people 
who should be enjoying all they've done, and reaping the 
rewards of all they've done their entire lives, should have to 
be sitting across from me in an office.
    Thank you.
    [The prepared statement of Ms. Whipple can be found on page 
62 of the appendix.]
    Chairwoman Maloney. I want to thank you for your very 
gripping testimony and this is very much of a bipartisan effort 
on credit card reform. At our last hearing, Spencer Bachus, the 
ranking member of the Financial Services Committee--he is a 
Republican; I happen to be a Democrat--said, and I'm quoting 
for you, on the credit card hearing, this is what he said: 
``What did we do with the bankruptcy bill? We created more 
bankruptcies.'' And I think your final statement that it is a 
system that has failed the public that creates these high fees 
that are churning and churning and they can never seem to get 
out of.
    Thank you for your work and for your testimony.
    Ms. Whipple. Thank you.
    Chairwoman Maloney. Mr. David Billet, the director of 
legislation and governmental affairs for the New York State 
Banking Department. Thank you so much for being here. And how 
is our superintendent?
    Mr. Billet. He's fine. He is enjoying some vacation time in 
Cape Cod with his family. That's one reason he couldn't attend.
    Chairwoman Maloney. Thank you.

    STATEMENT OF DAVID BILLET, DIRECTOR OF LEGISLATION AND 
     GOVERNMENT AFFAIRS, NEW YORK STATE BANKING DEPARTMENT

    Mr. Billet. Good afternoon, Chairwoman Maloney, 
Representative Gillibrand, and members of the public. I am 
David Billet, director of legislation and governmental affairs 
for the New York State Banking Department. I'm pleased to be 
here today to make the following comments on behalf of the 
Department and Superintendent Richard Neiman. I will not repeat 
the testimony that the superintendent presented to the 
subcommittee at its hearing on June 7th, but there are certain 
points, however, that should be stated again.
    First, consumer Impact. Credit cards are a major source of 
complaints for State and Federal law enforcement authorities 
and regulators. The major problem that arises for consumers 
having a credit card account is burdensome fees. You've heard 
that over and over, particularly for those consumers who do not 
and cannot pay their credit card bills in full each month. The 
amount charged in fees has skyrocketed and can cause consumers 
to fall deeper into debt. Early and minor mistakes in securing 
and using credit can lead to spiraling debt burdens, punitive 
fees, and possible long-term destruction of the borrower's 
financial well-being.
    The following are card issuer practices the Department 
considers misleading or abusive and of greatest concern:
    One, universal default. This practice permits credit card 
issuers to increase a consumer's interest rate, often to 30 
percent or higher, for conduct that has no relationship to the 
consumer's payment history with the card issuer.
    Two, penalty rates and late fees. Consumers are often 
penalized for minor failures. A credit card payment that is 
only nominally late can trigger huge interest rate increases 
and/or over-limit fees that are often applied retroactively to 
existing balances.
    Three, billing cycle and similar practices. Many credit 
card issuers charge interest even for the amount of credit card 
debt paid on time.
    Four, unilateral changes in terms. Many credit card 
agreements are one-sided and allow the creditor to change the 
terms for ``any reason,'' with as little as 15 days' notice to 
consumers.
    Five, deceptive promotion of subprime credit cards. These 
cards target consumers in economic distress or who have 
troubled credit histories with deceptive solicitations and 
misrepresentations of the terms of credit, and impose excessive 
fees, especially initial fees, that push consumers quickly into 
debt.
    Six, lack of clear information abut credit card terms. The 
problem is not simply a proliferation of onerous credit card 
terms and fees. The contracts have excessive, dense, and 
incomprehensible text.
    Seven, regulation of the credit card industry. The industry 
is dominated by national credit card bank issuers and subject 
to the realities of Federal preemption. The 10 largest credit 
card issues hold 90 percent of the outstanding balance of 
credit card debt nationwide. Only two of these issuers are 
State-chartered institutions. All of these issuers are 
headquartered in States that have favorable interest rate and 
usury law provisions and those laws govern what banks may 
charge.
    Based on various Federal statutes and court decisions, 
banks headquartered in one State may export their interest 
rates to consumers resident in another State. Further, Federal 
law has also expanded what comprises such ``interest.'' It 
includes, among other things, numerical periodic rates, late 
fees, insufficient fund fees, over-the-limit fees, annual fees, 
cash advance fees, and membership fees. To the best of the 
Department's knowledge, the assets of self-issuers in New York 
State represent one percent or less of the total domestic 
banking assets for institutions headquartered in this State. 
This provides some sense of the extent to which cardholders in 
New York would be affected by New York State regulation of 
credit card interest rates and practices.
    States have essentially no authority to apply their 
consumer protection laws to the activities of the Nation's 
largest credit card issuers. In short, State regulation of 
credit card practices is presently not a viable option. The 
only option is for the Federal Government to adopt national 
standards to address credit card problems on a nationwide basis 
which then would protect all citizens in all States.
    Eight, problems of the elderly using credit cards. The 
Department has no particular expertise with respect to 
identifying and quantifying the problems associated with 
elderly use of credit card accounts. However, we believe that 
such problems are not significantly different from those that 
confront other consumers. The following, however, may be key 
factors for elderly consumers:
    Understanding the terms and conditions of credit card 
accounts. Presumably, a large majority of consumers acquire a 
credit card or open a credit card account as a result of a mail 
solicitation. These solicitations usually do not provide a full 
statement of all the terms and conditions that apply. Further, 
as noted, the contracts are voluminous and not easily 
understood. The Department doubts that the majority of 
consumers, not just the elderly, who have credit card accounts 
have fully ever read these statements.
    The Federal Reserve Board has undertaken a revision of 
Regulation Z, which implements the Truth in Lending Law, 
governing credit card practices. This may result in 
requirements making statements of the terms and conditions of 
credit card accounts clearer and more understandable, and 
provide a better basis to compare credit card offers. The 
Board's initiative, however, will likely only be limited to 
enhancing disclosure of such terms. The proposed revisions will 
not cap or prohibit certain fees. They will not limit the 
amount of interest that may be charged. They will not outlaw 
default rates. And finally, the implementation of these 
requirements will not happen shortly.
    The Department offers these suggestions. If consumers have 
a banking relationship, they should explore with the bank or 
credit union what credit card accounts may be available through 
the institution. This will at least give a consumer an 
individual with which to discus the terms and conditions, and 
it also gives the consumer a local contact if problems arise. 
Understand, however, that the credit card likely is issued by a 
subsidiary of the bank and not the bank itself, so the consumer 
may be referred to another contact that can be contacted only 
by telephone. Further, if the account is arranged through the 
local banking relationships, the consumer should consider 
establishing an automatic electronic monthly payment 
arrangement directly from his or her checking or savings 
account to cover at least a portion of any monthly balance. 
This will avoid the charging of penalty fees due to any 
oversight to make the payment in a timely fashion.
    Given the triggers for the application of these fees, and 
that terms of the agreement may be changed unilaterally by the 
issuer, it is a basic necessity that any consumer understand 
first and foremost what he or she will be obligated when using 
the credit card.
    How will the credit card be used? And this goes 
particularly to some of the points that Ms. Porter was making. 
Many consumers acquire credit cards to make it easier to 
purchase goods and services. Using a credit card avoids having 
to write a check or carry sufficient cash to make a purchase. 
Using a card also permits consumers to purchase large ticket 
items, such as a refrigerator or a TV over time when there is 
insufficient, periodic income to pay at the time of purchase. A 
credit card, however, should not be used to bridge short-falls 
in disposable income except in the case of purchasing necessary 
but costly large ticket items. A credit card should not be used 
to make necessary and daily expenditures, except as a 
convenience. When necessary and daily items are purchased, 
monthly disposable income should be sufficient to pay for those 
items, either at the time of purchase or in full when the 
monthly credit card statement is received. In short, use of a 
credit card is not intended to make up for lack of disposable 
income; its use is a convenience.
    If elderly consumers have other sources of equity, such as 
a fully paid for home, or even close to a fully paid home, it 
is better that this equity be used to pay for large ticket 
items or even to provide sufficient disposable income for 
necessary and daily expenditures. A home equity loan or a 
reverse mortgage will access this equity. If the equity is not 
needed for daily expenditures, the mortgage loan should be a 
line of credit rather than one that provides regular monthly 
distributions of equity to the consumer. These loans likely 
will not have as high an interest rate charge or the various 
fees that accompany a credit card account. Such alternatives to 
credit cards again make the point that the credit card should 
only be used as a convenience.
    Improvements in Federal regulation of the credit card 
industry. Congress should consider setting a national 
affordability standard that requires documentation of 
sufficient disposable income for all forms of consumer credit. 
The superintendent made reference in his testimony to the 
affordability standard contained in section 6-L of the New York 
State Banking Law, which applies to high cost home loan 
mortgages. The consumer must have 50 percent of his or her 
disposable monthly income remaining after all other debt 
obligations are deducted, including the required payment for 
principal and interest and escrow of the mortgage. What is 
crucial with respect to a credit card account, which is an open 
line of credit, is that an affordability standard should apply 
to the total available credit line. As is the case with the 
current subprime mortgage problems, much of this debacle is due 
to creditors extending credit without regard to the consumer's 
ability to pay total debt, fully amortized.
    As Congress tracks the Federal Reserve Board's rulemaking 
revisions of Regulation Z, it should consider going beyond any 
final standards that it considers inadequate. Many times 
initial proposals by Federal bank regulators or regulatory 
agencies, related to consumer interests, are narrowed or 
reduced under industry pressure. Limited as the Board's efforts 
are to expanded disclosure, nonetheless, it is likely that its 
initial proposals are well thought out and justified.
    The State Regulatory Role. When considering legislative 
options to reform credit card lending practices and 
disclosures, States can play an important role in gathering 
information and monitoring compliance. The Banking Department 
is an intake for many consumer complaints that involve 
federally regulated financial institutions. The Department 
forwards and tracks these complaints to the Federal regulator. 
Further, the Department has enhanced this activity by entering 
into a Memorandum of Understanding (MOU) with the OCC that 
provides for complaint referrals between the Banking Department 
and the OCC and reflects a commitment on behalf of both 
agencies to share information concerning the status and 
resolution of complaints.
    States are also in a position to provide valuable public 
information about credit card practices and the cost of credit. 
The New York State Banking Department publishes a quarterly 
survey of credit card interest rates that is available online 
and in hard copy upon request. The survey provides comparative 
information about rates, over the limit and late fees, and the 
existence of universal default and penalty provisions for each 
credit card. The Department also engages in extensive consumer 
outreach to organizations to promote financial literacy, 
especially in regard to the use of credit.
    In conclusion, as the superintendent stated, credit cards 
are a convenient method of payment for millions of Americans, 
and the availability of credit to Americans across income lines 
have undeniable benefits to individuals, households, and the 
economy. Lending practices that have the effect of destroying 
credit ratings and borrower's financial futures, however, 
destabilize the economy and ultimately fly in the face of our 
goal, which is to make the widest possible range of safe and 
sound banking services available to consumers at all levels of 
our society. Thank you.
    Chairwoman Maloney. Thank you so much. I am going to add a 
link on my Web site to your comparative survey on interest 
rates. That's very, very helpful for consumers and I wanted to 
note that the New York State Banking Association has a very 
privileged situation now. Richard Neiman, our superintendent, 
has been elected to be the leader of all the superintendents of 
banks in our Nation, so their voice has a very important voice 
now when it comes to consumer issues and reform.
    In regard to your statement on the difficulty of 
understanding your balance, understanding your credit card 
receipts and billing questions, one of the most astonishing 
times that I've had on the Financial Services Committee was 
when the head of Freddie Mac, one of our largest GSEs, 
testified that he and his wife sat down and spent down well 
over an hour trying to understand their credit card statement 
and they could not understand it. We had one of the heads of a 
major financial institution saying that he could not understand 
it, so you can understand why older Americans, and all 
citizens, are having trouble with this and why we welcome and 
intend to legislate Regulation Z that the Fed has come out with 
to make it easier to understand.
    I have a number of questions, but we want to get through 
our panelists and ask questions all together. Thank you so much 
for coming and all of your recommendations are very, very 
helpful.
    Our last panelist is John DeCelle, the executive vice 
president of the State Employees Federal Credit Union. Thank 
you.

 STATEMENT OF JOHN T. DeCELLE, EXECUTIVE VICE PRESIDENT, STATE 
                 EMPLOYEES FEDERAL CREDIT UNION

    Mr. DeCelle. Hi, there. I am also from the area.
    Chairwoman Maloney. So many wonderful participants from 
Saratoga.
    Mr. DeCelle. Great place to live, great place to work.
    Chairwoman Maloney. I want to come back on vacation.
    Mr. DeCelle. I'm thrilled to be the last person here 
talking. But seriously, good afternoon. As you said, my name is 
John DeCelle, and I am an executive vice president for SEFCU, a 
credit union based in Albany, New York, formerly known as the 
State Employees Credit Union. I'm pleased to be testifying on 
behalf of New York's credit unions and the New York State 
Credit Union League and their affiliates.
    Since 1934, SEFCU has been meeting the financial services 
needs of consumers and commercial members in upstate, central, 
southern tier, and western New York. Today, we have over 
150,000 members, 21 offices, and over $1.4 billion in assets. 
Since 1917, the New York State Credit Union League has been the 
principal trade association of New York State and Federal 
credit unions. Today, NYSCUL represents over 500 credit unions 
and their 4.1 million members.
    Chairwoman Maloney, Congresswoman Gillibrand, and members 
of the House Financial Services Subcommittee on Financial 
Institutions and Consumer Credit, I thank you for the 
opportunity to provide comment from the credit union movement 
regarding credit cards and older Americans. I think you'll find 
our side of the story is very different than some of the 
examples you've heard earlier from some of the big, bad 
monoline banks that are out there.
    Throughout our existence, New York's not-for-profit credit 
unions have remained true to their origin and continue to focus 
on their mission to promote thrift and financial stability. We 
commend the subcommittee for calling this hearing to examine 
credit cards and older Americans, and I look forward to telling 
you about how credit unions typically operate their credit card 
programs and how they do so with the best interests of their 
members in mind.
    Like other credit unions in New York State, SEFCU serves 
the financial needs of its members, some of whom would not be 
able to secure financial services from other financial 
institutions. We're building branches where other banks are 
pulling out, as an example with the Albany Housing Authority 
Branch we're putting in next month. That will meet the needs of 
consumers in lower-income neighborhoods. When we design 
products and services, we incorporate strategies that help us 
serve these households so that we may live up to our mission of 
improving the quality of our members' lives.
    New York's more than 500 credit unions, member owned and 
not-for-profit cooperatives, strive to help their 4.1 million 
members create a better economic future for themselves and 
their families. We are also concerned about the growing 
problems associated with credit card abuse and older Americans.
    Increasingly, older Americans, those 55 or older, are 
caught in a financial crunch that is forcing them to rely on 
credit cards for survival. This really does correlate to the 
national savings crisis that we're currently in. Recent studies 
indicate that older consumers use their cards more often and 
with less care than adults aged 18 to 34. Reduced retirement 
savings due to the stock market, rising medical costs, and 
fixed incomes often leave seniors no choice but to rely on 
credit cards to survive on day-to-day expenses. Many are 
raising their grandchildren and have needs similar to young 
parents. Credit unions recognize this group and the needs that 
they have and we do so by offering reasonably priced financial 
products so that they learn to manage a successful retirement 
on a limited income.
    As you know, a September 2006 study conducted by the United 
States Government Accountability Office, GAO, found that some 
issuers of credit cards charge excessive fees and rates of 
interest. The study also found widespread use of weak 
disclosure practices by the largest credit card issuers. Many 
credit card agreements contain questionable terms and 
conditions, including universal default clauses that allow 
issuers to raise a borrower's interest rate based on 
indebtedness or late payments to other creditors that previous 
panel members have mentioned.
    What's interesting about credit unions is we're not for 
profit, cooperatively owned, financial institutions that return 
our profits to our members, either through a dividend payment 
or through a lower cost for services in terms of branching and 
other services. To participate in any activity that would take 
advantage of our members, who are also our owners, would be 
counterproductive to our structure and our philosophy. Our 
philosophy is supported by our volunteer board of directors, a 
board that is elected by the membership and has the 
responsibility to serve the membership and is not focused on 
making profits for stockholders.
    Credit unions seek to offer the most fair and affordable 
credit card programs and have taken positive steps through 
their voluntary efforts to educate all members, including 
seniors, on how to manage credit card debt. At SEFCU, we're 
committed to educating our members on how to manage their 
financial lives responsibly, and will continue to do so in an 
effort to reduce the instances we see each day, of members 
committing to credit terms and conditions that are predatory in 
nature.
    We work with our members fully to explain credit card rates 
and fees that they are currently paying and to show them the 
true cost for items purchased. In all of the examples given 
earlier, and from what some of the comments were that we had, 
financial literacy really is necessary to help improve the 
situation. At SEFCU, we actually offer a program called, ``It's 
Gonna Cost You'' that will touch on why you shouldn't be using 
a credit card for certain types of purchases or why rent-a-
centers are not always the best thing. We encourage our 
consumers to establish solid saving habits for purchases and 
the proverbial rainy day. If you were to ask an individual what 
the interest rate is on one of their credit cards, you will 
find that more than 80 percent of the time they cannot answer 
that question. But if you ask them how many miles they earned 
last month for their airline card, they could probably tell you 
that.
    According to research conducted by the Credit Union 
National Association, the average fixed-interest rate on credit 
union credit cards is three percentage points lower than the 
rate on cards issued by banks. The difference translates into 
an annual savings of $240 on the average American household 
credit card with an outstanding balance of $8,000. 
Additionally, according to Bankrate.com, credit unions average 
more than one percentage point less on interest for a variable-
rate credit card compared to that of banks.
    According to the latest Credit Union vs. Bank Datatrac 
Ratedex, in comparing credit card rates, it shows that credit 
unions charge an average credit card rate of 12.25 percent, 
compared to the average rate of 15.04 percent. The GAO report 
found that credit card issuers typically apply multiple 
interest rates to the same card, depending on the 
circumstances. For example, the credit card industry typically 
uses one interest rate for cash advances, another for regular 
purchases, a third for balance transfers and account checks, 
etc. That gets very, very confusing. When a consumer pays off a 
portion, or even the majority of a monthly balance, the credit 
card industry charges interest on the entire amount previously 
owed, including the portion that was paid before the due date. 
In the best interest of its members, credit unions don't follow 
this type of practice which results in a much higher--those 
practices result in a higher cost to card holders.
    At SEFCU, we offer card programs that provide low interest 
rates, no hidden fees, and other benefits that meet the needs 
of our members. Like other credit union credit card programs, 
we have designed ours to be understandable, and to add value to 
membership. This differs from the industry norm as it relates 
to grace period policies.
    Although many consumers think that all credit cards provide 
them with a grace period before the interest is charged, the 
fact is that most credit card issuers do not provide a grace 
period to cardholders unless they pay their credit card 
balances each month in full. If a consumer has any balance 
owing on a card from the prior month, there is no grace period 
on new purchases. Every purchase racks up the interest from day 
one. Nine out of ten credit unions nationally offer their 
members a grace period on purchases with 23 days being the 
average, even if there is an outstanding balance on the 
members' card, very different from the industry norm.
    Credit unions also recognize that fees associated with 
credit card programs are a major component of the credit card 
problem among Americans. Credit union card programs typically 
allow a member an average of 14 days to pay after the due date 
without penalty, and if the credit union charges a late fee, 
it's usually around $19, much lower than the industry average.
    Credit union card programs do not include fees such as 
balance transfers, new account, or telephone payment fees, 
again, setting them apart from the for-profit card issuers. In 
addition to structuring a card program's financial parameters 
with the best interest of members in mind, credit unions also 
provide a high quality member service for their members who 
carry a credit union credit card.
    As we heard earlier, a lot of times with larger credit card 
companies, you're forced to have a P.O. Box or a toll-free 
number to deal with a representative. At a credit union, you 
simply walk into a branch and you can talk to any 
representative and they can help you. It's that one-to-one 
service that makes a difference.
    Credit unions are also well aware of the problems that 
senior citizens face as credit card offers continue to be 
dangled in front of them at a time in their lives when many 
have very limited income. Many credit unions continue to work 
with these members, educating them not only about what they 
need to get their current finances in order, but also providing 
them with the tools necessary to make good life-long financial 
decisions.
    At SEFCU, we offer our members the ability to work with 
certified debt counselors, and they're available to assist 
people in understanding how to manage their debt and household 
budgets in a better way. Credit unions believe working one-on-
one with adult members is an effective way to teach them the 
skills necessary to improve their financial position. Credit 
unions in New York agree that to truly change the level of 
financial literacy of their memberships they had to take 
education to a new level. The New York Credit Union Foundation 
also works with the National Endowment for Financial Education 
to bring education materials to credit unions and community 
centers for uses of financial literacy. At SEFCU, our Member 
Education Department logs hundreds of hours each year, working 
with over 2,000 individuals annually, helping them through 
education efforts to make better and more well-informed 
financial decisions. We offer these programs to our members, at 
community outreach centers for their clients. We work with 
local schools and we also work with the local Department of 
Social Services, striving to help people go from welfare to 
workfare.
    Many have proposed that additional oversight is necessary 
to address abuse within the credit card industry. As you gather 
information and deliberate such an approach, we ask that you 
consider the following:
    First, the New York Credit Union League and I believe the 
industry is sufficiently regulated by disclosure requirements. 
If additional Federal disclosure mandates are enacted, it will 
cause further confusion at the consumer level. As credit card 
issuers seek to comply with various State and Federal laws, the 
content, the length of complexity of disclosures and 
agreements, it will be counterproductive to the intended goals. 
Sometimes when you add more, it makes it more difficult to 
understand.
    Also, credit unions are only able to offer credit card 
programs to their membership by contracting with smaller 
unions--excuse me, are only able to offer credit card programs 
to the membership by contracting with outside processors. We 
ask that you are mindful of new laws that would likely increase 
expenses to these processors, which will translate into adding 
cost for credit unions to run their programs. Currently, credit 
unions are addressing increases in insurance premiums, 
insurance coverage limitation, and increased security 
requirements on credit card programs due to the increased 
amount of credit card fraud. Adding to these costs are 
challenges and also adding with the additional disclosure 
requirements, will definitely move us to the question, ``Can we 
afford to continue to offer a credit program to our members?'' 
If we have to answer that question with a ``no,'' that really 
limits where consumers can go to get a credit card that meets 
their needs and provides lower rates and fees.
    There has never been a need for credit unions to engage in 
any of the abusive credit card practices discussed here today 
that could prove to be detrimental to their members, their 
owner's financial well-being. Credit unions, because of their 
not-for-profit structure, have no shareholders to pay at the 
end of the month. Any profits made from credit union credit 
card portfolios are either returned back to its members in the 
form of lower interest rates or low or no fees, or reinvested 
back into the credit union to allow it to provide better 
services to card holders. We urge the committee to look towards 
further enforcement of current regulation and financial 
literacy education as a means of tackling this growing concern, 
perhaps using the credit union program as a model.
    Members of the House Financial Services Subcommittee on 
Financial Institutions and Consumer Credit: I, along with the 
New York State credit unions and their credit union league, and 
their 4.1 million member-owners, applaud you for your 
leadership and thank you again for calling this hearing.
    [The prepared statement of Mr. DeCelle can be found on page 
32 of the appendix.]
    Chairwoman Maloney. Thank you, and thank you for your 
insightful testimony. We'll certainly be considering it when we 
draft legislation. I would like to note that without objection, 
all of your written testimony will be made part of the record. 
You may add other supportive documents if you so wish.
    I would like to ask the first question. Actually, what I 
think we ought to do is switch. I think that they should come 
up here and we should move there, because they're going to be 
passing the microphone back and forth and answering jointly.
    [Pause]
    I would like to begin. I don't know where Kirsten is. She's 
coming right back? Okay.
    I would like to begin by asking Mr. O'Connell and Ms. 
Porter, and then anyone else who would like to add to it, what 
is behind this spike in credit card debt? Why is it jumping so 
much for the elderly now? We saw the AARP report that showed 
the tremendous spike. To what extent have credit card practices 
contributed to this problem and what, in particular, practices 
are contributing to this spike in credit card debt?
    I would also like a clarification from Ms. Porter. You were 
saying that if you moved to a debit card, it would be better 
for the seniors, but we have received some reports that debit 
cards are not as safe as credit cards in terms of identity 
theft, that there are a lot of identity theft efforts against 
elder Americans, and that debit cards are not as secure.
    Now we have put forward, in our hearings, the concept that 
at the point of sale, you get the information that you're 
overdrawing your account or what your account is, similar to 
what we have proposed for the ATMs. We are being told by the 
industry that they do not have the technology to make that 
happen, and if any of you have any information or comments on 
that, that it's too costly and that the technology is not there 
for the point-of-sale information to anyone, not just the 
elderly, but anyone, I open it up to all panelists.
    Ms. Porter. I'd like to start with responding to the point-
of-sale disclosure. There's no doubt that the industry doesn't 
want to do this because they are the people who have conducted 
the studies that show that when you spend with a credit card, 
you spend more, and part of that spending effect goes to the 
fact that with a debit card, people are much more aware that 
the money is coming out today.
    I would suggest that if there are concerns about 
implementing point-of-sale disclosures, there could be simply a 
1- to 2-year phase-in period. I believe something like 95 
percent of credit card transactions are already processed 
simultaneously online with immediate communication. There could 
be a waiver for that 5 percent of transactions that are still 
done with the old fashioned paper system, but a phase-in would 
address that.
    Regarding the debit cards and identity theft, I am not 
aware that debit cards lead to more instances of identity theft 
than credit cards. I do think credit card issuers have been 
very aggressive in promoting among consumers the idea that they 
will do more to help you in the case of identity theft than 
banks, but I have not seen any evidence to show that actually 
is true. I would suspect that the credit union representative 
here would say that they do a lot at the local bank level in 
any way to help.
    There are some concerns about debit card overdraft 
practices, and I know that the subcommittee has already held a 
hearing addressing those, so I would encourage you to implement 
those simultaneously to make sure that consumers get the same 
protection in the case of fraud whether they use a credit card 
or a debit card to pay because the very best academic research 
that exists today shows that when you spend with credit cards--
even if you're a convenience user--you spend more. That is a 
real problem with seniors trying to adjust to retirement income 
and live on fixed incomes.
    Chairwoman Maloney. Any statement on why are we seeing such 
a spike in debt for elder Americans? Everyone is reporting on 
it. Why is it jumping up so much now?
    Mr. DeCelle. I think primarily because the cost of living 
is increasing. Seniors are on fixed incomes and they're relying 
on credit cards, as I stated earlier, to help supplement their 
income. Again, I think that goes back to the true need for 
financial literacy because there are other alternatives out 
there other than simply using your credit card to float a 36-, 
60-, or 90-day loan and with regard to the previous question on 
debit card use, I think what's happening in terms of most 
Americans associate their debit card with their checking 
account, so if their identity is lost, they don't want their 
checking account to be impacted. Again, that goes back to the 
need for financial literacy education and through cooperative 
efforts, SEFCU and the New York State Credit Union League in 
the fall of this year are--will be delivering a whole series on 
how to protect yourself identity theft should that happen. 
Again, it goes back to the more knowledge we can give to 
consumers, the more powerful they'll be in making their own 
decisions.
    Chairwoman Maloney. Mr. O'Connell, since it was your report 
from AARP, I'd love to hear your comments on that.
    Mr. O'Connell. I mean, it's everything we were just hearing 
about, obviously, the cost of living and I think there's a myth 
in this country that older persons are well off. The Baby Boom 
generation is about to become aged, but the reality is that 
more than 60 percent of older Americans still rely on Social 
Security as their primary income and Social Security income is 
less than $11,000 a year, on average. You combine that limited 
income, the cost of living increases, and now the availability, 
the marketing that we're seeing by the credit card companies, 
and people just would tend to look to credit as a solution and 
then they get caught in that spiraling increasing cost.
    Ms. Gillibrand. Thank you, members of the panel. I 
appreciate it. I really want to talk about some of the policies 
that we, as Members of Congress, can put in place to make a 
difference. I appreciated, Mr. O'Connell, that you gave four 
suggestions. You wanted to improve disclosure of terms and 
conditions of credit card, prohibit universal default, a limit 
on penalty fees and interest rate hikes and prohibit mandatory 
binding arbitration. I would like to go through each of those 
suggestions and get your comments on it, specifically about how 
to implement it. So if we can start with the first one, improve 
disclosure of terms and conditions of the credit card.
    How would you like to do this, what recommendations 
specifically do you want made?
    Mr. O'Connell. I'll turn to my colleagues. I can talk more 
about the kinds of improvements that would be needed in 
disclosure.
    Ms. Porter. I think we all would say that the Federal 
Reserve Board has taken an important step in actually 
consulting with consumers to ask them, why are these 
disclosures so confusing, and so we can look forward to, I 
hope, improved disclosure at the time that you take out a card 
and in your periodic statement, but I would just say that all 
of the academic research suggests that for a variety of 
reasons, nobody takes out a credit card intending to get hit 
with lots of fees. So we don't look at the fees, because we 
don't plan on being hit with exorbitant fees, and so we're not 
processing those disclosures no matter how big you make the 
font. If you simply think they won't ever apply to you, you 
don't read them, and that's why a point-of-sale disclosure, a 
warning, that you're about to exceed the limit and a 
notification of what that's going to cost you, a reminder 
printed on every credit card receipt on when the payment will 
be due for that transaction is important. The point-of-sale 
technology, if banks can do it, and the banks way, way lag the 
credit card issuers on the technology front, but if the banks 
can implement things like that at point-of-sale disclosure at 
ATMs and debit card users, there's no reason that credit card 
issuers, at least over a phase-in period of 1 to 2 years, 
wouldn't be able to make some more point-of-sale disclosures.
    I am all for improving the initial disclosures and the 
periodic statement disclosures, but I don't think they will 
have the same effect on consumer behavior.
    Ms. Gillibrand. Any other specific suggestions on that one?
    Mr. O'Connell. I don't know specifically, but I certainly 
know that my colleagues in Washington, we can address that and 
get something in writing to you in terms of the specifics.
    Ms. Gillibrand. Okay.
    Chairwoman Maloney. I just want to say that at the panel we 
had last week with the issuers, two of the issuers came out 
voluntarily saying that they will no longer do universal 
default, and that they would do a 2-year fixed rate, which I 
think is an extraordinary accomplishment even before 
legislation, that they are willing to set that standard, and 
hopefully others will repeat it.
    I think one of the problems that you hit on, Ms. Porter, is 
that we are accustomed to buying things in a certain way, and 
when we buy a garment, or a car, or whatever, they don't jack 
up the prices overnight and add all these other fees that you 
don't anticipate. Yet, the credit card industry does that. They 
can jack up prices and add all these fees and people don't 
expect it and they don't see it coming. And I think that's one 
of the reasons that it gets run up so quickly.
    Ms. Gillibrand. The third recommendation was limits on 
penalty fees and interest rate hikes. What would you 
specifically like to see if you could make a recommendation?
    Mr. Billet. The key, at least in my opinion, and I think 
the opinion of a lot of my colleagues in the Banking 
Department, goes to the issue, although I'm not sure whether 
Congress in this day and age could successfully address it. It 
goes to the ability of these credit card companies to export 
their rates. If you, as a banking institution, in order to do 
business in this State were subject to New York State law, and 
the State could also define what constitutes interest for that 
purpose, then you would have effective controls in this State 
over what would happen at least to the residents in this State.
    But the fundamental problem with the fees issue is, in my 
mind, that under regulatory interpretation which has 
subsequently been upheld and abetted by the Federal judiciary 
and the Supreme Court, is that fees also constitutes interest 
and that's why that can be sent out as part of the credit card 
charges. So when you address that issue, you have to keep that 
in mind. It's the same as the interest rate charge, so when you 
address that, however you intend to do it, somehow you have to 
address that problem.
    Ms. Porter. I would concur. There is a real unfair 
advantage that is given to the national banks because of, to be 
frank, very weak enforcement activity by the Office of the 
Comptroller of the Currency, which is a Federal agency that 
very few people, including most of the people in this room, 
have ever heard of, but it is the agency that is supposed to be 
protecting and monitoring and regulating Federal banks. And so 
I think our State banks and the credit unions face a real 
disadvantage in trying to provide the best possible services 
for their customer when they compete with national banks. And 
the State banks, when they try to charge a fee, they have to 
deal with Mr. Billet. When the national banks up their late fee 
to $39 or $49, they effectively know they can do so with no 
oversight and no regulatory fear. So I really applaud the 
efforts of the subcommittee in the last year to bring some 
scrutiny to the credit card industry. And I think the reason 
you're seeing issuers stand up and say we'd be happy to 
eliminate universal default is because I think they are afraid 
that the subcommittee is actually getting a handle on how 
serious this problem really is. So you just see credit card 
issuers, I think, are really worried that America and its 
representatives have finally had enough of some of these 
practices.
    Mr. Billet. I just would add, just to try to make this 
point as clear as possible, that the reason State law applies 
to these institutions, and it depends on where they're 
headquartered, which is usually in States that have favorable 
usury and interest rate laws, is because there is no Federal 
law that regulates interest or these fees essentially. So 
whatever State you're in, if you're a New York bank and you 
sell to somebody or give a loan to somebody in Ohio, New York 
law applies with respect to the fees and the interest rate 
charge.
    Ms. Gillibrand. The last issue is to prohibit mandatory 
binding arbitration. Why is that affecting the issue and why do 
you recommend that as a change?
    Mr. O'Connell. I can only reference the example we gave of 
Ms. Owens. When she got to a court, the court settled it, as 
opposed to if she was in a situation where she had to go to a 
mandatory arbitration, in an arbitration venue that was set up 
by the credit card industry, and she would obviously be at a 
great disadvantage.
    Ms. Porter. I am actually conducting some research about 
this practice because increasingly what we see is not just 
credit card issuers using arbitration to resolve an actual 
dispute, that is a true disagreement about an asserted 
violation. But instead what we're seeing is widespread use by 
credit card companies of a few arbitrators in particular to 
simply collect debts. So rather than using the existing court 
process of filing a small claims judgment, obtaining a 
judgment, and having the judge make sure it's all fair and 
correct, they are sending people through an arbitration process 
as a way to shortcut the traditional collection process and the 
protections that exist at State law.
    Mr. DeCelle. I guess I'd like to just go back to something 
that Mr. O'Connell referenced in his statement and that is, 
that there is not that one-to-one contact that's taken place 
with the larger card issuers with their card holders as they're 
going down that very slippery slope of going into debt and I 
think if you take a look at what the credit union movement is 
doing we have debt counselors that work with our members so 
that they don't get to that point of needing to go to 
arbitration. Again, I see some people are kind of shaking their 
head. We're not the end-all, be-all, but what we are is a great 
solution to be able to work with consumers so that they are 
able to make better and well-informed financial decisions. And 
again, not to sound like a broken record, we need to do more in 
terms of financial literacy and financial education from the 
elementary school right into buildings like this, a senior 
citizens' center.
    We need to do a better job of getting the message out on 
why taking a zero percent credit card offer for 12 months is 
not the best solution to be able to roll some debt so that you 
have some alleviation of interest rate. We take a look at the 
savings rate crisis that we're in. We as a country are not 
savers, so to think you're going to be able to roll a 12-month 
debt at a zero rate on a card and have it paid off in 12 
months, if you're not already a good saver, that's not going to 
happen, and that's where we need to do a better job and as 
credit unions do, working with members, working with community 
resource groups, working in the schools, and working with 
senior citizens on how to develop good habits in terms of 
financial decisionmaking.
    Ms. Gillibrand. What is your opinion about whether this 
issue is going to get better or worse? Is the next generation 
ready for this or is it something that you think is going to 
increase because of the Baby Boomer generation? And related, 
who is the worst hit by this? Is it something that is affecting 
all retirees or is there a specific group who are being 
affected more?
    Ms. Porter. I would just say that I anticipate, at least 
for the foreseeable future, that it is going to get worse. The 
Baby Boom generation has an appetite for credit cards that is 
not really paralleled by other generations. Young people, 
because they became aware of credit cards much earlier, many 
young people do not use credit cards. The credit card rate 
among young people is actually on the decline. But the Baby 
Boom generation continues to escalate their credit card use, 
exactly at the time that they've saved less than prior 
generations and are heading into retirement.
    So I think we're likely to see, at least for the next 10 to 
20 years, a worsening of these problems.
    Mr. Billet. I will tell you from my own personal 
experience, I agree with that assessment by Ms. Porter. My 
children are recently out of college and they had credit cards 
and started to learn how to use a credit card and had some 
rough roads and they also obtained debit cards at the same time 
and fundamentally they're using the debit card for their daily 
expenditure purposes and are using the credit cards for what 
they are intended--to hit that big ticket item when you don't 
have sufficient income at the time of payment.
    Ms. Whipple. I do agree with the panelists. I just have a 
little bit different take on this. I certainly think the 
elderly are going to be extremely hard hit. I think it has to 
do with not only the fixed income, going back to your question, 
Madam Chairwoman, there are a variety of factors that have 
converged. The lack of medical and health insurance is one of 
the most disturbing and distressing reasons why people are 
coming into my office. We've gotten to the point where I have 
people literally sitting in front of me saying, ``I can't take 
my medicine, I can't afford it.'' So that's a huge one I think 
that affects the elderly more just as we grow a generation.
    I also do some credit abuse resistance education for high 
school and colleges and our theory was that you go into high 
schools and colleges to prepare the college students for the 
day, the first day they walk on a campus, and they're going to 
have Capital One sitting there, and Capital One is going to 
say, here's your free frisbee, here's your great t-shirt, here 
you go. All you have to do is sign here and guess what, it's 
free money. By the time these kids get out of school, if 
they're not educated, and I think a lot has to do with 
education, I think the statistics are that that between 19 and 
24-year-olds, they are increasing in bankruptcy as well as the 
elderly. I think the Baby Boomers are in a position right now 
where they're robbing Peter to pay Paul. I don't think they 
recognize the debt that they find themselves in and I think the 
elderly are a little bit more wise and will be able, when they 
finally hit a point they say okay, I am in trouble now. They 
may be a little bit quicker. You play the game right, you can 
use credit cards to move money around for years and years. I 
have seen people do it, and at the end of the day, you are 
still going to end up in my office.
    So I think that even though the Baby Boomers might be 
moving the money around, our older generation and our younger 
generation are where we should probably be focusing so that we 
can teach the Baby Boomers where they're going and they can, in 
fact, teach our children. We're the first generation to have 
credit cards. My parents didn't have a credit card. So you give 
somebody a credit card, and say, here you go, pay your money, 
and everything is fine and dandy. I don't think it's on luxury 
goods and I certainly don't think that it's a situation where 
people are saying, let me go out and use a credit card to buy 
this, that, or the other thing. People are using credit cards 
now to survive and that is where the problem lies. Because if 
you have to rely on a credit card to survive, you will never be 
able to pay that credit card off.
    Mr. DeCelle. Let's pass the microphone. I absolutely agree 
with you that people are using credit cards as a means of 
survival. However, I think what we need to do as an industry is 
we need to continue to work with our consumers, our members, 
our customers, however you want to refer to the segment and 
educate them on all the other alternatives that are out there 
other than living day-to-day on a credit card. I do disagree 
that I don't think this is an issue that's relative just to 
seniors and to the younger generation. I actually think the 
younger generation--I never thought I'd say that, the younger 
generation--I actually think younger Americans are more 
comfortable using a debit card because they're not fearful of 
that transaction hitting their checking account versus older 
Americans who sometimes feel like they don't want those 
transactions just hitting their checking accounts. They're used 
to once a week sitting down and settling their bills. So I 
think that's where education plays a key role.
    Again, I think it goes straight across the board and I also 
think some of the difficulties we're having tie directly back 
to the fact that as a Nation we have the lowest savings rate 
since the Great Depression. My parents were savers. They didn't 
buy a house, buy a car, whatever, unless they had the money 
where they go and go with a cashier's check and make that 
payment. We're not savers and that's part of what the problem 
is nowadays. We're not saving enough for that proverbial rainy 
day and when the clouds open up, what do you do and who do you 
go to and who can help you?
    Chairwoman Maloney. Thank you. I would like to ask the 
audience a question. I'd like to know how many of you have a 
credit card? Can you raise your hands? Okay. And how many of 
you use a credit card? How many of you have a debit card? Much 
fewer. How many of you use the debit card? So how many of you 
have a credit card or debit card story to tell us that we could 
hear? Quite a few. Okay.
    I want to ask one question that refers to the bill that 
we're working on, and then I would like to listen to the 
audience, asking a question. And I'd like to start with Mr. 
Billet because I know we're running out of time here so I want 
to get your responses to this idea and see whether or not you 
think this would help solve the problem. We're talking about 
disclosure. We're talking about choice. What if you had a 
requirement that you had to disclose to consumers exactly what 
everything was going to be and if you change that, if you 
change that with an increased fee or any increased interest 
rate you had to notify the consumer, we are increasing your 
fees. We are increasing your interest rate, it's going to be 
this much more and then you gave the consumer 45 days to make a 
choice. They could freeze their account and leave it as it is 
at the agreed amount and let them pay it off over a year or 
they could decide to opt-in, yes, I agree to pay that 18 
percent interest increase. In other words, informing them. As 
we were talking, Kirsten and I, about how many solicitations we 
get from credit cards, they fight very hard to get that 
customer. I would think that if they had that they would be 
very cautious about raising fees and interest rates because 
they could lose that customer to a competitor who is offering a 
much lower fee.
    Do you think that would curb the challenge that we have 
now? Allowing them to know exactly what's happening and 
allowing them to freeze their account at that amount so that 
they could pay it off, go to another card, or just--your 
response?
    Mr. Billet. I think that would address the issue where the 
fees and the late penalties and what have you essentially 
constitute so much of the debt that you can't pay off the 
principle which are the stories you heard today.
    That also means that, in effect, the credit card will not 
be able to be used again. So that's the other side of the 
story.
    Chairwoman Maloney. You could go to another credit card 
that has no fee. Competition between the credit cards are 
immense.
    Mr. Billet. That's true, but I would say those kinds of 
changes will have a ripple effect than with respect to the 
availability of credit. So what you see now is uncontrolled 
solicitation may, in fact, dry up or be significantly reduced. 
Now that may be a good outcome in that sense, but that--it's 
one of the things you have to think about with respect to what 
is called default rates or penalty rates. You have to 
understand--the thing you have to realize about credit cards, 
it is an open line of credit, so our banker friend from the 
credit union will tell you that if that person's debt 
increases, that person becomes a greater risk. And normally, 
under all rules of banking, that person should pay the higher 
rate of interest for any further use of the debt that they 
have. So that's what you're going to hear from the industry. I 
can guarantee it.
    Ms. Porter. I think it's important, I think you might want 
to consider that many consumers already have this option to 
stop using the card when they get notification of a fee hike. 
Now it may well be that the notifications are not clear enough 
and so consumers don't take advantage of that option. But I 
would also suggest that there are real problems with suggesting 
that if you don't like what card issuer ``A'' does, keep that 
balance, and go get card ``B.'' It sort of facilitates the 
growing number of cards which can have a detrimental effect on 
people's credit scores and sort of shifting among cards is not 
necessarily the ideal financial practice.
    I also think it's important that you consider at one point 
you said in describing the proposal that consumers would have 
to opt-in to the higher rate and my guess is that the industry 
is conceiving of this as a very different proposal which would 
require the consumer to affirmatively notify the industry that 
they want to take the free option. So I think it will make a 
difference of how it's framed, whether the assumption is you 
don't want to be charged the higher rate and you want to stop 
or the assumption is that you do. It will make a different on 
how effective it is.
    Chairwoman Maloney. Ms. Whipple?
    Ms. Whipple. I am a proponent of all and as much disclosure 
as you can possibly give. My one concern would be if there was 
a way for it to be a one paragraph disclosure as clear and 
concise because if you get one of--the daily disclosures we get 
now which are a form this thick that are in a font of .2 
inches, then it's probably not going to make a difference not 
to be a pessimist. I think disclosure is a wonderful thing and 
I think if it's clear enough so that individuals can take 
advantage of what you propose to do, I think it's a great idea.
    I also just want to note one other thing to follow up what 
Ms. Porter had said before. Previously, you had said that 
credit card companies say that they are not--they financially 
can't do certain things. We used to hear that a lot in the 
court--we can't do this, we can't do that, and then the judge 
orders it, and lo and behold, they can do it. So I take with a 
grain of salt anyone telling me well, as a credit card industry 
we can't do it, because if Congress legislates it, they can do 
it. It's just a matter of somebody has to tell them to do it.
    Mr. DeCelle. As somebody from a credit union who is 
responsible for marketing, if you can get a disclosure into one 
paragraph, I would be thrilled.
    [Laughter]
    Because how many people have within the last 6 months to a 
year opened up a new account or done anything with a credit 
card or even just a deposit account? You get a stack of 
disclosures because of the required mandates that we have from 
the legislature. The only thing I would say with all due 
respect is through the scenario that you had stated earlier, 
Madam Chairwoman, that really will increase the technological 
expense that will take place and what's going to happen 
eventually is more and more smaller issuers are going to drop 
out of the market, making less and less choices for consumers 
to be able to go where there is a lower rate, lower fees, and 
all of those things.
    And so that's the one thing that you should take a look at 
some of the best practices that are out there. Are there some 
banks that all they do are credit cards, taking advantage? 
Absolutely. However, there are some very good organizations 
that are out there, SEFCU being one of them, that do not take 
advantage of our members. We work diligently to make sure that 
our members understand what they're getting into, how the 
product works, so that they are better off down the road.
    From our point of view, the more success they have 
financially, the better we are because that's going to make 
them a happier member. Yes, there are certain things courts can 
mandate, and we need to jump through hoops, but what you need 
to understand is the more and more technological and 
legislative guidelines you put on our shoulders, that means we 
have to make that decision. As I said earlier, we have to look 
at that question and say, can we afford to offer credit cards 
to our members? And if it becomes too costly, then it's a 
negative impact on our members, so we have to say no, we can't, 
and then that reduces where people can go to get a product that 
will truly meet their needs.
    Chairwoman Maloney. Mr. O'Connell, if you have a comment?
    Mr. O'Connell. Apparently now, there must be a 30-day 
requirement. I got one in the mail yesterday on a change. I 
don't think 45 days necessarily would be the answer. I think it 
has to get back to controlling the actual fees somehow. But 
they did get it into a simple statement here.
    Chairwoman Maloney. Thank you and I'll call upon--you can 
take my seat. You had a story you wanted to tell us. Here, take 
my seat. Sit down so you can talk to the mic.
    Mr. Oceans. My name is Len Oceans and my wife just told me 
that a couple of years ago, she paid a bill in full to one of 
the credit card holders. And we got a letter back saying that 
we are dropping you and we're canceling your card. Why? Because 
you paid it in full. If you want to take it out again, they're 
going to charge us a fee of $30. So we said ``Sayonara, we 
don't need you. You need us.''
    I have a question about identity theft. Is it true that 
Congress passed a law that when you go into a store on a credit 
card it should only be the last four numbers on your receipt?
    Ms. Porter. Yes.
    Mr. Oceans. Because my wife always looks at it and she sees 
the whole digit, she crosses it out and only leaves the last 
four numbers.
    Ms. Porter. There was a phase-in period for that. The 
issuers said they couldn't do that technologically. They just 
didn't know how they'd ever succeed. So they were given a 
couple of year period, but that period has elapsed, so your 
wife could actually sue for those violations.
    Mr. Oceans. Oh, and then we'll be millionaires.
    [Laughter]
    Just one more question. Why are the lobbyists so powerful 
and strong to keep those rates up so high?
    Mr. Billet. It's not a function of the lobbyists. It's the 
function of the industry that's behind the lobbyists, so you 
know, the banking industry is one of the strongest industries 
in the United States, if not the strongest industry out there 
as far as putting forward their point of view on issues. And 
you know, I guess it just goes to what they're about. They have 
the capital. People want the capital. They say you're not going 
to get the capital. People respond to that.
    Ms. Gillibrand. Would any other audience members like to 
ask a question of the panel? We're just about done anyway. We 
plan to hold this hearing until 3 o'clock. I want to thank you 
all for coming. I want to thank each of our panelists for being 
here and for testifying on something the Financial Services 
Committee hopes to write legislation on this year.
    I also want to recognize some of our local elected 
officials. Mindy Warmoth, are you still here? Hello, Mindy, how 
are you? She's our supervisor for this town. And Regina Parker, 
she's our councilwoman. Is she here? Thank you, Regina, for 
being here as well. Thank you for being our elected leaders and 
coming to this forum. It's such an important part of what we do 
in Congress to take testimony from experts to help us write 
legislation. And thank you all for participating. It's 
extremely valuable that you're here and I just want to commend 
Congresswoman Maloney. If you'd like to say a few words, 
Congresswoman? Thank you for your leadership. Thank you for 
coming to our District and listening to the views of many 
upstate New Yorkers on these very difficult, but important 
issues.
    Thank you, Congresswoman.
    Chairwoman Maloney. Thank you for inviting me. I certainly 
learned a great deal and will be back in touch with our 
panelists, and with you, Kirsten, on items that came up today.
    I wanted to note that for 5 days, you will be able to put 
into the record any comments, additional questions, or any 
other item that you would like to be part of the official 
Federal record. We are moving forward with legislation. All of 
you have helped clarify where we need to go and what we need to 
do. We know that credit cards are a part of our life, a great 
convenience. They allow us to have access to credit 
immediately, but it needs to be fully disclosed and in a fair 
way.
    I've had a wonderful time here today learning more about 
this issue, but also seeing an absolutely beautiful city. I 
would love to come back and have a vacation here some time. 
You're very fortunate to live here and it's wonderful to be 
here and thank you for hosting it, particularly the Halfmoon 
Senior Center for having us and our wonderful panelists. And 
the meeting is adjourned.
    [Whereupon, at 3:10 p.m., the hearing was concluded.]




                            A P P E N D I X



                             August 7, 2007

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