[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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38-396 PDF WASHINGTON DC: 2007
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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
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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
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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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