[Senate Hearing 110-76]
[From the U.S. Government Publishing Office]



                                                         S. Hrg. 110-76
 
    CREDIT CARD PRACTICES: FEES, INTEREST CHARGES, AND GRACE PERIODS

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


                                HEARING

                               before the

                PERMANENT SUBCOMMITTEE ON INVESTIGATIONS

                                 of the

                              COMMITTEE ON
               HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 7, 2007

                               __________

                       Printed for the use of the
        Committee on Homeland Security and Governmental Affairs



                     U.S. GOVERNMENT PRINTING OFFICE

34-409 PDF                 WASHINGTON DC:  2007
---------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing
Office  Internet: bookstore.gpo.gov Phone: toll free (866)512-1800
DC area (202)512-1800  Fax: (202) 512-2250 Mail Stop SSOP, 
Washington, DC 20402-0001



        COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS

               JOSEPH I. LIEBERMAN, Connecticut, Chairman
CARL LEVIN, Michigan                 SUSAN M. COLLINS, Maine
DANIEL K. AKAKA, Hawaii              TED STEVENS, Alaska
THOMAS R. CARPER, Delaware           GEORGE V. VOINOVICH, Ohio
MARK PRYOR, Arkansas                 NORM COLEMAN, Minnesota
MARY L. LANDRIEU, Louisiana          TOM COBURN, Oklahoma
BARACK OBAMA, Illinois               PETE V. DOMENICI, New Mexico
CLAIRE MCCASKILL, Missouri           JOHN W. WARNER, Virginia
JON TESTER, Montana                  JOHN E.SUNUNU, New Hampshire

                  Michael L. Alexander, Staff Director
     Brandon L. Milhorn, Minority Staff Director and Chief Counsel
                  Trina Driessnack Tyrer, Chief Clerk


                PERMANENT SUBCOMMITTEE ON INVESTIGATIONS

                     CARL LEVIN, Michigan, Chairman
THOMAS R. CARPER, Delaware           NORM COLEMAN, Minnesota
MARK L. PRYOR, Arkansas              TOM COBURN, Oklahoma
BARACK OBAMA, Illinois               PETE V. DOMENICI, New Mexico
CLAIRE McCASKILL, Missouri           JOHN W. WARNER, Virginia
JON TESTER, Montana                  JOHN E. SUNUNU, New Hampshire

            Elise J. Bean, Staff Director and Chief Counsel
               Julie Davis, Counsel to Senator Carl Levin
                       Zachary I. Schram, Counsel
                      Kate Bittinger, GAO Detailee
  Mark L. Greenblatt, Staff Director and Chief Counsel to the Minority
          Mark D. Nelson, Deputy Chief Counsel to the Minority
               Timothy R. Terry, Counsel to the Minority
                     Mary D. Robertson, Chief Clerk


                            C O N T E N T S

                                 ------                                
Opening statements:
                                                                   Page
    Senator Levin................................................     1
    Senator Coleman..............................................     8
    Senator Warner...............................................    13
    Senator Carper...............................................    40
Prepared statement:
    Senator Collins..............................................    61

                               WITNESSES
                        Wednesday, March 7, 2007

Wesley Wannemacher, Consumer, Lima, Ohio.........................    14
Alys Cohen, Staff Attorney, National Consumer Law Center.........    16
Bruce L. Hammonds, President, Bank of America Card Services, Bank 
  of America Corporation, Wilmington, Delaware...................    28
Richard J. Srednicki, Chief Executive Officer, Chase Bank USA, 
  N.A., Wilmington, Delaware.....................................    30
Vikram A. Atal, Chairman and Chief Executive Officer, Citi Cards, 
  Global Consumer Group, Citigroup Inc., New York, New York......    32

                     Alphabetical List of Witnesses

Atal, Vikram A.:
    Testimony....................................................    32
    Prepared statement...........................................   128
Cohen, Alys:
    Testimony....................................................    16
    Prepared statement with an attachment........................    64
Hammonds, Bruce L.:
    Testimony....................................................   285
    Prepared statement with attachments..........................    81
Srednicki, Richard J.:
    Testimony....................................................   304
    Prepared statement...........................................   115
Wannemacher, Wesley:
    Testimony....................................................    14
    Prepared statement...........................................    62

                                EXHIBITS

 1. GSummary of Wannemacher Account, chart prepared by the 
  Permanent Subcommittee on Investigations.......................   134
 2. GExample of Interest Charges on Credit Card Debt That Is Paid 
  On Time But Not In Full, chart prepared by the Permanent 
  Subcommittee on Investigations.................................   135
 3. a. GBank of America Billing Statement Disclosures............   136
 3. b. GChase Bank Billing Statement Disclosures.................   137
 3. c. GCitigroup Billing Statement Disclosures..................   138
 4. GWannemacher Account Transactions, March 2001-February 2007, 
  prepared by the Permanent Subcommittee on Investigations.......   139
 5. GWannemacher Credit Card Account, prepared by the Permanent 
  Subcommittee on Investigations.................................   141
 6. GU.S. Government Accountability Office (GAO) Report to the 
  Ranking Minority Member, Permanent Subcommittee on 
  Investigations, Committee on Homeland Security and Governmental 
  Affairs, United States Senate, CREDIT CARDS--Increased 
  Complexity in Rates and Fees Heightens Need for More Effective 
  Disclosures to Consumers, September 2006, GAO-06-929...........   142
 7. a. GResponses to supplemental questions for the record 
  submitted to Bruce L. Hammonds, President, Bank of America Card 
  Services, Bank of America Corporation..........................   255
 7. b. GSEALED EXHIBIT: List of public universities and colleges 
  with whom Bank of America has sponsorship agreements...........     *
 8. a. GResponses to supplemental questions for the record 
  submitted to Richard J. Srednicki, Chief Executive Officer, 
  Chase Bank USA, N.A............................................   292
 8. b. GSEALED EXHIBIT: List of public universities and colleges 
  with whom Chase Bank has sponsorship agreements................     *
 9. GResponses to supplemental questions for the record submitted 
  to Vikram A. Atal, Chairman and Chief Executive Officer, Citi 
  Cards, Global Consumer Group, Citigroup Inc....................   296
10. GResponses to questions for the record submitted to Jud 
  Linville, President, U.S. Consumer Card Services Group, 
  American Express...............................................   301
11. GResponses to questions for the record submitted to Jory 
  Benson, President, US Card, Capital One........................   306
12. GResponses to questions for the record submitted to David W. 
  Nelms, Chairman, Discover Financial Services, Inc..............   311
13. a.-m. GExcerpts from correspondence sent by more than 1,000 
  persons nationwide in response to the Subcommittee 
  investigation into unfair credit card practices................   318


    CREDIT CARD PRACTICES: FEES, INTEREST CHARGES, AND GRACE PERIODS

                              ----------                              


                        WEDNESDAY, MARCH 7, 2007

                                     U.S. Senate,  
              Permanent Subcommittee on Investigations,    
                    of the Committee on Homeland Security  
                                  and Governmental Affairs,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 10:03 a.m., in 
room 342, Dirksen Senate Office Building, Hon. Carl Levin, 
Chairman of the Subcommittee, presiding.
    Present: Senators Levin, Carper, McCaskill, Coleman, 
Warner, and Sununu.
    Staff Present: Elise J. Bean, Staff Director and Chief 
Counsel; Mary D. Robertson, Chief Clerk; Julie Davis, Counsel 
to Senator Levin; Kate Bittinger, Detailee, GAO; Zack Schram, 
Counsel; Teresa Meoni, Intern; Leslie Garthwaite, Law Clerk; 
Peggy Gustafson (Senator McCaskill); Christine Sharp, Derek 
Freeman, and Price Feland (Senator Pryor); Hilary Jochmans 
(Senator Carper); Mark L. Greenblatt, Staff Director and Chief 
Counsel to the Minority; Mark D. Nelson, Deputy Chief Counsel 
to the Minority; Timothy R. Terry, Counsel to the Minority; 
Michael P. Flowers, Counsel to the Minority; Sharon Beth 
Kristal, Counsel to the Minority; Clifford C. Stoddard, Jr., 
Counsel to the Minority; Emily T. Germain, Staff Assistant to 
the Minority; Robin Landauer (Senator Coburn); John Frierson 
and Hughes Bates (Senator Warner); Clark Irwin, Melvin 
Albritton (HSGAC); and Adam Hechavarria (Senator Sununu).

               OPENING STATEMENT OF SENATOR LEVIN

    Senator Levin. Good morning, everybody. In 2001 and 2002, 
Wesley Wannemacher, our first witness this morning, used a new 
credit card to pay for expenses mostly related to his wedding. 
He charged a total of about $3,200, which exceeded the card's 
limit by $200. He spent the next 6 years trying to pay off the 
debt, averaging payments of about $1,000 a year.
    As of last month he had paid about $6,300 on his $3,200 
debt, but his February billing statement showed that he still 
owed $4,400.
    Now how is it possible that a man pays $6,300 on a $3,200 
credit card debt, but still owes $4,400? Here is how. Take a 
look at Exhibit 1.\1\
---------------------------------------------------------------------------
    \1\ See Exhibit 1 which appears in the Appendix on page 134.
---------------------------------------------------------------------------
    On top of the $3,200 debt, Mr. Wannemacher was charged by 
the credit card issuer about $4,900 in interest, $1,100 in late 
fees, and $1,500 in over-the-limit fees. He was hit 47 times 
with over-the-limit fees, even though he went over-the-limit 
only three times and exceeded the limit by only $200. So for 
going over-the-limit by $200, he was hit with $1,500 in over-
the-limit fees.
    Altogether, these fees and the interest charges added up to 
$7,500 which, on top of the original $3,200 credit card debt, 
produced total charges to him of $10,700. In other words, the 
interest charges and fees more than tripled the original $3,200 
credit card debt, despite payments by the cardholder averaging 
$1,000 per year.
    Unfair? Clearly unfair, I think. But our investigation has 
shown that sky high interest charges and fees are not uncommon 
in the credit card industry.
    While the Wannemacher account happened to be at Chase, 
penalty interest rates and fees are also employed by Bank of 
America, Citigroup, and other major credit card issuers. Last 
week Chase decided to forgive the remaining debt on the 
Wannemacher account. While that is good news for the 
Wannemacher family, that decision does not resolve the problem 
of excessive credit card fees and sky high interest rates that 
trap too many hard-working families into a downward spiral of 
debt.
    Today we are focusing on industry practices affecting three 
fundamental aspects of credit cards: grace periods, interest 
rates, and fees.
    After an investigation that required digging into the 
details of complex billing records, unfair, little known, and 
hidden industry practices emerged which squeezed not only the 
consumers struggling to repay debt but also hit those with 
accounts in good standing.
    Start with grace periods. Many consumers think that credit 
cards provide them with a grace period before interest is 
charged. Not always true. If you owe money on your card from 
the prior month, there is no grace period on new purchases. 
Each of those purchases racks up interest charges from day one. 
And today, 50 percent to 60 percent of U.S. cardholders carry 
unpaid balances. They do not get a grace period on their 
purchases. I wonder how many working families understand that.
    Interest is another key issue. Our investigation found that 
even accounts in good standing are socked unfairly by little 
known credit card industry practices that inflate interest 
rates for millions of consumers. Take a look at Exhibit 2.\1\
---------------------------------------------------------------------------
    \1\ See Exhibit 2 which appears in the Appendix on page 135.
---------------------------------------------------------------------------
    Suppose a consumer who usually pays their account in full 
and owes no money on December 1, makes a lot of purchases in 
December, and gets a January 1 credit card bill for $5,020. 
That bill is due on January 15. Suppose the consumer pays that 
bill on time, but pays $5,000 instead of the full amount owed, 
which was $5,020.
    Now what do you think the consumer owes on the next bill? 
If you thought that the next bill would be the $20 past due 
plus interest on the $20 past due, you would be wrong. In fact, 
under industry practice today, the bill would likely be twice 
as much as that. And that is because the consumer would have to 
pay interest, not just on the $20 that was not paid on time, 
but also on the $5,000 that was paid on time.
    In other words, the consumer would have to pay interest on 
the entire $5,020 from the first day of the billing month, 
January 1, until the day the bill was paid on January 15, and 
that interest is compounded daily. So much for the grace 
period.
    In addition, the consumer would have to pay the $20 past 
due plus interest on the $20 from January 15 to January 31, 
again compounded daily. In our example, using an interest rate 
of 17.99 percent, the same rate used on Mr. Wannemacher's 
account before he got into trouble, the $20 debt would in one 
month rack up about $35 in interest charges and balloon into a 
debt of $55.21.
    Now you might ask, hold on, why does a consumer have to pay 
any interest at all on the $5,000 that was paid on time? Why 
does anyone have to pay interest on a portion of a debt that 
was paid by the date specified in the bill, in other words on 
time? The answer is because that is how the credit card 
industry has operated for years, and they have gotten away with 
it.
    There is more. You might think that once the consumer gets 
gouged in February, paying $55.21 on a $20 debt and pays that 
debt on time and in full, without making any new purchases, 
that would be the end of it. But you would be wrong again. It 
is not over. Look again at our example in Exhibit 2.\1\
---------------------------------------------------------------------------
    \1\ See Exhibit 2 which appears in the Appendix on page 135.
---------------------------------------------------------------------------
    Even though on February 15 the consumer paid the February 
bill in full and on time, all $55.21, the next bill has an 
additional interest charge on it for what we call trailing 
interest. In this case the trailing interest is the interest 
that accumulated on the $55.21 from February 1 to February 15, 
which is the time period from the day when the bill was sent to 
the day that it was paid. The total is 38 cents. While some 
issuers will waive trailing interest if the next month's bill 
is less than a dollar if a consumer makes a new purchase, which 
is typical, a common industry practice is to fold the 38 cents 
into the end-of-the-month bill reflecting the new purchase.
    Now 38 cents is not much in the big scheme of things. That 
may be why many consumers do not notice these types of extra 
interest charges or try to fight them. Even if someone had 
questions about the amount of interest on a bill, most 
consumers would be hard pressed to understand how the amount 
was calculated, much less whether it was incorrect. But by 
nickel and diming tens of millions of consumer accounts, credit 
card issuers reap large profits.
    Some of the questions then that we want to examine today 
are whether it is fair to make consumers pay interest on debt 
which they pay on time, whether it is fair to charge trailing 
interest when a bill is paid on time and in full, and whether 
it is fair to assess interest in such convoluted, opaque ways 
that make it nearly impossible for consumers to figure out what 
is happening to them.
    In addition, it used to be that credit cards offered a 
single fixed interest rate. That is not true anymore. Recently 
the Government Accountability Office, the GAO, prepared a 
report examining the interest rates and fees being applied to 
28 popular credit cards issued by the six largest credit card 
companies.\1\ GAO found that today credit card issuers 
typically apply multiple interest rates to the same card.
---------------------------------------------------------------------------
    \1\ See Exhibit 6 which appears in the Appendix on page 142.
---------------------------------------------------------------------------
    For example, the credit card industry typically uses one 
interest rate for cash advances, another for regular purchases, 
and a third for balance transfers. And if a card holder pays 
late or exceeds a credit limit, they can substitute a so-called 
penalty interest rate that can exceed 30 percent. All of these 
interest rates can also vary with some frequency since many 
credit card issuers use interest rates that rise and fall with 
the prime rate.
    The use of multiple interest rates that change over time 
makes it nearly impossible for consumers to track their finance 
charges or even know beforehand what interest rates will apply 
to their card in a specific month. Today most consumers find 
out their interest rates when they get their billing 
statements, after they have made their purchases or obtained a 
cash advance.
    There is also a recent trend towards higher interest rates. 
When the GAO examined data provided by the six largest credit 
card issuers, it found a dramatic increase over 2 years in the 
number of credit card accounts with higher interest rates. For 
example, from 2003 to 2005, the number of accounts subject to 
interest rates greater than 25 percent doubled, from 5 percent 
to 11 percent of all accounts. The number of accounts subject 
to the three highest interest rates also doubled, going from 29 
percent to 57 percent. That means that, in 2005, 57 percent of 
the accounts at the six largest credit card issuers had 
interest rates from 15 percent to more than 30 percent.
    The bottom line is this, that the use of multiple and 
variable interest rates, together with anti-consumer payment 
allocation rules, confuse consumers about what interest rates 
apply to what debts when. The disclosures on calculating 
interest rates are so complicated that virtually no average 
consumer can understand them.
    But the consequences of industry practice on industry rates 
go deeper than inadequate disclosure and consumer confusion. In 
some cases consumers become overwhelmed with penalty interest 
charges that can double or triple the size of their debt and 
make it nearly impossible for them to pay their bills. Equally 
disturbing are the interest charges that are quietly added to 
accounts in good standing, inflating the outstanding balances 
often without the credit card holder realizing it.
    And finally, on the issue of fees, the GAO report 
identified a host of fees imposed by the credit card industry. 
The GAO found that late fees now average $34 per month, while 
over-the-limit fees average $31 per month. Some credit card 
issuers also have policies that allow them to impose over-the-
limit fees repeatedly. In Mr. Wannemacher's case, although his 
purchases exceeded the limit just three times, for a total of 
$200, he was charged over-the-limit fees 47 times and paid 
$1,500 on his $200 over-the-limit amount. I think that is 
unfair gouging.
    Another common fee which I call pay-to-pay is the $5 to $15 
that issuers charge consumers to pay their credit card bill 
over the telephone. To me, charging folks a fee to pay their 
bills--again we are talking about people paying their bills on 
time--is a travesty.
    Excessive and abusive fees are then made worse by the 
industry practice of including all fees in a consumer's 
outstanding balance so that they, too, incur added interest. In 
other words, the higher the fees, the higher the balances owed, 
and the higher the interest charges.
    It is sometimes high penalty fees and interest charges 
rather than purchases that push a consumer over a credit limit, 
triggering more penalties and deeper debt.
    Credit card issuers sometimes say that they are engaged in 
a risky business, lending unsecured debt to millions of 
consumers, and that is why they have to price their product so 
high. But the data shows that typically 95 percent to 97 
percent of U.S. cardholders pay their bills, and it is clear 
that credit card issuers charge interest and fees in ways that 
produce enormous profit. For the last decade, credit card 
issuers have reported year after year of solid profits, 
maintained their position as the most profitable sector in the 
consumer lending field, and reported consistently higher rates 
of return than do commercial banks.
    Credit card issuers make such a hefty profit that last year 
they sent out 8 billion pieces of mail soliciting people to 
sign up.
    With profits like those, credit card issuers can afford to 
stop unfairly charging interest on debt that is paid on time, 
stop forcing consumers to pay for the balances with the lowest 
interest rates first, stop charging consumers a fee to pay 
their bills, and stop imposing abusive fees and excessive 
penalty interest rates.
    As one Michigan businessman expressed it to the 
Subcommittee, ``I don't blame the credit card issuers for 
putting me into debt, but I do blame them for keeping me 
there.''
    To examine these issues in greater detail, we are going to 
hear today from both consumers and the three largest issuers of 
credit cards in America. Together Bank of America, Chase, and 
Citigroup administer over 200 million credit card accounts. 
Each of these banks, as well as others that we have contacted, 
have cooperated with the Subcommittee's inquiry and we 
appreciate that cooperation.
    Recently some banks have also taken steps to improve their 
credit card practices, including Chase's recent decision to 
stop collecting the added interest charges involved in double 
cycle billing. But much more needs to be done.
    Finally, I want to thank the Subcommittee's Ranking 
Republican, Norm Coleman, and his staff, who have worked so 
hard to examine these issues with us. I now turn to Senator 
Coleman for an opening statement.
    [The prepared statement of Senator Levin follows:]
              PREPARED OPENING STATEMENT OF SENATOR LEVIN
    In 2001 and 2002, Wesley Wannemacher, our first witness this 
morning, used a new credit card to pay for expenses mostly related to 
his wedding. He charged a total of about $3,200, which exceeded the 
card's credit limit by $200. He spent the next six years trying to pay 
off the debt, averaging payments of about $1,000 per year. As of last 
month, he'd paid about $6,300 on his $3,200 debt, but his February 
billing statement showed he still owed $4,400.
    How is it possible that a man pays $6,300 on a $3,200 credit card 
debt, but still owes $4,400? Here's how. Take a look at this chart. On 
top of the $3,200 debt, Mr. Wannemacher was charged by the credit card 
issuer about $4,900 in interest, $1,100 in late fees, and $1,500 in 
over-the-limit fees. He was hit 47 times with over-limit fees, even 
though he went over the limit only 3 times and exceeded the limit by 
only $200. Altogether, these fees and the interest charges added up to 
$7,500 which, on top of the original $3,200 credit card debt, produced 
total charges to him of $10,700.
    In other words, the interest charges and fees more than tripled the 
original $3,200 credit card debt, despite payments by the cardholder 
averaging $1,000 per year. Unfair? Clearly, I think, but our 
investigation has shown that sky-high interest charges and fees are not 
uncommon in the credit card industry. While the Wannemacher account 
happened to be at Chase, penalty interest rates and fees are also 
employed by Bank of America, Citigroup, and other major credit card 
issuers. Last week, Chase decided to forgive the remaining debt on the 
Wannemacher account, and while that is good news for the Wannemacher 
family, that decision doesn't begin to resolve the problem of excessive 
credit card fees and sky-high interest rates that trap too many hard-
working families into a downward spiral of debt.
    Credit cards are more and more a fixture of U.S. economic life. 
People use them to buy groceries, rent a car, even pay their taxes. 
They use credit cards to buy goods on the Internet, and obtain capital 
for small business ventures. Credit cards provide individuals with a 
readily accepted payment mechanism, ready access to credit, and the 
means to manage their finances. In 2005, with an average of 5 cards per 
household, U.S. families used over 690 million credit cards to buy 
goods and services worth $1.8 trillion.
    But credit cards have also brought problems. They have contributed 
to record amounts of household debt. They have made it common for 
working families to be hit with interest rates of 25 percent, 30 
percent, or more. They have brought families to their knees with 
excessive late and over-limit fees, making it harder for them to climb 
out of debt. When I announced the Subcommittee investigation into 
credit card practices, my office began receiving hundreds of 
communications from Americans angry at how they'd been treated by their 
credit card issuers and identifying a host of practices they view as 
unfair.
    Today we are focusing on industry practices affecting three 
fundamental aspects of credit cards--grace periods, interest rates, and 
fees. After an investigation that required digging into the details of 
complex billing methods, unfair, little known, and hidden industry 
practices emerged which squeeze not only the consumers struggling to 
repay debt, but also hit those with accounts in good standing.
    Take grace periods. Many consumers think that credit cards provide 
them with a grace period before interest is charged. Not true. If you 
owe money on your card from the prior month, there is no grace period 
on new purchases--each of those purchases racks up interest charges 
from day one. Today, 50-60 percent of U.S. cardholders carry unpaid 
balances; they don't get a grace period on any of their purchases. I 
wonder how many working families understand that.
    Interest is another key issue. Our investigation found that even 
accounts in good standing are socked unfairly by little known credit 
card industry practices that inflate interest charges for millions of 
consumers. Take a look at Chart No. 2. Suppose a consumer who usually 
pays their account in full, and owes no money on December 1st, makes a 
lot of purchases in December, and gets a January 1 credit card bill for 
$5,020. That bill is due January 15. Suppose the consumer pays that 
bill on time, but pays $5,000 instead of the full amount owed. What do 
you think the consumer owes on the next bill?
    If you thought the bill would be the $20 past due plus interest on 
the $20, you would be wrong. In fact, under industry practice today, 
the bill would likely be twice as much. That's because the consumer 
would have to pay interest, not just on the $20 that wasn't paid on 
time, but also on the $5,000 that was paid on time. In other words, the 
consumer would have to pay interest on the entire $5,020 from the first 
day of the billing month, January 1, until the day the bill was paid on 
January 15, compounded daily. So much for a grace period. In addition, 
the consumer would have to pay the $20 past due, plus interest on the 
$20 from January 15 to January 31, again compounded daily. In our 
example, using an interest rate of 17.99 percent, the same rate used on 
Mr. Wannemacher's account before he got into trouble, the $20 debt 
would, in one month, rack up $35 in interest charges and balloon into a 
debt of $55.21.
    You might ask why does the consumer have to pay any interest at all 
on the $5,000 that was paid on time? Why does anyone have to pay 
interest on the portion of a debt that was paid by the date specified 
in the bill--in other words, on time? The answer is, because that's how 
the credit card industry has operated for years, and they have gotten 
away with it.
    There's more. You might think that once the consumer gets gouged in 
February, paying $55.21 on a $20 debt, and pays that bill on time and 
in full, without making any new purchases, that would be the end of it. 
But you would be wrong again. It's not over.
    Look again at our example in Chart No. 2. Even though, on February 
15, the consumer paid the February bill in full and on time--all 
$55.21--the next bill has an additional interest charge on it, for what 
we call ``trailing interest.'' In this case, the trailing interest is 
the interest that accumulated on the $55.21 from February 1 to 15, 
which is time period from the day when the bill was sent to the day 
when it was paid. The total is 38 cents. While some issuers will waive 
trailing interest if the next month's bill is less than $1, if a 
consumer makes a new purchase, a common industry practice is to fold 
the 38 cents into the end-of-month bill reflecting the new purchase. 
Now 38 cents isn't much in the big scheme of things. That may be why 
many consumers don't notice these types of extra interest charges or 
try to fight them. Even if someone had questions about the amount of 
interest on a bill, most consumers would be hard pressed to understand 
how the amount was calculated, much less whether it was incorrect. But 
by nickel and diming tens of millions of consumer accounts, credit card 
issuers reap large profits. Some of the questions we want to examine 
today are whether it is fair to make consumers pay interest on debt 
which they pay on time, whether it is fair to charge trailing interest 
when a bill is paid on time and in full, and whether it is fair to 
assess interest in such convoluted, opaque ways that make it nearly 
impossible for consumers to figure out what is happening to them.
    In addition, it used to be that credit cards offered a single fixed 
interest rate. That's not true anymore. Recently, the Government 
Accountability Office (GAO) prepared a report examining the interest 
rates and fees being applied to 28 popular credit cards issued by the 
six largest credit card issuers. GAO found that, today, credit card 
issuers typically apply multiple interest rates to the same card. For 
example, the credit card industry typically uses one interest rate for 
cash advances, another for regular purchases, a third for balance 
transfers, and if a cardholder pays late or exceeds a credit limit, may 
substitute a so-called penalty interest rate that can exceed 30 
percent. All of these interest rates can also vary with some frequency, 
since many credit card issuers use interest rates that rise and fall 
with the prime rate.
    The use of multiple interest rates that change over time makes it 
nearly impossible for consumers to track their finance charges or even 
to know beforehand what interest rates will apply to their card in a 
specific month. Today, most consumers find out their interest rates 
when they get their billing statements--after they've made their 
purchases or obtained a cash advance.
    There is also a recent trend toward higher interest rates. When GAO 
examined data provided by the six largest credit card issuers, it found 
a dramatic increase over two years in the number of credit card 
accounts with higher interest rates. For example, from 2003 to 2005, 
the number of accounts subject to interest rates greater than 25 
percent doubled, from 5 percent to 11 percent of all accounts. The 
number of accounts subject to the three highest interest rates also 
doubled, going from 29 percent to 57 percent. That means, in 2005, 57 
percent of the accounts at the six largest credit card issuers had 
interest rates from 15 percent to more than 30 percent.
    Credit card issuers like to point out that they often offer new 
customers very low introductory interest rates, such as 0 or 1 percent. 
But these rates are the ``come on'' rates, are usually limited to short 
time periods, and may apply only to a balance transferred from another 
card. If a cardholder pays late or exceeds the credit limit, the 
introductory rate may be immediately replaced with a much steeper rate. 
In some cases, if the cardholder makes new purchases, those purchases 
are charged a higher interest rate and can't be paid off until the 
entire balance at the lower rate is repaid. That's because there is an 
industry wide practice of requiring all consumer payments to be 
allocated first to the balances with the lowest interest rates.
    The bottom line is that use of multiple and variable interest 
rates, together with anti-consumer payment allocation rules, confuse 
consumers about what interest rates apply to what debts when. The 
disclosures on calculating interest rates are so complicated that 
virtually no average consumer can understand them.
    But the consequences of industry practice on interest rates go 
deeper than inadequate disclosure and consumer confusion. In some 
cases, consumers become overwhelmed with penalty interest charges that 
can double or triple the size of their debt, and make it nearly 
impossible for them to pay their bills. Equally disturbing are the 
interest charges that are quietly added to accounts in good standing, 
inflating the outstanding balances often without the cardholder 
realizing it. Finally, there is the issue of fees. GAO's report 
identified a host of fees imposed by the credit card industry. GAO 
found that late fees now average $34 per month, while over-limit fees 
average $31 per month. Some credit card issuers also have policies that 
allow them to impose over-limit fees repeatedly. In Mr. Wannemacher 
case, although his purchases exceeded the limit just three times for a 
total of $200, he was charged over-limit fees 47 times and paid $1,500. 
Talk about unfair gouging.
    Another common fee, which I call pay to pay, is the $5-15 fee that 
issuers charge consumers to pay their credit card bill over the 
telephone. To me, charging folks a fee to pay their bills--again we're 
talking about people paying their bill on time--is a travesty. 
Excessive and abusive fees are then made worse by the industry practice 
of including all fees in a consumer's outstanding balance so that they 
incur added interest. In other words, the higher the fees, the higher 
the balances owed, and the higher the interest charges. It is sometimes 
high penalty fees and interest charges, rather than purchases, that 
push a consumer over a credit limit, triggering still more penalties 
and deeper debt.
    Credit card issuers like to say that they are engaged in a risky 
business, lending unsecured debt to millions of consumers, and that's 
why they have to price their products so high. But the data shows that, 
typically, 95 to 97 percent of U.S. cardholders pay their bills. And it 
is clear that credit card issuers charge interest and fees in ways that 
produce enormous profit. For the last decade, credit card issuers have 
reported year after year of solid profits, maintained their position as 
the most profitable sector in the consumer lending field, and reported 
consistently higher rates of return than commercial banks. Credit card 
issuers make such a hefty profit that they sent out 8 billion pieces of 
mail last year soliciting people to sign up.
    With profits like those, credit card issuers can afford to stop 
unfairly charging interest on debt that is paid on time, stop forcing 
consumers to pay for the balances with the lowest interest rates first, 
stop charging consumers a fee to pay their bills, and stop imposing 
abusive fees and excessive penalty interest rates. As one Michigan 
businessman expressed it to the Subcommittee, ``I don't blame the 
credit card issuers for putting me into debt, but I do blame them for 
keeping me there.''
    To examine these issues in greater detail, we are going to hear 
from both consumers and the three largest issuers of credit cards in 
America today. Together, Bank of America, Chase, and Citigroup 
administer over 200 million credit card accounts. Each of these banks, 
as well as others we have contacted, has cooperated with the 
Subcommittee's inquiry, and we appreciate that cooperation. Recently, 
some banks have also taken steps to improve their credit card 
practices, including Chase's recent decision to stop collecting the 
added interest charges involved in double cycle billing. But more needs 
to be done.
    Finally, I would like to thank the Subcommittee's Ranking 
Republican, Norm Coleman, and his staff, who have worked hard to 
examine these issues with us. I'd like to turn to him now for an 
opening statement.

    Senator Levin. Senator Coleman.

              OPENING STATEMENT OF SENATOR COLEMAN

    Senator Coleman. Thank you, Mr. Chairman.
    Mr. Chairman, let me start by thanking you not only for 
initiating this examination into certain credit card industry 
practices but also more broadly for your continued and tireless 
advocacy on behalf of the American consumer. You have a long 
and distinguished history of looking out for the little guy, 
and this hearing is an important part of that very laudable 
record. So I do want to say thank you.
    Credit card debt is often seen as a very personal problem, 
but the burgeoning level of household debt in America has 
implications for the entire Nation. Over the past 25 years, 
U.S. debt has ballooned from a collective $59 billion in 1980 
to approximately $830 billion in the year 2005.
    Even more staggering, the number of consumers filing for 
bankruptcy has increased by 609 percent. These figures have 
far-reaching implications. Too many Americans across all 
economic strata are saddled with high interest payments on 
consumer debt, impeding them from accumulating wealth and 
achieving their financial goals, including sending children to 
college and saving money for retirement.
    This inquiry today falls squarely in line with the 
Subcommittee's long tradition of investigations designed to 
protect the American consumer. During my tenure as Chairman, 
this Subcommittee conducted similar bipartisan, consumer 
protection inquiries that uncovered unconscionable, often 
criminal, schemes in the refund anticipation loan and credit 
counseling industries. Those investigations exposed how many 
low income Americans become mired in debt and pay usurious 
interest rates and exorbitant fees to unscrupulous lenders who 
exploit their lack of access to low-cost lending.
    Although the practices at issue today are not criminal 
schemes, they clearly have had a devastating impact on the many 
families who are mired in debt. And credit opportunities that 
look like a helping hand actually become snares that sink the 
consumer into further depths of debt.
    High interest rates, hefty fees, and crippling penalties 
impede more and more hard-working families from pursuing the 
American dream. This problem is only compounded by the often 
intractable and jargoned disclosures of credit card terms, 
which are impenetrable to the average consumer. Too many 
families, not surprisingly, feel that the credit system is 
rigged against them, and it is time the industry cleaned up its 
act.
    It is not lost on me that over the past 20 years the credit 
card industry has created financial opportunities for countless 
Americans by extending credit to a far broader pool of 
borrowers than other lenders, including many high-risk 
borrowers who would not otherwise have access to credit. But 
with these increased opportunities have also come greater 
complexity and greater vulnerability.
    Credit cards are no longer one-size-fits-all and not every 
borrower knows, or is even told, which is the best, most 
affordable card for their particular needs. Interest rates can 
increase in a moment's notice, interest charges grow by leaps 
and bounds, and the credit that once promised economic 
opportunity all too often portends financial ruin.
    In light of these fundamental market changes and the 
growing complexity of credit card terms, we need to do more and 
take a closer look at certain industry practices, including the 
adequacy of disclosure, the application of high penalty 
interest rates to previous credit card balances, and the issue 
of trailing or residual interest which the Chairman has 
discussed.
    The disclosures contained in credit card agreements are 
written by and for lawyers with an eye more toward staving off 
litigation rather than educating consumers. Too often consumers 
are caught unaware by important terms buried deep inside dense, 
fine-print contacts, replete with interminable sentences and 
complex jargon.
    For example, one credit card disclosure offers us the 
following: ``For each balance, the Balance Subject to Finance 
Charge on the statement is the average of the daily balances 
during the billing period. If you multiply this figure for each 
balance by the number of days in the billing period by the 
applicable daily periodic rate, the result is the periodic 
finance charges assessed for that balance, except for minor 
variations caused by rounding.''
    After wading through that morass, it should come as no 
surprise to learn that the GAO recently reported that 
disclosures are sometimes written at the 27th-grade level. I 
can only assume that one would need, after 12 years of grade 
school and 4 years of college, a 4-year medical degree, a 5-
year Ph.D., and a 2-year MBA to fully grasp those particular 
provisions.
    Former Supreme Court Justice Louis Brandeis got it right 
when he said ``Sunlight is the best disinfectant.'' My fear is 
that the average credit card's complexity has vitiated the 
traditional disclosure's effectiveness, and consumers are being 
left in the dark. In many ways, the Schumer Box, which is the 
box that you see on the forms that is supposed to describe 
terms and conditions, has more accurately become or needs to 
become the Schumer Pamphlet. That does not make sense.
    We must all work to ensure that disclosures are made in a 
user-friendly, common-sense, straight forward manner and are 
drafted not with an eye toward fending off litigation but 
toward educating consumers regarding their rights and 
obligations under the card.
    Turning to the subject of finance charges, two practices in 
particular contribute to the public's impression that credit 
card companies design interest rates specifically to entangle 
the unsuspecting consumer. I'm talking first about the 
application of high penalty interest rates to previous credit 
card balances. For example, a consumer will make a series of 
purchases on a card with a 10 percent interest rate. Later, if 
the credit card company reprices his or her account, she may 
actually end up paying off that debt at a penalty rate of 30 
percent. Many consumers think that imposing post hoc materially 
higher interest rates on prior balances is a misleading bait 
and switch.
    A second practice--known as trailing or residual interest--
which the Chairman has discussed and fully described, is also 
of concern. In other words, this is the practice where, even if 
the consumer did exactly as the bill instructed--paid off the 
entire balance, let's say, on March 20--she would still be 
responsible for the interest that accrued after she received 
her statement--that is, from March 1 through March 20. The 
interest charges would be compounding while her check was in 
the mail.
    Better disclosure is one obvious answer here, perhaps even 
something as simple as a line on your bill that says, ``In 
order to pay your balance in full, please remit the following 
sum by a certain date.''
    Regardless, something must be done. To be sure, credit card 
companies provide absolutely vital services for American 
consumers, employ over 100,000 Americans of all stripes, and 
are a sizeable component of the pension plans that many 
Americans rely on in retirement. But as one prominent industry 
insider recently remarked to me, ``The industry has gone too 
far, pushed too far, and needs to clean up its act.''
    Fortunately, some of the work has begun. Several credit 
card companies have recognized the inadequacies of their 
disclosures and are eager to propose new formats. Moreover, the 
Federal Reserve plans to roll out new disclosure requirements 
later this year. I look forward to reviewing those regulations, 
and I urge the Fed to draft regulations that will provide some 
much-needed sunlight to credit card disclosures.
    Moreover, at my direction, my staff has reached out to 
credit card companies to find common sense solutions to these 
challenges. I'm happy to report that several issuers have 
assured us that they are reviewing certain policies and 
practices. I applaud Chase for its decision last month to 
eliminate the odious practice known as double-cycle billing. 
Also, just yesterday Chase announced a major overhaul of its 
over-the-limit fees, specifically that it will no longer charge 
such fees after 90 days.
    Similarly, Citi deserves praise for its announcement last 
week that, in its words, ``A deal is a deal''--as long as the 
cardholder upholds her end of the card's terms, Citi will not 
reprice her card more than once every 2 years.
    These are all important steps. More must be done. Clearly, 
this hearing, I think, has played a major part in instigating 
change.
    And again I thank the Chairman for his vision and his 
leadership, and I look forward to creating a more consumer 
friendly lending environment in the figure.
    Thank you, Mr. Chairman.
    [The prepared statement of Senator Coleman follows:]
                  OPENING STATEMENT OF SENATOR COLEMAN
    Mr. Chairman, I'd like to start by thanking you not only for 
initiating this examination into certain credit card industry 
practices, but also--more broadly--for your continued and tireless 
advocacy on behalf of the American consumer. You have a long and 
distinguished history of looking out for the little guy, and this 
hearing is an important part of that laudable record.
    Credit card debt is often seen as a very personal problem, but the 
burgeoning level of household debt in America has implications for the 
entire nation. Over the past 25 years, U.S. household debt has 
ballooned from a collective $59 billion in 1980 to approximately $830 
billion in 2005. Even more staggering, the number of consumers filing 
for bankruptcy has increased by 609 percent. These figures have far-
reaching implications. Too many Americans across all economic strata 
are saddled with high interest rate payments on consumer debt, impeding 
them from accumulating wealth and achieving their financial goals, 
including sending children to college and saving for retirement. This 
inquiry falls squarely in line with the Subcommittee's long tradition 
of investigations designed to protect American consumers. During my 
tenure as Chairman, this Subcommittee conducted similar bipartisan, 
consumer-protection inquiries that uncovered unconscionable, often 
criminal, schemes in the refund anticipation loan and credit counseling 
industries. Those investigations exposed how many low-income Americans 
become mired in debt and pay usurious interest rates and exorbitant 
fees to unscrupulous lenders who exploit their lack of access to low-
cost lending. Although the practices at issue today are not criminal 
schemes, they clearly have a devastating impact on the many families 
who are mired in debt--and credit opportunities that look like a 
helping hand actually become snares that sink the consumer into further 
depths of debt. High interest rates, hefty fees, and crippling 
penalties impede more and more hard-working families from pursuing 
their American dream. And this problem is only compounded by the often-
intractable and jargoned disclosures of credit card terms, which are 
impenetrable to the average consumer. Too many families find themselves 
ensnared in a seemingly inescapable web of credit card debt, and not 
surprisingly feel that the credit card system is rigged against them.
    It is not lost on me that over the past 20 years, the credit card 
industry has created financial opportunities for countless Americans by 
extending credit to a far broader pool of borrowers than other lenders, 
including many high-risk borrowers who would not otherwise have 
obtained credit. But with these increased opportunities have also come 
greater complexity and greater vulnerability. Credit cards are no 
longer one-size-fits-all, and not every borrower knows, or is even 
told, which is the best, most affordable, card for their particular 
needs. Interest rates can increase in a moment's notice, interest 
charges grow by leaps and bounds, and the credit card that once 
promised economic opportunity all too often portends financial ruin.
    In light of these fundamental market changes and the growing 
complexity of credit card terms, we need to do more and take a closer 
look at certain industry practices, including the adequacy of 
disclosure, the application of high, penalty interest rates to previous 
credit card balances, and the issue of trailing or residual interest.
    The disclosures contained in card agreements are written by and for 
lawyers with an eye more toward staving off litigation rather than 
educating consumers. Too often, consumers are caught unaware by 
important terms buried deep inside dense, fine-print contracts, replete 
with interminable sentences and complex jargon. For example, one credit 
card disclosure offers us the following:``For each balance, the Balance 
Subject to Finance Charge on the statement is the average of the daily 
balances during the billing period. If you multiply this figure for 
each balance by the number of days in the billing period and by the 
applicable daily periodic rate, the result is the periodic finance 
charges assessed for that balance, except for minor variations caused 
by rounding.''
    After wading through that morass, it should come as no surprise to 
learn that the Government Accountability Office recently reported that 
disclosures are sometimes written at a``twenty-seventh-grade level.'' I 
can only assume that one would need--after twelve years of grade school 
and four years of college--a 4-year medical degree, a 5-year PhD, and a 
2-year MBA to fully grasp those particular provisions.
    Former Supreme Court Justice, Louis Brandeis, got it right when he 
said``Sunlight is the best disinfectant.'' My fear is that the average 
credit card's complexity has vitiated the traditional disclosure's 
effectiveness, and consumers are being left in the dark. In many ways, 
the Schumer Box has more accurately become the Schumer Pamphlet. We 
must all work to ensure that disclosures are made in a user-friendly, 
common-sense, straight-forward manner, and are drafted not with an eye 
toward fending off litigation, but toward educating customers regarding 
their rights and obligations under the card.
    Turning to the subject of finance charges, two practices in 
particular contribute to the public's impression that credit card 
companies design interest rates specifically to entangle unsuspecting 
consumers. I'm talking first about the application of high, penalty 
interest rates to previous credit card balances. For example, a 
consumer will make a series of purchases on a card with a 10 percent 
interest rate. Later, if the credit card company``re-prices'' her 
account, she may end up paying off that debt at a``penalty rate'' of 30 
percent. Many consumers think that imposing post hoc materially higher 
interest rates on prior balances is a misleading bait and switch.
    A second practice--known as``trailing'' or``residual'' interest--
also illustrates how consumers can get caught in a seemingly never-
ending cycle of debt. Consider a cardholder who spent $1,000 on holiday 
gifts in December and carried that $1,000 balance through February. At 
the end of February, she would receive a bill for the $1,000 principal 
plus some interest charges, which would be due at some point in March, 
for instance March 20th. Even if she did exactly as the bill 
instructed--paying off the entire balance on March 20th--she would 
still be responsible for the interest that had accrued after she 
received her statement (that is, from March 1st through March 20th). 
The interest charges would be compounding while her check was in the 
mail. Better disclosure is one obvious answer here, perhaps even 
something as simple as a line on your bill that says:``In order to pay 
your balance in full, please remit the following sum by March 20th.''
    Regardless, something must be done. To be sure, credit card 
companies provide absolutely vital services for American consumers, 
employ over one hundred thousand Americans of all stripes, and are 
sizeable components of the pension plans that many Americans rely on in 
retirement. But as one prominent industry insider recently remarked to 
me,``The industry has gone too far, pushed too far, and needs to clean 
up its act.''
    Fortunately, some of this work has already begun. Several credit 
card companies have recognized the inadequacies of their disclosures 
and are eager to propose new formats. Moreover, the Federal Reserve 
plans to roll out new disclosure requirements later this year. I look 
forward to reviewing those regulations, and I urge the Fed to draft 
regulations that will provide some much needed sunlight to credit card 
disclosures.
    Moreover, at my direction, my staff has reached out to credit card 
companies to find common-sense solutions to these challenges. I am 
happy to report that several issuers have assured us that they are 
reviewing certain policies and practices. I applaud Chase for its 
decision last month to eliminate the odious practice known as double-
cycle billing. Also, just yesterday Chase announced a major overhaul of 
its over-the-limit fees, specifically that it will no longer charge 
such fees after 90 days.
    Similarly, Citi deserves praise for its announcement last week 
that, in its words,``A deal is a deal''--as long as a cardholder 
upholds her end of a card's terms, Citi will not``re-price'' her card 
more than once every two years.
    These are all important steps, and I look forward to working with 
our witnesses and with Chairman Levin to create a more consumer-
friendly lending environment in the future.

    Senator Levin. Thank you, Senator Coleman. Again thank you 
to you and your staff for the very effective role that you and 
they have played in this hearing.
    I would now like to welcome our first panel of witnesses 
for today's hearing. Wesley Wannemacher, a consumer from Lima, 
Ohio; and Alys Cohen, a staff attorney with the National 
Consumer Law Center's Washington office.
    Mr. Wannemacher is a husband and a father. In December he 
contacted the Subcommittee to tell his story of how high fees 
and penalty interest rates charged by his credit card company 
increased his $3,000 in wedding expenses into a $10,000 debt.
    I want to thank you, Mr. Wannemacher, for traveling here 
today.
    Ms. Cohen is here representing several consumer advocacy 
organizations as an expert in credit and lending issues. Ms. 
Cohen, I want to welcome you to today's hearing. We look 
forward to hearing your perspective on the impact of credit 
card practices on consumers throughout the country.
    Pursuant to Rule 6, all witnesses who testify before this 
Subcommittee are required to be sworn, and at this time I would 
ask both of you to please stand and to raise your right hand.
    Do you swear that the testimony that you will give before 
this Subcommittee will be the truth, the whole truth, and 
nothing but the truth, so help you, God?
    Mr. Wannemacher. I do.
    Ms. Cohen. I do.
    Senator Warner. Mr. Chairman, could I just make an 
unanimous consent request that I put an opening statement in to 
follow Senator Coleman?
    Senator Levin. Of course.

              OPENING STATEMENT OF SENATOR WARNER

    Senator Warner. He talked about firms that had made 
corrective practices. In my State, we have the Capital One, and 
they never got involved in the question of double cycle 
billing, and they were among the very first to discontinue the 
universal default practice.
    I thank the Senator. I would like to expand those remarks 
for the record.
    [The prepared statement of Senator Warner follows:]
                  OPENING STATEMENT OF SENATOR WARNER
    Thank you Mr. Chairman for holding this hearing on credit card 
practices.
    There are many concerns that people have raised about the credit 
card industry and its practices, and I think it is important that these 
concerns are given due consideration. We need to be sure consumers are 
protected. However, as we discuss these concerns, we should not forget 
about the many benefits that the credit card industry provides 
consumers, businesses, and our economy. Our financial system is the 
best in the world, and the financial institutions before us today have 
played a role in the growth of our economy. It is also worth noting 
that there is tremendous competition in the credit card industry, which 
can lead to more complex products as credit card companies adjust to 
remain competitive in the marketplace.
    As we discuss the development of various practices in the industry, 
we must remember the convenience and flexibility credit cards offer 
consumers to purchase goods and services while allowing them to manage 
those purchases through monthly payments. You may recall that in the 
1980's all credit cards looked very similar. Nearly all had an interest 
rate of around 20 percent and an annual fee of $30-$50. Most 
importantly, only about one-third of Americans could qualify for a 
credit card. Today, interest rates are lower and many cards are 
available without an annual fee, saving consumers hundreds of millions 
of dollars. According to a 2005 GAO report, the average interest rate 
for credit card purchases was 12.3 percent. And now, the benefits of 
credit cards are available to a much larger segment of America. Once 
only offered to a select few, now approximately 75 percent of Americans 
have a credit card.
    With these advancements, however, we must not lose sight of the 
fact that the increased complexity of credit cards can have negative 
effects on consumers. Unfortunately, as these products and technology 
have changed, many of the disclosures have not. As with the case of 
Wesley Wannemacher who we will hear from today, cardholders can find 
themselves in financial distress if they do not understand the 
consequences that late payments may have on increasing their interest 
rates or fees. I understand the Federal Reserve is in the process of 
re-writing the required disclosures for credit cards and that the 
industry is supportive of this effort. I hope that the Federal Reserve 
can act expeditiously to make the necessary changes.
    While there are members of the credit card industry that may use 
questionable practices, I think it is important to recognize that not 
all companies are the same. Capital One based in McLean, Virginia, 
indicates that it has never engaged in a practice known as ``double-
cycle billing'' and some time ago abandoned ``universal default.'' I am 
happy to learn that recently other credit card companies have changed 
their practices to provide more clarity for their credit card products. 
The Federal Reserve and the credit card industry must continue to work 
together to better serve consumers.
    In closing Mr. Chairman, thank you for raising these important 
issues to our attention.

    Senator Levin. We would be happy, of course, to receive 
that and any other opening statements. We are sorry that time 
does not allow them now. This is, I guess, the tradition here 
for everyone to have an opening statement. But perhaps people 
can weave those into their time when they are recognized.
    Mr. Wannemacher, we will have you go first, and you may 
proceed.

    TESTIMONY OF WESLEY WANNEMACHER,\1\ CONSUMER, LIMA, OHIO

    Mr. Wannemacher. Mr. Chairman, and Members of the 
Subcommittee, thank you for having me here today.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Wannemacher appears in the 
Appendix on page 62.
---------------------------------------------------------------------------
    Senator Levin. If you could try to limit your remarks, both 
of you, to 5 minutes, we will put your entire statements in the 
record.
    Mr. Wannemacher. First of all, I would like to thank 
everyone, especially my wife and family, who have been so 
supportive the last few years. And I would also like to reach 
out to the millions of people who have gone through or are 
currently going through situations similar to my own.
    My name is Wes Wannemacher. I am married and raising a 
small family. I wish I could come here and tell you that I have 
paid all my bills on time, but my goal is not to convince you 
that I am the most responsible adult in the United States.
    Toward the end of 2001, my wedding was approaching. As a 
young adult, I really had no idea just how much a wedding would 
cost. I had applied for and received a credit card from Chase 
with a $3,000 limit. This was quickly reached after paying for 
flowers and a photographer. I charged a total of $3,200 on this 
card and never charged anything beyond that. I have been trying 
ever since to pay it off.
    I could tell I was going to have problems paying these and 
other debts. Debt seems to invoke a feeling of hopelessness, 
unlike any other problem I've encountered. When a creditor 
calls you on the phone and you make a minimum payment, you know 
that you have made no real progress and that in one more month 
they will call again.
    From 2000 to 2004, I learned what many adults already know. 
As your pay increases, your expenses increase as well. During 
those 2 years I tried to make payments to Chase. I had not 
asked for a payment plan or any method to resolve the balance, 
but I made whatever minimum payment they would take when they 
called on the telephone. These payments were usually close to 
$200. With limited funds, you have to prioritize, and since 
Chase could not turn off my lights or kick us out of our home, 
there would be times that their payment would be the lowest 
priority.
    In the last half of 2004, my wife left her job because of 
complications with her pregnancy and my father asked me to move 
home and help out with the family business.
    As 2005 started, we had another baby and we had moved back 
to our hometown. I realized that my problems with Chase would 
only get worse unless I took action. Early in 2005, I called 
Chase and asked if they would take $3,000 to settle the debt 
which, by this point, was $4,600. I offered $3,000 because it 
was my original credit limit and I had never gone much past 
that.
    Unfortunately, Chase was unwilling to settle for $3,000. I 
should not speculate why they declined my offer, but I would 
guess that the person on the other end of the phone had a goal 
to get as much money as possible.
    This meant I was back to making payments and watching the 
balance rise. In 2006, my balance had exceeded $5,300 and I 
knew that I needed to make them work with me before I ended up 
in bankruptcy. I called and asked if there was something they 
could do to help me. Eventually, I was offered a payment plan. 
The premise of the plan was to pay off the $2,300 that was past 
the credit limit. However, the representative was very clear 
that once I got the balance down to $3,000 I would be taken off 
this plan and the interest rate would go back to normal.
    While I was making regular payments of between $140 and 
$210 a month, my stepdaughter was enrolled in therapies that 
were not covered by our new insurance plan and she had her 
tonsils removed. Before I knew it, I had a very large medical 
debt as well. With these offices calling and asking for 
payment, we were quickly overwhelmed. In December 2006, I 
gathered up all the statements from the various companies I 
owed money to and took them to a credit counselor.
    My credit counselor sent proposals to everyone. Chase was 
the only creditor who declined her offer. Despite filling out a 
power of attorney, Chase made many attempts to contact me 
directly. I would instruct representatives who called me on the 
phone that they needed to contact my credit counselor. Many 
times they would say things to try to pressure me into making 
more payments directly.
    Around this time I saw a news article mentioning Senator 
Levin and his desire to look into cases like mine. The article 
mentioned that people who feel they have paid excessive fees 
and charges should contact his office, so I did.
    Over the last few months, Chase representatives have tried 
to convince me to not enroll in debt management and asked for 
direct payments. Finally, in February 2007, my credit counselor 
offered Chase a payment plan of $130 a month for 47 more 
months, totaling $6,110. Chase accepted. At the same time I was 
working with Senator Levin's office which, after reviewing all 
of my account information, asked if I would testify here today.
    I was asked on a Thursday to testify today. On the 
following Monday a representative of Chase called me on the 
telephone to let me know that they had reviewed my account and 
decided they are forgiving my balance. I asked the 
representative if my plan to testify today had anything to do 
with their change of heart. The representative assured me that 
their decision was based solely on a review of my account.
    I agreed to come testify because my primary concern is for 
the future of my own children. I am only here to let people 
know what happened to me. From September 2001 to February 2007 
I have paid Chase over $6,300. If they had not reviewed my 
account, I would have paid another $6,110 on a $3,200 debt.
    Thanks for listening.
    Senator Levin. Thank you, Mr. Wannemacher. Ms. Cohen.

 TESTIMONY OF ALYS COHEN,\1\ STAFF ATTORNEY, NATIONAL CONSUMER 
                           LAW CENTER

    Ms. Cohen. Mr. Chairman, Ranking Member Coleman----
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Cohen appears with an attachment 
in the Appendix on page 64.
---------------------------------------------------------------------------
    Senator Levin. He will be back. There is a joint session of 
Congress that we have at the moment, so he has a conflict, as a 
number of us do. But he will be back.
    Ms. Cohen. Mr. Chairman, Ranking Member Coleman, and 
Members of the Subcommittee, thank you very much for inviting 
me.
    I am testifying today on behalf of the low-income clients 
of the National Consumer Law Center, as well as Consumer 
Action, Demos, National Association of Consumer Advocates, and 
U.S. Public Interest Research Group.
    We also thank Chairman Levin and Ranking Member Coleman for 
commissioning a landmark GAO report on credit cards.
    We have a debt crisis in America and its source is the 
practices of the credit card industry. Credit card debt has 
caused consumers to file bankruptcy more often, reduce savings 
to a historical low point, and spend the equity in their homes 
to pay off credit card debt.
    Credit cards are a tremendous convenience for consumers who 
are well off and can pay their balances every month. However 
revolvers, who do not have the means to pay off a credit card 
balance every month, make up 80 percent of issuer revenues. 
Revolvers are socked with penalty rates averaging 27 percent 
APR and fees averaging over $30. These fees stack up, making it 
difficult for borrowers to pay off their balances.
    This squeeze on borrowers has been called the sweat box by 
Professor Ronald Mann. Such back-end pricing protects issuers 
from losses, but it does not protect borrowers' assets. Credit 
cards are issued without any real determination of the 
borrower's ability to repay and these fees only push the most 
vulnerable among us further into mountains of debt. In 
addition, high interest rates paid by everyone allow the 
convenience users to subsidize the revolvers to the extent the 
fees do not already take care of that.
    It is essential to note that credit card debt primarily is 
incurred for basic expenses--medical bills, auto repairs, 
utilities, and groceries. They are a safety net for many 
Americans.
    Demos and the Access Project report that 29 percent of 
revolvers have charged medical debt. According to the National 
Council of La Raza, almost 39 percent of Latinos reported basic 
living expenses as contributing to credit card debt.
    Credit card companies were not always so free to engage in 
abusive behavior. Deregulation began in 1978 with the Supreme 
Court's decision in the Marquette case that gave national banks 
the green light to bring the pricing rules from their home 
States across State lines. In 1996, the Supreme Court's Smiley 
case uncapped the amount of fees that credit card banks can 
charge as long as their home States allow it.
    The OCC's preemption of State laws that specifically 
regulate credit cards has further weakened consumer 
protections. Because agency funds for all the bank regulators 
come from the regulated banks, there is a race to the bottom so 
that agencies can court banks to choose them. States are left 
on the sidelines and Federal law primarily is limited to 
disclosure rules, which are inadequate.
    Here are some real-world examples of credit card abuses. A 
service member opened a credit card account with First Premier 
Bank last November. The credit card had a $250 credit limit and 
the bank charged $178 in fees. As of January 25, she owed a 
balance of $379.45 for almost $85 worth of purchases.
    Another client bought a baby crib for $158 just after 
coming out of bankruptcy and charged it to a Capital One card 
with a $200 limit. He has paid over $700 and is being sued for 
over $3,500 for just this one purchase.
    Allocation of payments also is a problem. A client who was 
assessed a balance transfer fee of $250 was charged 18.9 
percent on that purchase so that this balance continued to 
increase while payments were applied to pay off the lower rate 
portion of his account transferred from elsewhere.
    Another classic example, very similar to Mr. Wannemacher's, 
is Josephine McCarthy's, where on one account she had over 
$5,300 in a balance on only $218 in purchases. On another card 
she owed over $2,600 for $203 in purchases.
    Other practices about which I can provide more information 
include penalty rates and universal default, including where 
rates increase based only on credit score changes, unilateral 
changes in terms, and mandatory arbitration clauses.
    We call on policymakers to take a stand against industry 
abuses. We need a fair and functioning market. People have the 
right to expect that.
    We look forward to working with Chairman Levin, Ranking 
Member Coleman, and other Members of this Subcommittee on 
further examination of the credit card industry.
    I look forward to your questions.
    Senator Levin. Thank you very much, Ms. Cohen.
    Mr. Wannemacher, you have accepted personal responsibility 
for getting into debt. You did that again today. You have been 
consistent in acknowledging that. You tried to pay the debt 
instead of going into bankruptcy, and over the next 6 years 
after you incurred that debt you made payments that roughly 
averaged about $1,000 per year.
    Were you surprised that those payments you made never 
seemed to lower how much you owed on the card?
    Mr. Wannemacher. Yes. At first I was very surprised and 
then sort of became immune to the effect probably 3 or 4 years 
in. There's a basic assumption that I had that there is 
protection against people treating you unfairly. It just really 
seemed like there was no end in sight.
    I am glad we are here today to discuss it, but I think more 
needs to be done because I think there are plenty of people 
that have an example similar to mine, or worse.
    Senator Levin. The records that you have given us show 
that, in 2005, your interest rate reached 30 percent. What is 
it like, once you are in debt, to try to pay that debt off when 
the interest on it is 30 percent annually?
    Mr. Wannemacher. Making payments on a debt, it feels like 
every month you take one step forward but two steps back. You 
watch that 30 percent and the other fees just continue to grow 
your balance. It is a feeling similar to riding in a submarine 
when the water pressure is really high. Every time the phone 
would ring it gets hard to breathe and you are not sure whether 
you should even answer it or not.
    Senator Levin. You have been charged $1,500 in over-limit 
fees. The records show that you went over your limit by $200. 
So on a $200 overage, you have been charged over seven times 
that amount in penalties. You never made another purchase after 
the beginning of 2002 but you were charged an over-limit fee 
almost every month for the next 4 years. And 47 times, again, 
you were charged with that fee.
    In some months, such as July 2002, it was the over-limit 
fee that kept your account over the $3,000 limit, so that you 
would then be charged another over-limit fee.
    Did you realize going in, when you took this credit card, 
and made a deal with them, that for going over the credit limit 
by $200 that you would be charged over-limit fees repeatedly, 
47 times?
    Mr. Wannemacher. No. To me I would view going over-the-
limit as a singular event. Like you have described, doing it 
three times or having the fees or interest pushing my account 
over-the-limit were all things that I was unaware could happen.
    And then once they did, I guess I was not surprised, 
because there really does not seem to be anywhere to go to 
complain. Chase is a large corporation and navigating through 
phone systems or trying to get a representative on the other 
end of the line who would be sympathetic to your situation when 
you owe them, or when the balance indicates an amount similar 
to what I had, is often difficult.
    Senator Levin. On the fees that you were charged, both 
over-limit fees and late fees, they were added to your 
outstanding balance and then interest was charged on those 
fees. Were you aware of the fact that the fees that you were 
charged, the penalty fees, would increase your interest 
charges?
    Mr. Wannemacher. No, I was not aware. It was surprising at 
first but, as I mentioned earlier, you become immune to it and 
you know that--there is times where it seems like no matter how 
much you pay, they have got you and you are going to continue 
to pay until they are happy somehow.
    Senator Levin. To avoid a late fee you had to pay, like 
other credit card holders, a specified minimum on the bill. 
Some months that minimum was extremely high. For instance, in 
March 2005, the bill stated that you owed about $4,400 and you 
had to make a minimum payment of $1,600, a little more than a 
third of the bill. Did that high of a minimum mean that you 
were virtually always going to have a late fee?
    Mr. Wannemacher. At the time I did not realize--to me, 
paying late would have meant the money came in afterwards, not 
that there was two conditions, that I not only had to pay on 
time but, as well, I had to pay the amount that they were 
asking for. So I was unaware that while I was paying or making 
payments over the phone that I would be assessed a late fee.
    Senator Levin. Can you describe how your inability to pay 
off this growing credit card debt affected your business or 
your family?
    Mr. Wannemacher. It affected probably my family more than 
anybody else. I have four children total, but they have to 
share two bedrooms between the four of them. We were homeowners 
in 2002 and 2004, but have been unable to get preapproved for a 
home loan while I have this debt. It is difficult. There are 
things, I know my oldest son needs braces, which an 
orthodontist would take a payment plan probably very close to 
what I am paying Chase or what I had been paying Chase.
    So there are all kinds of more productive or positive ways 
I feel it could have been spending that money.
    Senator Levin. You say Chase called and said that the debt 
was being dropped. That call was made to you within the last 2 
weeks wasn't it? What did they tell you when you asked why it 
was dropped?
    Mr. Wannemacher. I asked the representative if my agreeing 
to come here and testify today had anything to do with it, 
mostly out of curiosity. She assured me that was not the fact, 
that she had reviewed my account and that my offer of $3,000, 
when it was made, should have been taken. They had counter 
offered $3,500 which at the time I could not afford. Since I 
was unable to resolve the issue at that time, the balance 
stayed the same. I think I made a $300 or $400 payment at that 
time and then continued to make the minimum payments.
    But she indicated that after reviewing my account, at that 
time they should have taken the $3,000 that I offered. And 
since they had not, that the payments and everything that I had 
made since that point would cover the balance.
    Senator Levin. Do you think it is a coincidence?
    Mr. Wannemacher. I cannot really speculate on what is going 
on inside the walls at Chase, but it is a very suspicious 
coincidence, in my mind.
    Senator Levin. Ms. Cohen, is Mr. Wannemacher's experience 
an unusual example? Or has the National Consumer Law Center 
seen many other examples of this type of problem?
    Ms. Cohen. Senator, we regularly see borrowers who have too 
much debt that they cannot afford. Credit cards are no 
different. And often, the fees and the penalties do outweigh 
the initial charges that were made.
    Senator Levin. Is it reasonable to think that a consumer 
with financial difficulties could ever pay off a debt that 
grows at a 30 percent rate?
    Ms. Cohen. I think it is very challenging, as you have 
heard from Mr. Wannemacher. His credit card debt is not his 
only debt. Let me give you one brief example.
    If you have only one card at 18 percent APR and your debt 
is $4,500, and you make a minimum payment of 2 percent, it will 
take you 532 months to repay that debt and you will pay $12,431 
in interest.
    Senator Levin. Ms. Cohen, in your printed testimony, you 
refer to a case called Discover v. Owens.
    Ms. Cohen. Yes.
    Senator Levin. In that case a woman named Ruth Owens 
charged about $2,000 on her credit card that had a $1,900 
limit. So she went $100 over the limit. Her credit card company 
began to charge her interest, over-limit fees, and late fees. 
And for 6 years, from 1997 until 2003, she got one cash advance 
for $300 but otherwise did not use the card.
    So it is very similar to this case. By 2003, after 6 years 
of payments, she had paid a total of about $3,500 on her $2,000 
debt but she still owed $5,600 on her $2,000 debt.
    So, for her $2,000 debt, the credit card company charged 
her $6,000 in interest, $1,500 in over-limit fees, and $1,200 
in late fees. The credit card company took her to court in Ohio 
to collect what they claimed she still owed.
    The court said they were not going to find for the 
plaintiff, they were going to find for her. Here is what they 
said: ``The Court finds that the repeated 6-year accumulation 
of over-limit fees to be manifestly unconscionable. The 
determination of unconscionability is to be made in light of a 
variety of factors, including the sheer harshness of the 
contractual terms together with unequal bargaining position 
which renders certain consumer contracts suspect and worthy of 
judicial revision.''
    The Court later said that, ``The defendant, the credit card 
holder, has clearly been the victim of plaintiff's 
unreasonable, unconscionable, and unjust business practice.''
    The Court found, in other words, that over-limit fees of 
the type which are repeatedly imposed is unconscionable. But 
that practice has not ended, has it? Ms. Cohen, do you know?
    Ms. Cohen. As I understand it, the practices continue, 
which is why we heard the recent announcement about the change 
in those practices from one issuer.
    Senator Levin. One issuer has just announced within the 
last couple days?
    Ms. Cohen. It was my understanding that Chase announced 
they were at least changing their practice with regard to over-
limit fees, but no, the practice has not changed.
    Senator Levin. My time is long gone.
    The rules that apply, that are given to the credit card 
applicant, are incredibly complicated; are they not? Could you 
just give us a very brief description of just how murky, 
complicated, incomprehensible these rules are?
    Ms. Cohen. I think we heard before that some of them are 
written at the 27th-grade level. Readability experts say that 
things need to be written at the eighth-grade level in order to 
be universally understandable. And so we have got a long way to 
go.
    The other thing is that even if you understand your 
disclosures, the terms can be completely unfair and you have no 
way to change that with your credit card issuer.
    Senator Levin. What is the 27th-grade level? What does that 
mean?
    Ms. Cohen. It was all those graduate degrees we heard about 
from Senator Coleman.
    Senator Levin. Thank you. Senator McCaskill.
    Senator McCaskill. Thank you, Senator Levin.
    Mr. Wannemacher, I think that the moral of your story is 
that for everyone out in America what you need to do if you are 
having a tough time is to call Senator Levin's office. It is 
like winning the lottery to call Senator Levin. That is what is 
called good constituent service, Senator.
    Senator Levin. And he is not even my constituent.
    Senator McCaskill. I do not know that I can get up to that 
standard.
    A couple of things. First, Mr. Wannemacher, I want to ask 
you while you were struggling with all this, I am willing to 
bet a dollar to donuts that you were solicited for additional 
cards.
    Mr. Wannemacher. I still receive at least one a week or 
more solicitations. But at the same time that I cut up the 
Chase card, my wife and I decided that we would not finance 
anything unless it were a house, education, or car and we have 
tried to stick to that rule as best we could since 2002.
    Senator McCaskill. Were there times when you were 
struggling to pay all of these bills and the same companies 
that were calling you on the phone to pay the bills were 
sending you solicitations in the mail to take another card?
    Mr. Wannemacher. Yes. I have struggled to pay all of my 
bills for quite a while now, but to me, I would see myself as a 
high risk. But at the same time, high risk also means high 
profit potential, high interest rates. So I cannot blame them 
but I do have the choice not to apply for any more cards and I 
choose not to.
    Senator McCaskill. I have to be careful here today because 
I have incredible love and respect for my mother but I have 
lived through with my mother a lot of the things that you have 
talked about this morning. My dad had a debilitating brain 
injury and my mother had never worked outside of the house. And 
so all of us tried to rally around and help her. She is a very 
strong, independent woman.
    The way that she thought she could see her way through this 
was to use credit cards.
    Fast forward several years and my mother was in what I 
would term a debilitating depression about her inability to 
manage her personal finances because what had happened to her 
is very similar to what had happened to you, being solicited 
for credit cards.
    Now keep in mind the entire time that they were sending her 
these credit cards, her credit rating had to have been not good 
because she was really struggling to make ends meet.
    Once my sisters and I figured out how bad it was, we 
gathered everything together and took over, with her kicking 
and screaming the whole way about how she can do on her own, 
she can do it on her own. If you met her, you would understand 
what I was saying. She literally was kicking and screaming all 
the way.
    We began trying to manage it.
    The interesting thing is even after we began to try to 
manage it, it never ended. Just recently I had been paying on 
some of her bills for some time and, I will confess, had not 
been looking at the bills closely. And this was a card that I 
had torn up and written them this card will no longer be used. 
And I realized there was a recurring charge on it.
    I figured out what happened. They had sent her one of those 
checks in the mail, cash this check, this is your money. And 
she had not read the fine print.
    I am curious, Ms. Cohen, have you all seen very much of 
that, where you get one of these checks in the mail and 
somebody who is struggling financially and maybe not paying as 
close attention as they should, cashes one of these checks. And 
then they have a recurring charge on their credit card month 
after month after month. And getting it off there is not an 
easy task. It is a little bit like the man you talked about in 
your testimony that got the Diners Club membership, even though 
he said he did not want it. And they kept charging him for the 
Diners Club membership.
    Can you speak a little bit about these checks that they 
send you in the mail that obligate you to something ongoing, 
even though it looks like they are giving you money?
    Ms. Cohen. My understanding is that in some contexts those 
checks are called live checks. And you get them and you cash 
them and you have obligations associated with them.
    It is also my understanding that credit card issuers, 
mortgage companies, and other lenders use them to get their 
foot in the door and they are the first step to increasing your 
debt through other kinds of loans through the company.
    Senator McCaskill. As far as you know, at the Consumer Law 
Center, has there ever been any legal action concerning these 
checks that are sent as if they are giving you money, which are 
really you signing up for debt?
    Ms. Cohen. I do not have any information about that but I 
would be happy to get back to you.
    Senator McCaskill. I think it is just unconscionable that 
they are sending these checks to people that they know that are 
financially stressed. It is like sending a six pack of beer to 
somebody who is on their 30th day of sobriety and saying why 
don't you just have another drink?
    I am looking forward to the testimony of the next panel.
    On solicitation--and clearly, the irony of all of this is 
that I have done a lot of Internet shopping the last several 
years of my life because I have been campaigning and do not 
have time to go into a store. So I have spent more money than I 
would like to admit on my credit cards over the last couple of 
years and I pay the bill as quickly as I can figure what it is.
    I have learned with one card company I need to go online 
and pay it because by the time I get the bill in the mail 
sometimes I do not have enough time left to pay without getting 
the penalty, even though I always pay in full. So I have 
learned to go on the Internet and find the bill before I get it 
in the mail just to make sure they do not get that money out of 
me.
    That is a side issue but the irony is you would think I 
would be the customer they are soliciting. To this day I get 
very few solicitations for credit cards because I pay my bills 
every month. I bet my mother still gets two or three a week.
    Thank you, Mr. Chairman.
    Senator Levin. Thank you, Senator McCaskill, very much. 
Senator Warner.
    Senator Warner. Mr. Chairman, I think this is a very 
important hearing and I will join you and follow it in the 
subsequent sessions we have.
    I guess this is what puzzles me a bit. I started my 
inauspicious career as a young lawyer in a firm and dealt with 
banks. I had quite a few experiences with a number of old-time 
bankers and so forth and got an insight into the loaning of 
money. Then oftentimes, not too often fortunately, I would have 
to go to the collection process for defaulted loans and so 
forth.
    But I look at this whole credit system and drawing on that 
background, and it puzzles me why institutions, financial 
institutions, which have such a remarkable history of serving 
America, have gotten into this business and their names 
attached to it, and they either intentionally or otherwise set 
traps to snare these basically younger people and others who 
come in and struggle to pay off these situations.
    I just find it so distasteful. I just wonder why they want 
to be involved in it. Can you touch on what the psychology is, 
Ms. Cohen?
    Ms. Cohen. Thank you for your question, Senator.
    Senator Warner. The GAO, in its report, alludes to this. I 
presume you have seen that GAO report?
    Ms. Cohen. I have seen the GAO report.
    I cannot answer the psychology question but I can answer it 
from a business model perspective. I really think Mr. 
Wannemacher said it best when he said high risk is high profit 
potential.
    If 80 percent of the profits, of the revenues, are coming 
from people like Mr. Wannemacher who cannot pay their bills, 
then the system is built like a house of cards where profit is 
made on one side and the borrower welfare on the other side is 
irrelevant to how much profit is made. They can squeeze and 
squeeze people.
    So as long as the system is set up where that is permitted, 
there is no reason to not follow the incentives in that 
direction.
    Senator Warner. Well, I will pose the same question to the 
panels that follow hereafter. But there has got to be a human 
quotient in this thing. I would not want to be involved with 
any financial institution if that is the job they gave me. I 
would tell them to go packing, find somebody else. I could not 
do with it.
    So we will have to look into that because I do believe 
these hearings, together with--as I understand--our colleagues 
in the Banking Committee, Congress is going to police this 
thing pretty severely and clean it up. So perhaps we can get 
some good help and guidance from the industry, because these 
institutions, major financial institutions, have a long history 
in corporate recognition. I just do not think they want to have 
this sort of thing persist.
    Thank both of you for coming up here today.
    Senator Levin. Thank you, Senator Warner, for your very 
accurate, thoughtful, heartfelt comments.
    Just a couple more brief questions.
    The billing statement that is used by the Bank of America 
explaining how these interest rates are reached is, I think, 
impossible for the average person to understand. I am tempted 
to read it. Maybe I will. It will take 30 seconds.\1\
---------------------------------------------------------------------------
    \1\ See Exhibit 3a. which appears in the Appendix on page 136.
---------------------------------------------------------------------------
    ``Average Daily Balance Method (including new 
transactions): We calculate separate balances subject to 
finance charge for Category C balances and Category D balances. 
We do this by calculating a daily balance for each day in the 
billing cycle, adding all of the daily balances together, and 
dividing the sum of the daily balances by the number of days in 
the billing cycle. To calculate the daily balance for each day 
in this statement's billing cycle, we take the beginning 
balance, add an amount equal to the applicable daily periodic 
rate multiplied by the previous day's daily balance, add new 
transactions, new account fees, and new transaction fees, and 
subtract applicable payments and credits. If any daily balance 
is less than zero, we treat it as zero.''
    That is the only clear thing so far.
    ``If the previous balance shown on this statement was paid 
in full in this statement's billing cycle, then on the day 
after that payment in full date we exclude from the beginning 
balance new transactions, new account fees, and new transaction 
fees which posted on or before the payment in full date, and we 
do not add new transactions, new account fees, or new 
transaction fees which post after that payment in full date.''
    Now do you think the average consumer can understand that, 
Ms. Cohen?
    Ms. Cohen. Everyone laughed while you were reading it, 
which I think is a pretty good answer to that question.
    Senator Levin. I understand that the credit card issuers 
have said that they would like to simplify and clarify the 
disclosure language, and apparently they support an ongoing 
Federal Reserve effort to revise the key credit card disclosure 
regulation known as Regulation Z, and to develop model 
disclosure language that everybody could use.
    If the Federal Reserve did improve credit card disclosures 
in your judgment, Ms. Cohen, would that be enough to cure the 
worst of the problems that we are discussing today? Or is there 
still a need to do more than just better disclosure?
    Ms. Cohen. I do think that disclosure is a piece of the 
picture. The National Consumer Law Center submitted 80 pages of 
single spaced comments to the Federal Reserve on that. So it is 
true that improving the disclosures will help.
    But the real question here is where is the burden? I have 
been here in Washington for almost 10 years and all I hear over 
and over again is let's improve disclosures. What that means is 
the entire burden is on the borrower to take apart the 
description you just gave, understand it for themselves, and 
make a choice in an unfair market.
    So what we really need is better disclosure so people can 
shop, if they shop, and then protections so that unfair 
practices, abuses, destructive lending can be stopped.
    If there were poisonous food or medication put on the 
shelves, no one would say read this and learn that it is poison 
and learn not to buy it. They would be taken off the shelves. 
We want the same thing for credit.
    Senator Levin. Who needs to adopt those protections, in 
your judgment?
    Ms. Cohen. The Federal Reserve Board has the authority to 
improve the disclosures. They are not in a position to change 
everything that we need. And so we look to Congress to pass 
strong legislation.
    Senator Levin. Thank you. Senator McCaskill.
    Senator McCaskill. Do you believe it would be practical, in 
fact this would be a good question to ask the next panel. I do 
not know this, but I have a feeling they may say that these 
disclosures are so complicated because their lawyers tell them 
that is what they have to say. And I bet the lawyers that 
helped them write those added significantly to their costs that 
fiscal year too, looking at the disclosures.
    But do you think that it would be possible for Congress to, 
in any way, urge the Federal Reserve Board to go more quickly 
or to do this in more plain language? It does not seem that 
complicated to me. It seems that you say this is the interest 
rate we are going to charge you. If you do not pay at all by 
the date that it is due, you are going to have an interest 
rate. If you go over your credit limit, this is what you are 
going to pay. And by the way, you have to pay it every single 
month, maybe forever.
    Ms. Cohen. Some of the points that you just made are not 
currently in a clear manner in the disclosure. How long it is 
going to take you to pay off your bill is not in your 
disclosure and it is something that we have recommended that 
the Federal Reserve Board can do. I know they have a process to 
make sure that all of their I's are dotted and their T's are 
crossed. But we are hoping at the end of it that a lot of the 
things you just described will be in. There are also bills that 
have been introduced in Congress that do similar things for 
disclosures.
    I also want to respond to your comment earlier about live 
checks. Representative LaFalce proposed a bill to ban live 
checks earlier in the 2000s but no action was taken in either 
house on that bill
    Senator McCaskill. I will have to find out if maybe we can 
get that started again.
    The other question I had about the amount of interest, it 
seems to me the fees for the low income people where they are 
making a lot of money, the penalty fees, the going over-the-
limit fees, the various fees and penalties, are getting into 
some serious money now as opposed to the interest rate for the 
low income people.
    Has there been any effort made by your organization or 
others that I could look at that compare someone who is low 
income with what actually happens to them on say a $500 limit 
credit card versus a $500 payday loan? I mean, are these not 
very similar in terms of when we get to the bottom line as to 
how much is being charged? Are we not getting to 30 percent, 
something that a long time ago in law school that we would have 
called usurious?
    Ms. Cohen. We do not hear that word very often in 
Washington anymore.
    I imagine that we have done some analysis and I am happy to 
get back to you with the details. What I have seen with payday 
lending and credit cards is that the problem is similar. 
Someone borrows a small amount of money because they cannot pay 
a basic bill, and then they are stuck week after week, month 
after month, paying back small amounts and never really 
covering the total amount.
    Senator McCaskill. Never getting to the principal.
    Ms. Cohen. Correct.
    Senator McCaskill. They never get to the principal.
    And watching my mom, she has never even met the principal, 
God love her. She has always just been paying interest, always 
making minimum payments until we kind of took over. I look at 
the amount of money she has paid over the years and it is just 
mind-boggling how expensive this has been.
    Having done some work on payday loans at the State level, I 
think it is time we begin talking about really what the real 
amount of money that these people are being charged and 
comparing them to the payday loan industry.
    And that may be, Senator, maybe these institutions would 
feel a little more comfortable about what they are doing. 
Because I do not think that these are the kinds of names in 
banking that I do not think see themselves as a payday loan 
lender. But it appears that, in many aspects, they are.
    Ms. Cohen. It is our view that the fees that are charged 
should be reasonably related to the cost incurred by the credit 
card issuer. And right now we do not see anything like that.
    Senator McCaskill. There is no connection between what it 
is costing them to service it and the amount of fees they are 
charging.
    Ms. Cohen. It is generally a flat fee. They might be able 
to explain better how that fee is derived.
    Senator McCaskill. Thank you.
    Senator Levin. Senator Warner.
    Senator Warner. No, Mr. Chairman, I think we should proceed 
to the next panel.
    Mr. Chairman, I think for those following this hearing, we 
should advise that many of our colleagues are engaged in a very 
important joint session of Congress this morning and could not 
arrange to be here. But I commend the Chairman and the Ranking 
Member for going ahead. I decided this was a more important 
challenge for us here this morning in the Senate.
    Senator Levin. Thank you, Senator Warner.
    Ms. Cohen, you have made a number of recommendations on 
behalf of a number of organizations. These are going to be 
referred to the Banking Committee along with our work. The 
Banking Committee has the legislative jurisdiction. We are 
working very closely with them. They know of our hearings. I 
have talked to Senator Dodd, I know Senator Shelby. They have 
had hearings on this subject. We are trying to address 
different aspects of the same problem so we do not duplicate.
    But this very valuable testimony of both of yours will be 
part of a recommendation and probably a bill which we will 
introduce, which would then be referred to the Banking 
Committee, as Senator Warner has mentioned, because they have 
the legislative jurisdiction.
    We have oversight jurisdiction here, investigative 
jurisdiction, and we are going to make full use of your 
testimony as well as the testimony of the next panel.
    So we thank you both for coming, and you are excused. We 
will now call the second panel.
    Let me now welcome our second panel of witnesses for 
today's hearing. Bruce Hammonds, President of Card Services at 
Bank of America; Richard Srednicki, Chief Executive Officer of 
Chase Bank USA; and finally Mr. Vikram Atal, Chairman and Chief 
Executive Officer of Citi Cards.
    I welcome you all to this hearing. I look forward to 
hearing your testimony on your banks' practices relating to 
fees, interest rates and grace periods, and anything else you 
might want to testify about relative to this subject.
    We know that for some of you it has been a challenge to get 
here. We appreciate that. And again, we also appreciate the 
cooperation that your banks have shown to the Subcommittee.
    Pursuant to Rule 6, all witnesses who testify before the 
Subcommittee are required to be sworn. So at this time I would 
ask each of you to please stand and raise your right hand.
    Do you swear that the testimony that you give before this 
Subcommittee today will be the truth, the whole truth, and 
nothing but the truth, so help you, God?
    Mr. Hammonds. I do.
    Mr. Srednicki. I do.
    Mr. Atal. I do.
    Senator Levin. We will be using the timing system today. 
Again, we would ask that you would limit your testimony to no 
more then 5 minutes.
    We will go in alphabetical order, I guess by bank name. I 
am trying to interpret this. I was going to say we go in 
alphabetical order so Mr. Hammonds goes first, but apparently 
it is bank name.
    So the Bank of America, Mr. Hammonds, we will have you go 
first, followed by Chase which is represented by Mr. Srednicki, 
and follow up with Citigroup that is represented by Mr. Atal.
    After we have heard all of your testimony, we will then 
turn to questions.
    Mr. Hammonds, please proceed.

 TESTIMONY OF BRUCE L. HAMMONDS,\1\ PRESIDENT, BANK OF AMERICA 
    CARD SERVICES, BANK OF AMERICA CORPORATION, WILMINGTON, 
                            DELAWARE

    Mr. Hammonds. Good morning, Chairman Levin, Senator 
Coleman, and Members of the Subcommittee. My name is Bruce 
Hammonds and I am President of Bank of America Card Services.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Hammonds with attachments appears 
in the Appendix on page 81.
---------------------------------------------------------------------------
    Bank of America is one of the world's largest financial 
services institutions. In the United States, Bank of America 
serves more than 52 million customers, nearly half of all U.S. 
households. As you may know, we are one of the largest credit 
card companies in the United States.
    I have personally been involved in consumer lending for 
over 35 years and was part of the management team that formed 
MBNA in 1982. During my career, I have been personal witness to 
extraordinary changes in the card industry, driving the product 
from its origins as a pay in full charge card with an annual 
fee to a far more versatile product offering seamless access to 
credit for millions of Americans.
    Widespread access to credit cards has also played a 
significant role in our economy, allowing merchants, either at 
the point-of-sale or over the Internet, to accept payments 
quickly and securely.
    Mr. Chairman, we were pleased to host Subcommittee staff as 
they visited our credit card operations in Wilmington and hope 
this experience helped the Subcommittee gain a deeper 
understanding of our operations and practices.
    For years we have always been a leader in fair and 
transparent lending. Let me explain. Bank of America has never 
engaged in double cycle billing. Bank of America has never 
engaged in universal default. Bank of America already limits 
the frequency of risk-based repricing. Bank of America already 
has a program that lets customers know through e-alerts when 
they are approaching due dates and credit limits so they can 
avoid fees and repricing.
    Bank of America already has a robust program to educate our 
customers about their credit. We have been testing a plain 
language brochure that advises our customers of steps they can 
take to keep the cost of credit lower.
    I am proud to say that we arrived at these policies some 
time ago and by listening to our customers.
    With that, let me return to the remainder of my remarks.
    As Bank of America approaches the credit card market, that 
is, as we make our pricing terms and marketing decisions, our 
decisions are shaped primarily by four factors: Competition, 
risk, return, and regulation. Credit cards are now so 
ubiquitous that it is easy to forget a time not so long ago 
when access to credit was a privilege reserved for those on the 
higher end of the financial spectrum. Vigorous competition in 
this market has democratized access to credit and produced 
three primary benefits for consumers: lower prices, innovative 
products, and better customer service.
    As the 2006 GAO report on credit rates and fees observed, 
consumers now pay lower interest rates than they did when 
credit cards were introduced in the 1950s. Over the past 15 
years, in particular, issuers have competed for customers by 
offering attractive rates and expanding the availability of 
credit to a much larger segment of the population.
    Credit cards have not only become cheaper for consumers but 
also, thanks to innovation, far more useful. A credit card now 
allows you to obtain instantaneous credit when purchasing at 
the point-of-sale or online, or to obtain a cash loan from an 
ATM, anywhere in the world in any currency. Credit cards also 
frequently come with other rewards, originally frequent flyer 
miles but now a wider and ever-expanding list of rewards.
    The other way we compete is through superior service. If 
there is a problem, you can call us 24 hours a day, 7 days a 
week. And if your card is lost or stolen, we will replace it 
for free and you will not bear any costs from fraudulent use of 
the card.
    Just as our approach to the market is shaped by 
competition, it also considers the risk of this unique type of 
unsecured lending. We manage risk in three primary ways. First, 
we issue cards only to those who have a credit history or an 
existing relationship with us that suggests an ability to 
repay. For this reason, we have not been active in marketing 
loans to the subprime market.
    Second, we employ risk-based pricing, which allows us to 
continue lending to customers who failed to pay on time, go 
over limit, or exhibit other risky behavior.
    Third, we identify and work with customers who are 
experiencing real financial difficulties. Frequently, that 
means lowering their interest rate and waiving fees, and 
working with consumer counseling agencies to ensure that credit 
problems with other lenders are made part of the plan.
    I will focus on risk-based pricing, as the Subcommittee has 
expressed interest in it.
    Risk-based pricing takes two general forms. First, our 
contract with the customer provides for default repricing, that 
is higher interest rates that apply in the event the customer 
makes payments late or exceeds their credit limit. This is how 
most of our repricing occurs.
    As a matter of practice, we take this action only if a 
customer is late or over limit twice within a 12-month period, 
though some of our competitors are more aggressive and impose 
higher rates based only on one event and include using a 
bounced check as a trigger.
    Additionally, in late 2007, Bank of America plans to 
further implement a feature that will provide for a cure to a 
lower rate if the customer has no late or over limit events for 
6 consecutive months. This new lower rate will apply to both 
existing and new balances.
    Second, when we see that a customer is exhibiting risky 
behavior, and this may include problems with other lenders, we 
may notify the customer of a proposed change in terms of the 
account, generally a higher interest rate for outstanding 
balances. This is known as risk-based repricing.
    Risk-based repricing is necessary in credit card lending 
because credit card lending is open end credit. As such, a 
credit card relationship involves a series of loans of varying 
amounts over an indefinite period, whereas closed end credit, 
for example an auto loan, constitutes a single loan made for a 
specified maturity on terms fixed at the outset of the leading 
relationship.
    Basically, if a deteriorating credit score causes us to 
question our initial decision to issue credit, we will inform 
the customer that in the future his or her account will have a 
higher rate.
    I should stress that whenever we propose a higher interest 
rate, the customer has a right to simply say no. The customer 
is then entitled to repay any outstanding balance under the 
original terms, rather than the adjusted terms we are 
proposing. At that point, basically, we cannot charge a higher 
rate on loans the customer has outstanding but the customer can 
not continue taking out new loans at the old rate. That seems 
right to us.
    This right to say no is a crucial distinction between risk-
based pricing, which we and all of our competitors engage in, 
and universal default, which Bank of America has never engaged 
in. With universal default, a default to an unaffiliated 
creditor is treated as a default on every creditor and triggers 
repricing without any right to say no. As noted, Bank of 
America has never engaged in universal default.
    I would also note that we have never engaged in two cycle 
billing, another practice I know is of concern to the 
Subcommittee.
    I should also add that at Bank of America we do not propose 
a risk-based increase in rates to customers in the first year 
of the relationship. And once a proposed change in terms is 
accepted, will not propose another change for at least 6 
months, even if the customer's credit score declines further.
    Now let me turn to the reason we are in this business, 
which is to earn the maximum possible risk-adjusted return for 
our shareholders. Of course, the primary constraint on our 
returns is market competition. As the GAO report notes, the 
return on assets for large credit card issuers has generally 
been stable since 1999, with returns in the 3 percent to 3.5 
percent range. Data from five of the six largest issuers showed 
that profitability between 2003 and 2005 has been stable, in 
the range from 3.6 to 4.1 percent.
    On the regulatory front, we support the Fed's revision of 
Regulation Z and look forward to commenting further.
    Thank you for the opportunity to share our story and our 
views with you, and I look forward to answering any questions 
you may have.
    Senator Levin. Thank you, Mr. Hammonds. Mr. Srednicki.

TESTIMONY OF RICHARD J. SREDNICKI,\1\ CHIEF EXECUTIVE OFFICER, 
           CHASE BANK USA, N.A., WILMINGTON, DELAWARE

    Mr. Srednicki. Mr. Chairman and Members of the 
Subcommittee, good morning. My name is Rich Srednicki. I am the 
Chief Executive Officer for Chase Bank USA, N.A.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Srednicki with an attachment 
appears in the Appendix on page 115.
---------------------------------------------------------------------------
    I want to begin my remarks with a public apology to Mr. 
Wannemacher. We have policies and procedures in place at Chase 
to identify customers like him who have fallen into deep 
financial trouble and are finding it difficult to work their 
way out. In this case, we simply blew it. Our policies and 
procedures failed, and we deeply regret it. We took some action 
after hearing of his case from this Subcommittee. But we would 
have done the same with another customer who our procedures 
failed and who had contacted us.
    We have reached out to Mr. Wannemacher personally and 
resolved the situation to his satisfaction, as we would do with 
anyone with whom we had made a mistake.
    We believe this case is an exception and not the rule. It 
was caused by human error. However, we are reviewing our files 
and contacting all customers who are chronically over limit or 
have chronic late fees to let them know we have assistance 
programs that can and should help them, as we normally do.
    We serve 100 million customers and, regrettably, mistakes 
can happen. We are committed to finding those errors and to 
fixing them.
    We have decided to modify one practice we believe would 
have helped Mr. Wannemacher and we believe will help avoid 
future situations like this. We will now stop over-limit fees 
at 90 days. This change is in keeping with our overall efforts 
to continually review our policies and practices to find ways 
to improve customer service and satisfaction.
    I assure you that Mr. Wannemacher is not an example of how 
we strive to do business. When our customers are facing serious 
financial distress it is both in our customer's interest and 
the bank's interest to work closely with them to help them find 
the right solution such as consumer credit counseling programs 
or a payment plan with no fees and/or low interest rates.
    About .5 of 1 percent of our customers are in such programs 
today and more than two of three of those customers complete 
them successfully and get themselves back on their feet. That 
is what we should have done with Mr. Wannemacher. That is what 
we failed to do.
    We are committed to dealing fairly and responsibly with 
customers who face financial difficulty, as we are with all of 
our customers.
    Mr. Chairman, I want to also talk about Chase and the 
relationships we work hard to develop. The great majority of 
Chase's customers fall into the categories that our industry 
calls super-prime and prime. That means that regardless of 
income, they are among the most responsible and knowledgeable 
credit card customers in the country. They use their cards 
wisely to manage their purchases and receive the convenience, 
the protections, the instant access to credit and flexibility 
payment cards bring while avoiding fees and maintaining very 
low interest rates, among the lowest in the country.
    Fully 92 percent of Chase customers begin and end the year 
with the same or better contract interest rate because they 
manage their credit responsibly.
    In order to build long-term relationships, we owe our 
customers clear and simple rules of the road so that they 
understand their fees, their interest rates, and know how to 
avoid late fees and over credit limit fees or have their 
interest rate increased. We provide account information in 
everyday language and want to help them meet this goal. We owe 
our customers, also, tools to help them manage their accounts 
and make on-time payments. We have free alerts that remind 
customers by e-mail, by telephone, or by text messaging when a 
payment due date is approaching or when their spending has 
reached their own self-determined limit.
    We also allow customers to pick their own billing due date, 
one that best meets their budgeting needs. And we never change 
that due date unless they ask us to change it.
    We owe all of our customers individual attention and we 
grant credit individually. Particularly when customers get into 
trouble, they need individual attention, and when their 
distress may be caused by factors like illness or job loss that 
are out of their control.
    In cases like these, we owe our customers a process for 
helping them get out of debt through credit counseling and debt 
reduction plans.
    The point that I want to underscore is that Chase is 
committed to working responsibly with our customers. Our core 
business model is based on responsibly providing excellent 
credit products to customers who use them responsibly. I 
believe that when we work with customers and treat them fairly 
we can be proud of a credit card system that is working 
extremely well for the vast majority of millions of Americans 
who use them every single day.
    Mr. Chairman, we look forward to working with you and the 
Members of this Subcommittee.
    Senator Levin. Thank you so much, Mr. Srednicki. Mr. Atal.

 TESTIMONY OF VIKRAM A. ATAL,\1\ CHAIRMAN AND CHIEF EXECUTIVE 
 OFFICER, CITI CARDS, GLOBAL CONSUMER GROUP, CITIGROUP, INC., 
                       NEW YORK, NEW YORK

    Mr. Atal. Thank you, Chairman Levin and Members of the 
Subcommittee. My name is Vikram Atal and I am the Chairman and 
Chief Executive Officer of Citi Cards.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Atal appears in the Appendix on 
page 128.
---------------------------------------------------------------------------
    Citi Cards is a large entity, employing over 32,000 
employees at more than 30 sites across North America, and we do 
our very best to meet the needs of our customers with a broad 
range of financial products and services.
    I appreciate the opportunity to appear before the 
Subcommittee today.
    I understand that the Subcommittee's primary focus today is 
on issues relating to the transparency and fairness with which 
we treat our customers, and we welcome that conversation. At 
the outset though, I would like to step back and provide some 
context. Credit cards have become an integral part of our 
Nation's economy, providing real and significant benefits to 
our consumers and merchants alike. To understand this business, 
it is crucial to recognize that each and every time a person 
uses a credit card to buy something we are, in effect, making 
them an unsecured loan not backed up by any tangible security 
as mortgages, auto loans, or home equity lines of credit are. 
We are lending money based only on a customer's promise to 
repay.
    Before the late 1980s, the credit card market was much 
narrower and more uniform. Customers were typically assessed a 
$20 annual fee and interest rates were nearly 20 percent across 
the board. In the last 15 years, this model has changed 
dramatically. Underwriting practices have become more refined, 
allowing banks both to offer lower-priced credit for people 
with solid credit histories and to extend credit to customers 
who previously had no access to unsecured credit.
    The capacity for banks to consider risk is the key that 
makes this system work. Without that, less credit-worthy 
consumers would have fewer appropriate means of accessing 
credit, relatively risk-free consumers would face a higher cost 
of credit, and bank lending strategies would be significantly 
curtailed.
    As a general matter, this democratization of credit has 
been a good thing. Average credit card rates have declined 
nearly 6 percentage points compared to the average rate 
prevailing in 1990, and overall credit card debt remains a 
small portion of household debt, down from 3.9 percent in 1995 
to about 3 percent in 2004.
    Finally, the lending model for credit cards is based on a 
relatively thin margin. Year after year we make roughly the 
same return of $2 to $2.50 for every $100 that we lend, which 
equates to about one dollar for every $100 of sales charged to 
credit cards.
    We have taken many steps in recent years to improve the 
products and services we offer our customers. Let me start by 
outlining two very significant changes that we announced just 
last week. Taken together, these represent a sea change for the 
industry.
    First, it has been standard practice for credit card 
issuers to consider raising a customer's interest rates based 
on behavior with respect to financial commitments to other 
companies. Even before last week, we gave customers notice and 
the right to opt out of any such proposed increase in their 
interest rate while still maintaining full use of their card 
until the expiration date.
    But last week we eliminated the practice altogether for all 
customers during the term of their cards. Citi will consider 
increasing a customer's interest rate only on the basis of his 
or her behavior with us when the customer fails to pay on time, 
goes over the credit limit, or bounces a check.
    Second, in order to be able to respond to general 
conditions in the financial markets the industry has 
traditionally kept the right to increase a card holder's rates 
and fees at any time for any reason. We are eliminating this 
practice. Effective next month, so long as a customer is 
meeting the terms of his agreement with us, we will not 
voluntarily increase the rates or fees of the account until a 
card expires and a new card is issued.
    In tandem, these changes redefine our relationship with 
every single one of our customers.
    In response to customer expectations, we have also 
developed online tools to make it easy for customers to avoid 
late fees and to manage their relationship with us. Our 
customers can choose a day of the month they would prefer to 
pay their bills and they can elect to be notified in advance 
about key dates and information. Under this program we send out 
some 5 million alerts each month and that number is increasing 
substantially over time.
    Citi is an industry leader in financial education and 
literacy. The centerpiece of our education effort is our Use 
Credit Wisely program, a web-based program designed to assist 
consumers in understanding how credit works, budgeting, and how 
to work through difficult situations such as disability or 
living on a fixed income. As part of Use Credit Wisely, we 
developed the innovative Credit-ED program to provide support 
and the latest resource to help students manage their credit 
and money responsibly. Since 2000, the Credit-ED program has 
distributed more than 5 million credit education materials free 
to students, administrators, and parents.
    Citi is also an industry leader in protecting customers 
from theft and fraud. In 1989, we offered consumers our fraud 
early warning feature. In 1992, we introduced the photo card to 
help deter unauthorized use of credit cards. And today, should 
our members become victims of identity theft or fraud, we 
offer, for free, Citi Identity Theft Solutions. Our service 
streamlines and simplifies the entire process of reestablishing 
a victim's identity and credit history, saving the customer 
significant time, money, and hassle even if the fraud happened 
on another credit card.
    Credit card disclosures can be confusing, so our goal is to 
assure no surprises for our customers. This means that all of 
our written materials must describe our products clearly, 
accurately and fairly. The effective and simpler to read 
disclosures cited by GAO in its September 2006 report on credit 
cards were Citi disclosures.
    We are also in the midst of a major redesign of our 
customer statement, working with some 2 million customers to 
understand how we might make them even better.
    Mr. Chairman, at Citi we put our customers first. We want 
to make sure that our customers' Citi Card is a convenience 
that can make managing their financial affairs as easy and as 
stress-free as possible. This job is never finished and we know 
that there is always room for improvement.
    I look forward to answering any questions that you and 
other Members of the Subcommittee may have.
    Senator Levin. Thank you, Mr. Atal.
    Mr. Wannemacher exceeded the $3,000 credit limit on his 
account by $200, and he was then charged an over-the-credit-
limit fee--not three times when his purchases put him over-the-
limit, but 47 times. And the fee increased over time from $29 a 
month to $39 a month. For the 5 years that this went on, the 
total over-limit fees charged him each year exceeded the $200 
for which he was being penalized.
    In 2006, he entered into a repayment plan to address this 
issue.
    Now, until recently, Mr. Srednicki, was it standard 
practice at Chase to apply the over-limit fee not just to the 
month in which a consumer's purchases exceeded the card limit, 
but also every subsequent month, even if the consumer did not 
make any more purchases until your announcement here today?
    Mr. Srednicki. Yes, Mr. Chairman, it was our policy and I 
believe an industry policy, to apply an over-limit fees for 
every month that the customer is over limit. But the most 
important thing for us is to try to prepare information and 
give information to our customers so that they do not get into 
an over limit or a late condition on the account. And the vast 
majority of our customers, the very vast majority, do not.
    Senator Levin. When did you make the decision to eliminate 
this previous practice or this practice? You are announcing it 
here today but when was this decided? Yesterday? A week ago? 
When was this decided?
    Mr. Srednicki. We decided this a few days ago, after 
actually getting information from this Subcommittee about Mr. 
Wannemacher and looking at his account.
    Senator Levin. You have changed the practice across the 
board though, now?
    Mr. Srednicki. Yes, sir, we are changing it.
    Senator Levin. We understand from you, Mr. Hammonds, that 
the practice at Bank of America is not to charge these 
consecutive fees; is that correct?
    Mr. Hammonds. Mr. Chairman, we charge three times, and then 
our practice is to stop at the third.
    Senator Levin. How long has that been the case?
    Mr. Hammonds. I am answering for two companies. I was 
involved in the merger, so I am answering for two separate 
companies.
    Three years at MBNA. I am not exactly sure at Bank of 
America. After the two companies came together at January 1, 
2006, I know that was put in place.
    Senator Levin. We have an example. We have reviewed a 
Michigan constituent's Bank of America credit card account and 
found that he was charged seven over-the-limit fees, once each 
month from March 2006 to September 2006, even though he stopped 
using his card in April 2006.
    So that would have violated the practice that you said was 
in place no later than early 2006; is that correct?
    Mr. Hammonds. That is absolutely correct, Senator.
    Senator Levin. We will show you that. Something is wrong 
with your computer.
    Now, Mr. Atal, what is your practice on this issue?
    Mr. Atal. We charge over-limit fees only three times, 
Senator.
    Senator Levin. How long has that been the case?
    Mr. Atal. I will have to get back with you, Senator, with 
the exact timeline. I don't have that but I believe it's been 
in place for a while.
    Senator Levin. Still, I gather, many credit card companies 
charge the repeated over-limit fee; is that correct? You have 
now announced your change at Chase, and the other two banks 
represented here today say it has been the case for a year or 
more that three times is the most they charge.
    Our understanding is that the common practice in the 
industry is still to charge these repeated fees. Is that your 
understanding? That it is common practice? Or don't you know?
    Mr. Hammonds. Mr. Chairman, the OCC has encouraged the 
practice of no more than three times.
    Senator Levin. You do not know how many credit cards 
companies comply with that?
    Mr. Hammonds. I do not know how many.
    Senator Levin. Do you know?
    Mr. Srednicki. No, I do not.
    Senator Levin. Do you know?
    Mr. Atal. I do not know, sir.
    Senator Levin. I want to talk to you about the interest 
that is charged on money that is paid on time. In the example 
that we used in our opening statement, to make this point very 
clear, we just created a hypothetical bill of $5,020, no 
previous balance. They pay $5,000 on time. A $20 balance the 
next month with no additional purchases. They are hit with an 
interest charge of $55.21.
    This may not be a typical payment approach, but nonetheless 
we are using this to clarify what we are talking about.
    In that situation, interest is charged for the first 15 
days on the $5,000 that is paid on time, not just on the $20 
that was not paid. Now what is the justification for charging 
interest on debt that is paid on time?
    Mr. Srednicki, do you want to start?
    Mr. Srednicki. Senator, I believe that this practice really 
is as simple as charging interest for as long as the money is 
borrowed. And if the customer was statemented on the 15th of 
the month, he was statemented with interest through that date. 
When he makes his payment, from that date on, the original 
balance was still due.
    We deduct the $5,000 from that payment and charge for the 
number of days that the customer has borrowed the money. I 
believe that is the same kind of interest rate that financial 
companies charge on things from mortgages to other financial 
loans.
    Senator Levin. You folks, all the credit card companies, 
hold out that there is a grace period on purchases; is that 
correct? You talk about a grace period.
    Mr. Srednicki. There is a grace period on purchases for 
customers who transact, that is, who pay their bills in full 
every month. And fully 30 percent of our customers never pay 
interest on their purchases.
    Senator Levin. I understand that. Do you think most 
customers understand that the grace period only applies to 
people who pay their bill in full every month? Do you think 
most people understand that? Mr. Wannemacher sure did not.
    Mr. Srednicki. I think that the large majority of our 
customers do understand that, sir.
    Senator Levin. I disagree with that, by the way, and I 
think our expert here also disagreed with that. Because you 
tout, you advertise a grace period for purchases that are made. 
I would like to see in your advertisements where you say that 
grace period does not apply unless you pay the entire amount 
and you will be charged interest on money that you pay on time.
    I do not think your advertisements say that. I do not think 
the ordinary consumer understands that or believes that it is 
fair. I do not believe it is fair. It is very clear to me that 
if you get a bill on January 1 that says $5,020 is owing, the 
due date is January 15, and there is a minimum payment, but 
that if you pay less than the full amount that you are still 
going to be charged interest on the amount that you paid on 
time. I do not believe that the average consumer understands 
it, believes it, thinks it is fair. And I do not either.
    Now your explanation as to why you believe that is 
justified, to me, I did not understand your explanation. In 
simple terms, I did not. Maybe others did and I do not want to 
say that just because I did not does not mean it was not clear 
or comprehensible. But I did not understand your explanation.
    Let me try Mr. Hammonds. Why should people who pay their 
bill on time or pay part of their bill on time be charged 
interest on the part that they pay on time?
    Mr. Hammonds. Mr. Chairman, there are two ways that 
customers use a credit card. There are transactors, that is 
about 50 percent of our base, who pay their balance in full 
each month. So essentially, for that 30 days, we are supplying 
them with an interest free loan. We have costs with that loan. 
We have risks with that loan, but we are giving that loan to 
them for free.
    Then there are other customers who borrow on their credit 
cards. Just as Mr. Srednicki said, the calculation for those is 
exactly the same as an automobile loan or a mortgage loan or 
anything else. You pay interest as long as the balance is out 
there. Once you pay the balance off, you can become a 
transactor again. And people come and go, and use it in both 
ways.
    Senator Levin. Do you think that your advertisements and 
your solicitations and your bills make it clear to people that 
if there is a balance they are going to be charged interest on 
the money that they pay? I know that in some of your 
solicitations that is clear, but do you think that is the 
general understanding, even though some of your solicitations 
may have it, that the grace period only applies if there is no 
balance? Do you think that is the common understanding, Mr. 
Atal?
    Mr. Atal. Senator, I think that there is always an 
opportunity to continually inform consumers about the terms and 
conditions under which they are taking on credit. We try each 
and every day to enhance our interaction with consumers and we 
will continue to do that.
    Senator Levin. I know that some banks do say that the grace 
period only applies if there is no balance. I do not think that 
is either commonly described or commonly understood, and I 
would think it is critically important because this is 
something that strikes me as being so fundamentally unfair that 
I would hope that you would all do what some banks do relative 
to the grace period to make it clear that it does not exist.
    You should not even use the term, I believe, except for 
those people--making it clear that it is only available to 
those people who have no balance on their bills.
    On the trailing interest issue. I do not know if you use 
the term trailing interest, but you heard me describe the 
trailing interest in that exhibit this morning. That even 
though in some cases, which we have outlined here, you pay in 
full, on time, that there still would be an interest charge the 
next month.
    I do not know what you call that, but we are calling it 
trailing interest. Do you believe that is fair? That someone 
gets a bill on February 1, and the bill is $55.21, the due date 
is February 15. The person pays the entire amount on February 
15. Shouldn't they then assume, assuming there's no more 
purchases, that is it? Mr. Hammonds.
    Mr. Hammonds. Again, Mr. Chairman, I think we make it clear 
to our customers that to avoid finance charges, or to avoid 
borrowing charges, you have to pay the entire balance in full. 
Again, just like an automobile loan, if you do not pay the 
entire balance in full, the next month you will have interest 
from the previous month.
    Senator Levin. But they did pay the balance in full. 
February 15, they paid the entire balance in full, $55.21.
    Mr. Hammonds. I am not as current on that--I cannot comment 
on that particular example.
    Senator Levin. Mr. Srednicki, do you know what we are 
saying?
    Mr. Srednicki. I think I understand the example and this 
customer has been revolving, as we call it. I do not know the 
exact calculations in that particular example.
    But I would agree with Mr. Atal that we could improve the 
disclosure to our customers and try to make sure that our 
customers really understand.
    I would also comment, sir, that I think bank cards, in 
general, offer customers, for most part, extremely competitive 
rates. It is a very competitive industry. And customers who do 
pay their balances in full have extremely good rates, and we 
have particularly good ones.
    Senator Levin. Thank you. Senator Warner.
    Senator Warner. Thank you, Mr. Chairman.
    I find this testimony this morning very helpful and thank 
each of you because you represent institutions that I sort of 
grew up with. They are the institutions--Chase goes back to the 
early 1800s, does it not? Is that not right?
    Mr. Srednicki. Yes, sir.
    Senator Warner. These are the institutions that have built 
our Nation and I know you wanted to be in this business because 
the credit card is essential to our growing economy. There is 
no way in the world you could erect enough buildings to service 
everybody that would have to come in and borrow and look at a 
bank officer to make these, as Mr. Atal said, unsecured loans.
    So you start with the premise it is an unsecured loan and, 
therefore, it has a higher degree of risk and you are entitled 
to a reasonable profit. And you have also got to remain 
competitive. I understand there is some 6,000 depository 
institutions which issue credit cards, but the majority of 
accounts apparently have gravitated to your institutions or 
institutions of a like nature.
    So now we come along and it is obvious that we have to do 
something to help people manage their own lives and not fall 
into the traps that the credit card has the potential of doing.
    Now let us talk a little bit about how the Federal Reserve 
is working to issue new regulations for disclosure 
requirements. Are you at liberty, any of you, to share with the 
Subcommittee today some of the ideas you are contributing in 
this process? I assume each of you or your subordinates are 
involved in working with the Federal Reserve on this; am I 
correct?
    Why don't we just proceed as we have before. Mr. Hammonds.
    Mr. Hammonds. Yes, Senator, we are. And we would be very 
happy to see some changes made there. We proposed some things 
that almost are like what you might see on a can of soup 
describing the ingredients, something that simple.
    I will say to you, it is not the most simple process in the 
world. Our customers, and we know this from listening to them 
constantly, like a lot of flexibility in the product. So to try 
and describe everything that we might offer to a customer and 
do so across all institutions so they can compare products is 
not quite as easy as can be done on a can of soup. But we 
think, absolutely, there are many improvements that could be 
made and we should try and do so.
    Senator Warner. You mentioned--I caught the phrase and I 
wrote it down--a plain language brochure. Have you made a copy 
or would you make a copy or copies, plural, to the 
Subcommittee? I, personally, would like to read that over.
    Mr. Hammonds. Absolutely, yes, sir. We will do so.
    Senator Warner. The Chase representative said you have--and 
I wrote this down--clear and simple rules of the road. I like 
that. And in every day language.
    How is that put out, Mr. Srednicki? Is it a brochure?
    Mr. Srednicki. It is a brochure that we send to our 
customers to make sure that they understand our billing 
practices, encouraging them to pay their bills on time, stay 
below their credit line, and better manage their credit. We 
also encourage customers, when they do have a problem that is 
intractable, to please call us because we would like to help 
them get on to a program that meets both their needs and our 
needs.
    Senator Warner. Now, would you make copies of those letters 
or however you call it, a brochure or whatever, available to 
the Subcommittee?
    Mr. Srednicki. Yes, sir, I would be glad to.
    Senator Warner. With regard to the Federal Reserve, are you 
active participants in that process?
    Mr. Srednicki. We are active participants, and we do 
support better, clearer, simpler disclosure for consumers, and 
we would be glad to work with them to get it done.
    Senator Warner. I recognize the antitrust complexities that 
you have to stay within your lanes and be careful, and I am 
sure that is being done. Where are we in the process with the 
Fed? Do you think we are making progress?
    Mr. Srednicki. I think we have suggested things that we can 
do. We would work with them to improve anything that they come 
up with. And we would support having them gather folks under 
legal protection to make sure that we vet and improve 
disclosure to customers. We would all love to be on an equal 
playing field.
    Senator Warner. Are you at liberty to give this 
Subcommittee copies of your submissions to the Fed, the idea 
that you have provided?
    Mr. Srednicki. I would be glad to give them. I do not know 
exactly where we are on it. I know that we have been working on 
new disclosure.
    Senator Warner. Mr. Hammonds, would you be willing to do 
that?
    Mr. Hammonds. Yes, sir, we would.
    Senator Warner. I think, Mr. Chairman, that would be 
helpful to us.
    As a wrap-up here in the few minutes I have left, Mr. Atal, 
what is your position on the Fed process? And would you be 
permitted to--
    Mr. Atal. Absolutely, Senator, yes, we would. We actually 
have already introduced to all of our customers, in addition to 
the highly complex and multi-page agreements that we send out 
that attempt to comply with the laws and regulations and inform 
them, but they are quite complex. We are already sending out a 
one-pager that is defined as similar to how Mr. Hammonds 
described the food labeling process.
    But we will be absolutely willing to share with you what we 
are sharing with the Federal Reserve, and we are actively 
engaged in the process and looking forward to it.
    Senator Warner. I thank you for your contribution on that, 
too.
    Mr. Chairman, I thank you for this opportunity.
    Senator Levin. Thank you. Senator Carper.

              OPENING STATEMENT OF SENATOR CARPER

    Senator Carper. Thanks, Mr. Chairman.
    And to each of our witnesses here today, thank you for 
coming. Thanks for your prepared testimony and for your 
response to our questions. Thanks for working with the Fed and 
other regulators as we try to address some of the concerns that 
have been aired here today.
    I missed most of the first panel's presentation. I was 
involved in another meeting. But we express our thanks to Mr. 
Wannemacher for coming.
    I just want to say to Mr. Srednicki that I found it 
refreshing that you would issue a public apology on behalf of 
your bank to a customer who was wronged, unintentionally, but 
wronged. I do not know how many credit cards you have out, Mr. 
Atal, but I understand it is in excess of 100 million. I think 
I heard Mr. Srednicki say they have about 100 million out. Mr. 
Hammonds, would you have 100 million or so out?
    With that many credit cards, you make mistakes. God knows 
we make mistakes in our business. Sometimes it is the way we 
vote, hopefully not often. Sometimes, we make mistakes in 
simply not returning calls or responding properly to people who 
e-mail or who write us. We get a lot of e-mails and phone 
calls, as you might imagine.
    I always like to say everything that I do, I can do better. 
And we focus on our motto within our Senate office, is ``if it 
is not perfect, make it better.'' It sounds like that is part 
of your DNA, as well.
    Sometimes we have hearings here and they are on rather 
esoteric subjects. And it is difficult for us to identify the 
range of issues before us. That is not the case today. I am 
sure all of us have credit cards. I have several credit cards, 
one for my personal use, one for political campaign use, one 
for expenses that relate to my official business. And they are 
actually very helpful, enabling us to leave a paper trail, make 
sure that the proper charges are fixed and paid for in an 
appropriate way.
    I am one of those customers that you probably do not like 
to have a lot, because I always pay my bill on time. I use 
every single day of that grace period and try to shop around 
for cards that provide the benefits that we want.
    And it sounds like about half of your customers at Bank of 
America do that, and maybe a third or so of your customers at 
J.P. Morgan do that, as well.
    I would comment, sitting here listening to this testimony--
we had a previous hearing that you are familiar with that the 
Banking Committee held that Senator Sununu and I were part of.
    I emerged from those hearings and this one today more firm 
than ever in the belief that if we could somehow harness market 
forces, harness competitive forces, inform consumers to make 
sure that our regulators are on the ball--not just soliciting 
input from consumers, from the industry and all--and holding, 
from time to time, hearings like this to put a spotlight on 
good practices. And I would argue that the folks before us 
today, Mr. Chairman and colleagues, are more arguably the white 
hats of the industry. The folks we really ought to have before 
us here are some of the folks that are traditionally lending to 
a subprime consumer base.
    But those are not the folks that are here today. There is 
an old adage, people who write editorials are folks who come 
onto the battlefield when the shooting is over and shoot the 
wounded. That is not exactly what we are doing here today, but 
the folks that we ought to be shooting at are not necessarily 
the folks that are presented here.
    When I first got my first credit cards, I looked at the 
amount of interest, I looked at the grace period, I looked at 
the annual fee. It was pretty easy. We did not have all these 
myriad fees that are in place today.
    How do we go about harnessing competitive forces and market 
forces to provide consumers with the ability to actually shop 
and make informed decisions for themselves, better decisions? 
That was easy when I was young and it is not so easy today.
    Mr. Hammonds, could we start with you, please?
    Mr. Hammonds. As I said, Senator, it is not as easy as you 
might think because customers want a great deal of flexibility. 
Some customers want to use cash. Some customers want to use 
rewards programs. Some customers want discounts on other 
banking products as a result of the use of their credit card.
    And so, describing simply all of those features while 
giving all of that flexibility is not as easy as someone might 
first think. It is not just thinking about only one way to use 
a credit card.
    But we know from listening to our customers, that is what 
they want. They want that kind of flexibility. Many customers 
have three or four different credit cards and use them in three 
or four different ways. They might borrow on one, use one for a 
rewards program, and use one for business, as an example.
    So I think there are things we can do to improve the 
process and again, I think working with the Federal Reserve, as 
well as trying more of these things like the brochures that I 
think we have all described--some clearer language to customers 
outside of Regulation Z--as well as all of the other 
educational efforts that we have going, whether it is with 
students or others, are the things that are needed in the 
industry to help make it easier for customers to understand 
more about their credit cards.
    I will say, Senator, I spend a tremendous amount of time 
listening to customer calls and going out to banking centers 
talking to customers. I do think the vast majority of our 
customers do understand our products and do understand how to 
use them.
    Is there some confusion? Absolutely. But I can tell you the 
vast majority of our customers do understand how to use the 
card.
    Senator Carper. Mr. Srednicki.
    Mr. Srednicki. I would agree with everything that Mr. 
Hammonds has said, and say that I believe that we should have a 
uniform kind of disclosure and in very simple language. As 
simple as we can get it, recognizing that we do represent a lot 
of sophisticated products, different types of reward 
structures, different types of customers who use the product 
very differently.
    But I think that we can do better at our disclosure and we 
would be willing to work on Regulation Z with the Fed.
    Senator Carper. Mr. Atal, before you speak, let me just say 
I am aware of the very good work that Citibank does with 
respect to financial literacy. You are active in our own State 
and some of our own schools. And I know that is true of your 
competitors here.
    Go ahead, if you would just respond to my question.
    Mr. Atal. I would echo the comments of my colleagues here, 
Senator. As an example, we have over 300 products available 
through Citi Cards' business. So it is an option set that we 
have created for customers. On our Internet site, if you decide 
that you want a credit card from us, we ask you a number of 
questions. And you can self-select down into the products and 
features that you would like and reduce the level of 
optionality.
    But it is a complex choice for customers to make amongst 
all the different credit cards that are available. Anything 
that we, as industry leaders, could do as well as supported by 
your Subcommittee and Senator Levin's focus on this would be 
positive to the industry.
    Senator Carper. Mr. Chairman, in closing, I would just say 
that looking back at the Banking Committee hearing that we had 
a month or so ago, and this hearing today, several of our 
witnesses here indicated they have changed practices that maybe 
did not stand up to the light of day. That is a very good 
thing. I think that is part of our responsibility, to invite 
them to appear before us and to hold out and question those 
practices as we are doing.
    It is just unfortunate that a lot of the other thousands of 
issuers, or a number of the other thousands of issuers whose 
practices are far less defensible than the ones we are hearing 
about today, could not undergo a similar kind of scrutiny.
    Senator Levin. Thank you, Senator Carper. Senator Coleman.
    Senator Coleman. Thank you, Mr. Chairman.
    I am the Ranking Member of the Near East Subcommittee of 
the Foreign Relations Committee, and King Abdullah of Jordan 
addressed the Joint Session of Congress, so I had to leave for 
that and did not get to hear the testimony. The staff has been 
briefing me.
    I appreciate the discussion about disclosure. What we have 
here are complex choices with serious consequences for failing 
to understand those choices, very serious, burdensome, 
sometimes oppressive consequences.
    Is it the sense, from what I heard from Senator Warner from 
Virginia, that you will be providing us some of the disclosure 
materials that you have been working on? Can you make this 
simple enough?
    You cannot fit everything into the Schumer Box anymore. Two 
questions: First, do you think it is clear enough where we are 
today? And second, do you have a clear plan of where we go 
tomorrow to actually have the average consumer understand what 
they are getting into and what the consequences of not paying 
in full during a grace period are? Can you do that, Mr. Atal? 
We will just go from right to left.
    Mr. Atal. Yes, Senator, I believe we can.
    I think that we will absolutely make that effort and I 
believe we will be successful at it.
    Mr. Srednicki. I, too, believe we can do much better, 
Senator. I think our consumers, at least our consumers at 
Chase, are fairly sophisticated consumers. They do understand 
almost everything that we do. But I think we can make our 
disclosure better. I think we can make it more uniform. And I 
think we can improve the understandability of what we offer.
    Senator Coleman. Thank you. Mr. Hammonds.
    Mr. Hammonds. I agree with that. It is not good enough 
today, and we can make it better.
    Senator Coleman. One area where I have continued concern is 
the application of penalty interest rates to previously 
existing loans. I understand the concept of reevaluating risk. 
People's circumstances change and these are ongoing loans.
    The concern I have is a situation where after somebody 
purchases something at a certain interest rate and expects to 
repay that balance at that interest rate, the customer is 
sometimes repriced to a much higher interest rate. So now 
something that they had bought--understanding these are the 
terms and circumstances of the agreement--is repriced so that 
they suddenly have a higher interest rate applied to that prior 
balance.
    I know that they often have the option of paying off their 
balance at that existing rate, but, for a lot of consumers, I 
do not know if they can--they have no real option to pay it 
off. That is probably why they borrowed, why they used the 
credit card in the first place.
    So, in the end, they made purchases expecting a rate of, 
say, 10 percent and end up paying for those purchases at a rate 
of 20 percent. My question to you is do you think it is fair? 
And are there alternatives to this? Mr. Hammond.
    Mr. Hammonds. Let me explain how we do it, Senator. We do 
evaluate risk. Where we see the risk change, we have to adjust 
price. As you said, these are open ended loans that 
theoretically never end.
    We send a proposal out to the customer at that point to 
change the rate. The customer has the opportunity to opt out or 
just say no. If they decide to do that, they can pay the 
account off over time but we do not extend them future credit. 
And we think that is a fair way of doing it.
    Senator Coleman. Mr. Srednicki.
    Mr. Srednicki. Senator, we think and we believe that a 
repricing of a customer is an individualized decision. For 
example, for every 10 customers who are delinquent on their 
card, we do not reprice nine of them. We intentionally manage 
our risk by looking at the credit worthiness of that customer 
and how that customer behaves with us.
    On the other hand, I do agree with Mr. Hammands that risk-
based pricing is integral to our industry because 20 years ago 
everybody was at 19.8 percent. It is an extremely competitive 
industry, 20 years ago everybody was at $20 membership fee. 
Today, 75 percent of the cards do not even have fees.
    And we do need risk-based pricing in order to manage our 
business.
    Senator Coleman. Mr. Atal.
    Mr. Atal. While I would concur with the statements that my 
colleagues have made here regarding the ability of the industry 
to risk-based price because we are, after all, in the unsecured 
loan business, I would reiterate the point that I made in my 
testimony that we, at Citi, have moved a major step beyond 
that. We will be communicating to our customers that, during 
the term of their agreement with us, we will not reprice them 
over the terms we originally established as long as they are 
meeting the conditions that we stated up front. That is a sea 
change, we believe, in our interaction with our customers.
    Senator Coleman. And I applauded that in my opening 
statement.
    Mr. Atal. Thank you, sir.
    Senator Coleman. I think it is movement in the right 
direction, Mr. Atal.
    Mr. Chairman, are we going to have another round?
    Senator Levin. We will.
    Senator Coleman. Thank you, Mr. Chairman.
    Senator Levin. Thank you, Senator Coleman. Senator 
McCaskill.
    Senator McCaskill. Thank you, Mr. Chairman.
    First to all of you, do you all know the age of the 
customers you are soliciting? Mr. Hammonds, do you know the age 
of the customers you are soliciting?
    Mr. Hammonds. In most cases we do, Senator. The majority of 
customers that we solicit are our customers that are coming 
into our banking centers. That is the way we get most of our 
customers. We certainly know the age prior to deciding whether 
we approve or decline their applications.
    Senator McCaskill. In terms of the solicitations that you 
send out, though, do you know how old the people are that you 
are sending--you know 1.9 percent, get cash back, you are only 
going to pay 1.9 percent interest that is all over the envelope 
on the outside. Or even more that really seductive thing that 
looks like if you open it there is a check inside.
    Mr. Hammonds. Senator, I am not sure that we do all of 
those things that you just described. When we solicit a 
customer, we do it one of two ways. We have a preapproved or 
pre-screened offer where we do know about the credit history of 
the customer and we know a lot of demographic information.
    In some cases, we have affinity groups, for example, where 
we do not have that information. When we do send an 
application, the customer has to respond, and then a credit 
analyst makes the decision as to whether we will approve it or 
not. So with that solicitation, we may not know the age but we 
will know it before we make a credit decision.
    Senator McCaskill. Do you have a cut off of age that you 
think is appropriate, either young or old, in terms of 
solicitation?
    Mr. Hammonds. Well, I believe we cannot legally enter into 
a contract with anyone younger than 18 years old, but not on 
the upper end, no.
    Senator McCaskill. So you would send solicitations 
potentially to somebody that is almost 79 years old that has a 
bad credit history on a frequent basis?
    Mr. Hammonds. Senator, somebody with a bad credit history, 
whether they are 20 or 79, is not going to be approved by Bank 
of America.
    Senator McCaskill. I will check with you later because I 
would disagree with that statement from personal experience.
    And so if my 15-year-old daughter got a solicitation last 
week, that would have been just because you are sending out 
mass solicitations and you do not know how old she is?
    Mr. Hammonds. It is possible but she would not have been 
approved had she responded.
    Senator McCaskill. And what about college students that do 
not have a credit history? Are you one of the banks that send 
credit cards that do not have a credit history because they 
made it to college?
    Mr. Hammonds. Senator, we have the endorsement, as a matter 
of fact, of about 800 college and college related groups that 
endorse our credit cards and we do approve credit card 
applications for college students after the same credit 
investigation that we do for any other customer.
    Senator McCaskill. When you have the approval of those 
campuses, do they receive compensation for that?
    Mr. Hammonds. Yes, they do.
    Senator McCaskill. So they get paid, the universities, for 
allowing you to send credit cards to their students?
    Mr. Hammonds. In many cases, they do.
    Senator McCaskill. Is a list of the universities that allow 
you to do that, is that a public list? Is that something you 
would share with the Subcommittee?
    Mr. Hammonds. I do not know. We have contracts with them. 
My guess would be that these are private contracts and we would 
not----
    Senator McCaskill. I will go the other way. I will go to 
the universities and ask them because I think they would have 
to--I think if they are public universities that would be a 
public matter.
    These college students, if they are 18 or older, I assume 
they get these credit cards without their parents ever knowing, 
even though they are in college full-time and do not have 
income?
    Mr. Hammonds. First of all, you would find the vast 
majority of those that we approve would have income. They would 
have some kind of job. Some are done with their parents co-
signing. Some are done on their own. In most cases, they have 
some credit already established. So we have credit criteria for 
students, just like anyone else.
    Senator McCaskill. Is the credit criteria for a college 
student the same as a customer that would maybe apply for a 
credit card that was 30 or 40 years old?
    Mr. Hammonds. It is, which also means that we look at 
income, debt to income, credit history and so forth. So if a 
college student was 40 years old and worked full time and was 
making money, they could get the same credit limit as someone 
else who was not.
    Senator McCaskill. I meant the other way around. Most 
college students do not have a long credit history. They have 
just left home. And so most college students are going to have 
maybe a part-time job, maybe not. Most of them, there may be a 
few of them that have wealth because of wealth in their family. 
But the vast majority of them are not going to have a credit 
history and they are not going to have any kind of assets.
    Frankly, I would have been shocked if somebody would have 
given me a credit card when I was in college, even though I 
worked as a waitress all through college. But it is very common 
now. I am curious how this came about. You may have explained 
it to me because I did not realize that the university campuses 
were getting paid for this.
    Mr. Hammonds. Senator, a couple of things. First of all, 
our average credit line across our portfolio is about $8,500. 
You would find, probably, a college student would have more 
like a $500 credit line. So the credit lines are going to be 
different. We find they are very good customers.
    Senator McCaskill. I bet.
    Mr. Hammonds. Their loss rates are not significantly 
different than anybody else.
    Senator McCaskill. They are not?
    Mr. Hammonds. No, Senator, they are not. They handle their 
accounts very responsibly. They have a right to have credit as 
much as anyone else does.
    I had two sons who went off to college in different parts 
of the country and, quite honestly, I would not have liked the 
thought of them being far away without having a credit card in 
their wallets. I think students need credit cards for all kinds 
of things, just like anyone else might need one, and just like 
everyone else, they need to handle it responsibly.
    We have a lot more education for those college students 
than we would normally do with most other customers, including 
a handbook that we give them when we solicit them, as well as 
in the first statement is a brochure that explains how they 
should handle credit.
    Senator McCaskill. I assume that the answers for the other 
two companies would be similar? You have agreements with 
college campuses that involve financial compensation in order 
to be able to send credit cards to their students?
    Mr. Srednicki. It sounds like we do much less college 
solicitation than the Bank of America. We do have about 12 
agreements with colleges. We also, though, find that college 
students are very responsible borrowers, payers, and they 
perform relatively well. The average age of our portfolio is in 
the upper end of 40. It is a very experienced credit portfolio.
    We do not ever send out cards to someone who has had 
serious delinquencies. We never solicit them and we will not 
approve them, if they find us.
    Mr. Atal. Senator, we have no endorsements with any 
universities in North America. We have had 20 years of 
experience in marketing to students at college. Consistent with 
the statements of my colleagues, we do find that college 
students, if we provide them with credit in a responsible way, 
will behave responsibly. We do not see loss rates higher than 
we would see for the general population. Our credit lines for 
college students are, in general, about 20 percent of what we 
would provide to adults and they are able to handle that.
    In addition to all of that, we take great care and great 
interest in making sure that they receive the materials to be 
able to use their credit wisely. We have actually introduced a 
program with Drexel University where they have got a Credit-ED 
program just for Drexel University students.
    So we try very hard to inform them, to educate them, and 
provide them with products that would be suited to their needs.
    Senator McCaskill. I want to ask all three of you, and if 
you can take as little time on this as possible, although I 
know we will have another round, how much time each of you give 
your customers to pay their bill to avoid interest and 
penalties? How many days do you give your customers to pay 
their bill in full if they are trying to pay in full? Mr. 
Hammonds.
    Mr. Hammonds. It varies, but it is somewhere between 20 and 
30 days.
    Mr. Srednicki. It varies between 20 and 25 days.
    Mr. Atal. It is the same for us, it is 20 to 25 days, 
Senator.
    Senator McCaskill. Why does it vary?
    Mr. Hammonds. Different customers want different kinds of 
accounts and behave diffently with those accounts.
    Senator McCaskill. And the customer has the control of 
that?
    Mr. Hammonds. It is part of the customer selection of 
different accounts. I mean, Senator, we literally have 
thousands of different kinds of accounts that we offer 
customers. It is part of the feature of the account.
    Senator McCaskill. I will not tell you which one of you I 
have. You may know. But I have one and I have struggled with 
getting this thing paid because there were times, particularly 
when I was building a home, that I was charging all of these 
things on this credit card through the Internet.
    Of course, we wanted to review the bill in depth because 
there was a lot of charges on it. And it was incredibly 
difficult to get that thing paid on time because I found out it 
was 20 to 25 days but it was from the time that they sent the 
bill, not from the time you received the bill. Is that true 
with all three of you?
    Mr. Hammonds. Yes.
    Mr. Srednicki. Yes.
    Mr. Atal. Yes.
    Senator McCaskill. So it's not from when you get the bill. 
It is 20 to 25 days from when you send it. So when the customer 
gets the bill, they do not know what date you sent it. How are 
they to know how much time they have?
    Mr. Hammonds. There is a due date on the bill.
    Senator McCaskill. So let us assume the due date is 5 days 
from when you got the bill. You have only 5 days--and that is 
why finally--you say the customer gets to pick. Well, I should 
not say that. I am not a good customer because I pay the bill 
every month. But I struggled because I called. And I am not the 
average layperson. I am pretty aggressive, as you can tell. And 
I got on the phone with this company and said why am I getting 
these late charges because I am turning this bill around--in my 
experience most Americans who pay bills, you get 30 days. And I 
was turning that bill around within a week and invariably I was 
getting interest and late charges on it
    They said the only way--and then they finally told me well, 
on a certain day you can go on the Internet and see your bill.
    Well, the average customer is never going to know that. It 
took me 14 phone calls to get there. I had to do this and ask 
for another person and do this and then finally ask for a 
supervisor. And I finally got to the point that I figured out I 
could do that. But I do not think most customers ever can 
figure that out.
    Mr. Srednicki. Senator, we are spending a lot of time 
trying to inform our customers that they can go online, both to 
see their bills and to pay. I hope this customer, if we were 
your bank, we would have told you when you called in, you can 
pick the date for your payment, and it will never change once 
you do that.
    Senator McCaskill. But I cannot pick the date because I do 
not know when you are going to get the bill to me because the 
date starts running when you send the bill, which is--it would 
be one thing if I always knew the bill was going to be around 
for a week before the bill was due. But there have been times I 
have had less than a week that the bill has been due.
    Mr. Srednicki. You should never have less than a week to 
pay.
    Senator McCaskill. I will show you guys.
    My time is up. I am sorry.
    Senator Levin. We will have another round.
    Senator McCaskill. I am sorry. I got carried away.
    Senator Levin. Thank you. Senator Sununu.

              OPENING STATEMENT OF SENATOR SUNUNU

    Senator Sununu. Thank you, Mr. Chairman. I was finding the 
line of questioning very interesting, if nothing else.
    Gentlemen, I want to be sure that Senator McCaskill and 
Senator Carper are not driving you into bankruptcy. You are 
making money on interchange fees, aren't you, off of these 
terrible customers that pay these bills at the end of every 
month?
    Mr. Srednicki. Yes.
    Senator Sununu. Excellent. I just want to make sure that 
customers like that are not a problem for you.
    I certainly appreciate the hearing and the testimony. I 
think it has been pretty direct and pretty frank. As Senator 
Carper said, we had a good hearing in the Banking Committee 
where some of these issues were discussed, and I want to say I 
appreciate the GAO report that was initiated by this 
Subcommittee. I had not read it in full until the last couple 
of days, but it has a lot of very good information, a lot of 
very interesting information about the trends in the industry, 
some very good, some that raise questions. But I think it is 
pretty thorough, pretty informative.
    There are a number of findings, some that have been 
discussed here, such as the importance of disclosure. You have 
spoken about it, Members have spoken about it--good disclosure 
and increased competition--the market forces Senator Carper 
talked about have been driving interest rates down and 
improving competitiveness or expanding competition across the 
industry.
    It is interesting to me that most customers avoid penalty 
and interest by paying off their cards. I think the GAO found 
it was close to 50 percent that pay off their card at the end 
of every month, a little bit higher than I would have thought. 
But obviously, if you then look at the disclosures that we have 
been talking about, they leave a lot to be desired. They are 
not always as clear as they could be or should be. There are 
some very important practices or key practices that you have 
talked about, that Chairman Levin has talked about, that 
obviously are questionable. And I think we appreciate the 
responsiveness in changing some of them.
    In fact, that is where I want to begin because I know that 
most of you talked about recent changes that you have made in 
your testimony. I was here for some of your testimony. I saw 
others when I was back in my office at a meeting, watching on 
the television.
    But I would like each of you to go through very briefly, I 
know you are repeating yourself, what practices have you 
changed recently and why? What is the simple most compelling 
reason for making those changes? Why don't we begin with you, 
Mr. Atal.
    Mr. Atal. Yes, Senator. The most important practice that we 
have changed recently has been the practice that I referred to 
earlier where we will, first, not change a customer's price 
with us or rate on loan with us if they are in conformance with 
the terms of the agreement we have established.
    And second, we had, up until recently, the unilateral right 
to change the price for economic and financial conditions 
during the term of their contract.
    We have voluntarily agreed and we will inform our customers 
of that, that we will not change that price.
    What led up to that was obviously we have an ongoing 
dialogue with our customers. But quite frankly, the activities 
and the efforts of Senator Levin and this Subcommittee, as well 
as the Senate Banking Committee, has focused our minds and made 
us act quickly and in an important way and, I think, in a way 
that will be material to all of our customers.
    Senator Sununu. Mr. Srednicki.
    Mr. Srednicki. The most important practice that we just 
changed was eliminating over-limit fees for customers after 3 
months over limit. And we did that, frankly, after review of 
the Mr. Wannemacher account.
    Senator Sununu. Mr. Hammonds.
    Mr. Hammonds. Senator, many of the practices that you have 
heard described we have never done so we have not made any 
recent changes.
    We do have some programming going on right now where we are 
going to take customers who have been repriced up, and if they 
do not have a late charge or an over-limit fee in 6 months, 
reduce their rate down.
    Senator Sununu. So you are looking at the repricing issue 
and your over-limit fees were capped at 3 months prior?
    Mr. Hammonds. They were capped at 3 months already, yes.
    Senator Sununu. For each of you, what percentage of credit 
card holders are assessed over-limit fees? How common is that 
particular problem, which has rightly really received a lot of 
attention because of Mr. Wannemacher's situation. Mr. Hammonds.
    Mr. Hammonds. Well, I do not know that exact percentage. I 
know, like Mr. Srednicki mentioned, only about 4 percent of our 
customers last year were risk-based repriced. I can tell you, 
as a percentage of our income, only 12 percent of our income, 
our revenues, come from either over-limit or late fees.
    Senator Sununu. Do you know what percentage of your 
customers have over-limit fees assessed?
    Mr. Srednicki. Senator, I do not know off the top of my 
head.
    Senator Sununu. Mr. Atal.
    Mr. Atal. I do not know the number for our business, 
Senator, but I do recall, I believe, that in the GAO report it 
quoted that about 87 percent of customers had not paid an over 
credit limit fee. And I would assume that as a large issuer, we 
would be in a parallel position.
    Senator Sununu. Under 15 percent.
    Mr. Atal, what does your company do when a customer gets 
into trouble?
    Mr. Atal. We have a very active program, Senator, to work 
with the customer. We would inform them about our different 
programs that are available. We invite them to call in and 
reach us on the statements we send to them. We will give them a 
number to call us. We would invite them to reach us via the 
Internet. And we send them separate mailings encouraging them 
to work with us in solving their issues.
    So we believe we make every attempt to work with customers 
to make the right decisions for them.
    Senator Sununu. Mr. Srednicki, have you changed the way 
that you approach customers who get into trouble over the last 
year?
    Mr. Srednicki. Sir, we have had a very active program over 
the last many years to contact customers who are having 
financial difficulty and enroll them in programs, both help 
programs, temporary programs, long-term programs, consumer 
credit counseling programs.
    A consumer credit counseling program would have been the 
right program, for example, to put Mr. Wannemacher in, had we 
handled the program correctly.
    We do have inbound programs for the customers to reach us. 
We have outbound letters. We have online contact, ways for the 
customer to get hold of us. And we are always glad to work with 
the customer.
    Senator Sununu. But the existence of a counseling program 
is not new for you?
    Mr. Srednicki. No, sir, and we have always supported the 
accredited counseling programs in the country.
    Senator Sununu. Mr. Hammonds, how many of your cards issued 
by your company are delinquent?
    Mr. Hammonds. Well, about 5 percent of the balances are 
delinquent. The average delinquent customer has a higher 
balance than the average customer. So about 2 percent of our 
customers are delinquent at any given time.
    Senator Sununu. So 2 percent of customers, 5 percent of 
balances?
    Mr. Hammonds. That is correct.
    Senator Sununu. Does that reflect industry norms?
    Mr. Hammonds. You know, I do not know, Senator.
    Senator Sununu. Why don't we ask Mr. Srednicki.
    Mr. Srednicki. About 3 percent of our customers would be 
more than 30 days delinquent, and I believe that is below the 
industry norm.
    Senator Sununu. Mr. Atal.
    Mr. Atal. Senator, we provide that information in our 
periodic financial reports. About 2 percent of our customers 
are over 90 days delinquent approximately at any particular 
point in time. I think it is relatively consistent with 
industry norms.
    Senator Sununu. Let us talk briefly--the last question, Mr. 
Chairman--about these college students. Because I do not know 
whether to be alarmed now that my children are approaching 
college age or whether to see this as an opportunity.
    Are college students' delinquency rates higher than the 2 
percent that you say is typical for your company?
    Mr. Atal. It is very similar, Senator.
    Senator Sununu. Any difference between their delinquency 
rates and the ones you just quoted, Mr. Srednicki?
    Mr. Srednicki. I think it is basically the same, Senator. 
And I would point out that the average student goes to college 
with some credit experience. The important thing for us is to 
make sure when a college student is solicited and he or she 
applies, is that they get educational information that tells 
them how to responsibly use their card, do not go over the 
credit limit, and pay their bills on time.
    Senator Sununu. Mr. Hammonds.
    Mr. Hammonds. They have slightly higher delinquency but 
about the same loss rate as the rest of our customer base.
    Senator Sununu. Thank you, very much. Thank you, Mr. 
Chairman.
    Senator Levin. Thank you very much, Senator Sununu. Senator 
Carper.
    Senator Carper. Thanks, Mr. Chairman, for letting me go out 
of order here.
    I have county officials from all over Delaware, all three 
counties, are waiting for me to treat them to lunch so I am not 
going to keeping them waiting too long. I appreciate you 
letting me go out of order and just take a minute, if I could.
    I am going to submit a couple of questions for the record, 
if I may, Mr. Chairman.
    I want to just state one question. I will not ask you to 
answer it here but I will ask you to answer it for the record.
    I think you have all stated that your banks could improve 
the disclosure of your products and features of your products. 
I would just ask for the record, why don't you just go ahead 
and do that? And why do you have to wait for the Federal 
Reserve? That is one I will ask you to answer for the record.
    Again, it goes back to the thought that if customers are 
well informed, they will make a decision and let those market 
forces and competitive forces work.
    The other thing I would say to our Chairman and to my 
colleagues, these banks are profitable and sometimes 
extraordinarily profitable in these operations. It has not been 
mentioned today but they are also extraordinarily generous.
    MBNA was one of the banks that Mr. Hammonds helped to start 
in our State. They are legendary in Delaware for their 
generosity.
    The support that J.P. Morgan Chase and Citibank provided, 
and I suspect in the other States that are represented here, 
whether it is in the education of our students, adopting 
schools, providing mentors in our schools, supporting our 
affordable housing efforts, just all kinds of activities.
    We are grateful for that.
    Last, I would just say in my Clean Air Subcommittee we 
focused on climate change and global warning and trying to 
figure out how we can reduce the threat of global warming 
without screwing up our economy and costing consumers an arm 
and a leg.
    I just learned that Bank of America has announced a $20 
billion environmental initiative to support the efforts of a 
lot of businesses, a lot of people in this country and around 
the world. And we applaud you for that initiative, especially, 
and thank you for joining us today.
    Thank you, Mr. Chairman.
    Senator Levin. I think all three of your banks have a 
practice that requires that the payment by a consumer on a 
credit card account be applied first to the balance, which, as 
a matter of fact, has the lowest interest rate. Is that 
correct? Mr. Hammonds.
    Mr. Hammonds. Yes, sir.
    Mr. Srednicki. Yes, sir.
    Mr. Atal. Yes, sir.
    Senator Levin. Why should you be in a position to decide 
which account a payment is made on? Why should that be 
exclusively your unilateral decision?
    In other words, instead of applying a payment to the 
account that has the highest rate of interest, you apply it to 
the account that has the lowest rate of interest. Why shouldn't 
the customer have a voice in that? Mr. Hammonds.
    Mr. Hammonds. Senator, that practice actually started when 
we started offering zero percentage promotional rates, which I 
think is much like a retail store offering a sale to a 
customer. We know our customers like the zero rate. We know 
that they take advantage of it and that they save money as a 
result.
    However, we could not extend that zero rate without taking 
the payments to that balance first. If, for example, we 
extended a zero rate and then you paid first the other highest 
rate loans, you would never pay off the zero.
    Senator Levin. But the rate of interest charged on 
purchases is a higher rate--excuse me, a lower rate than the 
interest that is charged on money that is borrowed; is that 
correct?
    Mr. Hammonds. That is correct.
    Senator Levin. Why then, when somebody sends you a payment 
and they have two types of loans in effect from you, why should 
it be your unilateral decision to apply that against the lower 
interest rate of interest instead of the higher? I am not 
talking zero rate of interest here.
    Mr. Hammonds. That is the practice.
    Senator Levin. I know, but why is that a fair practice? Why 
shouldn't we just say apply it to the rate of interest which is 
the higher rate of interest instead of the lower rate of 
interest?
    Mr. Hammonds. It is clearly disclosed at the time we give 
that loan to the customer, Mr. Chairman. So the customer knows 
up front how we are going to apply their payments. That is why 
I think it is fair.
    Senator Levin. Do you have anything to add to that, Mr. 
Srednicki?
    Mr. Srednicki. Senator, I think that the zero rates or very 
low interest rates----
    Senator Levin. Not the zero rates. We are talking about the 
regular rates on purchases compared to the rates that are 
charged on money that is borrowed, the advances: Those two 
rates. One of them is 15 percent, and one of them is whatever 
the other percent is. Why should it be applied, when I send you 
a check and I have two open lines with you, one is for my 
purchases which is a 12 percent account, let us say, and one is 
for my advances where you have advanced me money.
    Why should I not be able to say I want to apply that to 
that account, which has got the higher rate of interest?
    Mr. Srednicki. The payment hierarchy, as we call it, is 
created so that we can give better rates to customers on either 
transactions that they buy on the card or in loans that we 
extend the customers to pay off other credit cards or other 
bills. It is a great consumer benefit.
    And if you make the right kind of disclosure and if you 
inform customers at point that they are giving you the 
direction to send a payment out to another issuer, to another 
retailer, or to a home furnishing store, it is a great consumer 
benefit. And we do believe our customers understand that pretty 
clearly and take advantage of it a lot.
    Senator Levin. I would ask that each of you go back to your 
companies and take a look at this trailing interest issue 
because, to me, patently--it is absurd, frankly, that I would 
get a bill February 1 that says this is the total amount that I 
owe. And if I pay it by February 15, I think I would have a 
right to believe that it is, if I do not make any other 
purchases.
    And the idea that then I get a bill on March 1, with no 
further purchases, for what is called trailing interest, it is 
38 cents in our example here, which is obviously a small amount 
in that particular example.
    But the point is not small. The point is there are probably 
hundreds of millions of dollars involved here, when you add up 
all of the small nickel and dime changes which are added like 
that.
    I would ask each of you to go back. I do not think you are 
familiar with this issue, perhaps. At least, Mr. Hammonds, you 
indicated you were not. Mr. Srednicki, I do not think I asked 
you or Mr. Atal.
    But whether you are familiar with it or not, it seems to me 
it is patently unfair. I would ask you to go back to your banks 
and see if you can get that thing dropped.
    I think, Senator McCaskill, technically you would be next 
because he went out of order. Is that all right?
    Senator Coleman. Actually, I have just two questions and I 
have a 12:30 meeting with----
    Senator Levin. I am looking by my Ranking Member and 
Senator McCaskill and figuring out what the rules of the gavel 
are. I want to follow these disclosure rules very carefully.
    Senator McCaskill. I would yield to Senator Coleman, no 
matter what the rule is.
    Senator Levin. Thank you. That solves my problem. Senator 
Coleman.
    Senator Coleman. Thank you.
    Just two lines. First, a comment about the college kids. I 
have a son in college who has a credit card. Actually, he has 
been really good. I think he has an understanding of his 
obligation. He is really proud. He makes his payments. He is 
already negotiating lower interest rates. I think it is 
actually a good deal.
    My concern, though, would be, apparently we put a lot of 
time into educating college kids. The average consumer does not 
have a college education. I would hope you would go back over 
what you are doing with average consumers and put the time and 
money into educating them as well. It would be very helpful and 
I would urge you to look at that.
    I do have to say--and I hope I am pronouncing it 
correctly--is it Mr. Atal?
    Mr. Atal. That is right, Senator.
    Senator Coleman. I think Citigroup has it right that terms 
of the deal should not change, customers should not be repriced 
unexpectedly.
    I would ask Chase and Bank of America, are you considering 
doing the same thing? If not, why not?
    Mr. Srednicki. Senator, we are always evaluating things 
that we can do to be more competitive. This is a very 
competitive industry.
    But I would point out that we could reprice many more 
customers than we do. But we use individualized credit 
decisions in order to handle our customers. So that if your son 
were one of our customers and he was delinquent on our card, 
only one in 10 customers like that would be repriced by us. We 
take into account the credit performance of the individual 
customer and his experience. And every student that we get with 
limited credit experience, we do give credit education to.
    Senator Coleman. Mr. Hammonds.
    Mr. Hammonds. Senator, I would echo what Mr. Srednicki said 
about this being a very competitive market. And so with this 
new announcement by Citi, we certainly will look at that. But 
we will look at it compared to all of the other things we do in 
pricing compared to Citi. We always take those things into 
consideration as well. So, absolutely.
    Senator Coleman. I appreciate it.
    Thank you, Mr. Chairman. And thank you, Senator McCaskill.
    Senator Levin. Thank you. Senator McCaskill.
    Senator McCaskill. First, I want to thank all three of you 
for being here, sincerely. I think it is helpful. And to 
whatever extent my personal frustrations have spilled over 
today, I apologize to the three of you.
    It is interesting because you all talk about how 
competitive your businesses is. And it is interesting to me, 
because I really believe there is a lot of American consumers 
that are very frustrated with your businesses and frustrated 
with what they do not understand and what they do not know.
    It seems to me there is such a marketing opportunity there. 
And I think Citi has happened upon something that I bet will 
help, something that says to the consumer we are not going to 
change the rules on you. We are going to make sure you 
understand the fine print.
    I think you all--and I know you all do focus groups all the 
time. But I would be really interested, if any of you did a 
focus group, how someone would feel if you advertised we are 
going to send you a disclosure that you understand. It may not 
be something that looks like anybody else's disclosure. But you 
are going to understand it. You are going to understand what 
happens if you do not pay the bill by the date it says. You 
understand what happens if you go over your limit. We are going 
to let you charge it in the store, because I think a lot of 
people believe that if they are going to charge something that 
goes over their limit, the machine is going to stop it, the 
machine is not going to let it go through. But you do, because 
that, I think, probably embraces some other monies that may 
come into your companies.
    I just think that in some ways I think sometimes you get so 
caught up in competing in the business like you have always 
competed that you do not maybe think that there might be an 
opportunity out there to really make it simple and be really 
upfront about everything that you are doing and what it means. 
And I think you might be surprised how many people would flock 
to your companies.
    Let me ask the three of you, on your promotions, what is 
the current promotion you are running? Is it 1.9 percent or is 
it zero percent? What are the current promotions you are 
running at the front end? Is there one?
    Mr. Atal. At any one time we have many promotions running 
to different sets of customers.
    Senator McCaskill. Could you give any kind of average as to 
what the promotional interest rate is that you may be--it seems 
on the envelopes I am seeing all the time is 1.9 percent. Is my 
mother just in a certain set that she is getting 1.9 percent? 
or is that a common promotional right now?
    Mr. Srednicki. Senator, I would say that there are 
literally hundreds of different types of promotions out there. 
Some of them have no promotional rates but we are selling, for 
example, an airline miles program or a rewards program for a 
hotel chain, etc.
    And then there are some programs that go out with a zero 
APR for a length of time or a 1.9 percent and then a go to rate 
that is sometimes fixed, sometimes variable.
    With our company, we solicit the most credit worthy 
customers and credit experienced customers so the rates are 
quite low.
    Senator McCaskill. The interesting thing about your 
promotions, I got the analogy you gave, that it is like a 
retail store offering a promotion. Except when they give you a 
cheap price on hamburger, it is because they think when you are 
there buying the hamburger, you might buy a steak. With your 
companies, it is completely a different kind of promotion 
because once they are in, they are in. Once you get them that 
card and they have the ability to use that card, then I am 
assuming that the goal of your promotion is to get them in the 
door and then to have them as a long-term loan customer.
    Mr. Srednicki. Absolutely.
    Senator McCaskill. That is why I think that the disclosures 
are so important. This is not about buying a steak. This is 
about them signing up long-term for a financial obligation. It 
is so important they understand.
    Late penalties, can you all give me what your late penalty 
is? What is your late penalty, Mr. Hammonds?
    Mr. Hammonds. I believe we assess it one day after the due 
date and it is tiered up from $15 to $39.
    Senator McCaskill. Mr. Srednicki.
    Mr. Srednicki. We generally assess it one day after the due 
date and it is tiered based on balance and it goes up to $39.
    Senator McCaskill. Mr. Atal.
    Mr. Atal. At the high end we have a $39 late fee rate that 
is applied after the due date.
    Senator McCaskill. Let me just make an observation here. I 
know that there is a lot of times, throwing up the worry of 
antitrust is something that I think is used selectively 
sometimes. And I might point out that all three of you have the 
identical late fee. Is that because it is set by law or you 
just have followed each other, when one goes up the other two 
go up?
    Mr. Hammonds. I think, Senator, it comes back to this being 
a very competitive business and you have to be aware of what 
your competitors are doing. And that is probably the result of 
that competitions.
    Senator McCaskill. Finally, the last question I have, and I 
do not mean to pick on Chase. I tried to read through all of 
your disclosures that we have in our book, Bank of America and 
Chase and Citigroup.
    I know that lost and stolen credit cards are the liability 
of your companies, as opposed to the cardholders; correct?
    Mr. Srednicki. Yes.
    Senator McCaskill. I do not think most cardholders know 
that. Now I am not sure that you should tell them because I 
think everybody should be careful with their cards and keep 
track of them. But I think a lot of consumers assume that if 
they lose their card or it gets stolen, somehow they are going 
to be responsible for the charges.
    I am curious, Mr. Srednicki, why, when you look at your 
billing statement disclosures, the very first one is lost or 
stolen, which is the only one that really would impose a 
liability on your company. That is the first disclosure on your 
disclosure statement. And it is the only one that you tell the 
consumer how to get a live adviser.
    All the other disclosures on this sheet, if your customer 
wants to get a hold of someone, you actually spell out you can 
reach an adviser by pressing zero after you enter your account 
number.
    In other words, you are making it, in the very first 
paragraph, very simple for a consumer to let you know when you 
are going to have a liability. But when you get down here to 
your billing rights or any of that, there is not that 
information about you can get an adviser.
    Do any of you put in your disclosures anywhere how you can 
get a live adviser, other than in the section that has to do 
with liability your companies will, in fact, have?
    Mr. Srednicki. Ours is on every statement. We tell the 
customer on every statement, it is on the back of their card, 
how they can get a hold of us for virtually any type of a 
problem.
    Senator McCaskill. Do you explain you can hit zero for an 
adviser after you enter your account number?
    Mr. Srednicki. I do not know the answer to that.
    Senator McCaskill. I would be interested in that, because 
that is part of the battle here, is getting a hold of a live 
person who you can talk to and they can explain things to you. 
I just thought it was fascinating that the only place I found, 
in any of this, that you could get a hold--whether the consumer 
is told how you can get a hold of a live adviser, is in the 
area where you are going to have the financial liability 
instead of the customer.
    Mr. Srednicki. I never thought about it that way but when 
any one of our customers wants to call us, we have live 
advisors available on the phone 24 hours, 7 days a week. I 
think both of my competitors do, too.
    Senator McCaskill. Thank you, Mr. Chairman.
    Senator Levin. Thank you, Senator McCaskill.
    There has been some discussion here today about the 
profitability of the credit card industry, and I pointed out in 
my opening statement that I believe it is the most profitable 
part of the commercial banking world. It is very profitable for 
many years consistently. Obviously, there is some risk 
involved. You talk about this is an unsecured loan.
    But you folks send out 8 billion pieces of mail a year--not 
the three of you, and not your companies, but the entire 
industry, 8 billion pieces of mail. I do not know if there is 
any other industry which comes close. I doubt it.
    There is obviously a significant profit in this industry or 
else you would not be soliciting so often, so repeatedly. I do 
not know how many pieces of mail that averages per household. 
My wife, I think, would say that she thinks she gets most of 
the 8 billion solicitations, just over and over and over again.
    But there are already 640 million credit cards out there. I 
think it attests both to the competitiveness in the industry, 
which you focused on, but it also attests to the profitability 
of the credit card industry. 60 to 70 percent of the people who 
have credit cards, I think by your statistics here today, do 
not pay in full on time so that they run balances. For those 
folks--I think that is about an average figure.
    For those folks, they are the ones that get hit with the 
over-the-limit fees, the late fees, the high interest rates 
after they have paid their zero percent for whatever number of 
months that is, after they sign on. These are the folks that 
frequently get into real financial trouble, as Mr. Wannemacher 
did.
    But I think we have to, first of all, welcome the reforms 
that you folks make when the spotlight is on you. Those are 
welcome.
    And it is necessary that we keep the spotlight on you, 
obviously. That is the role of oversight. That is the role of 
Congress.
    But we cannot have hearings here every day. We cannot get 
every Mr. Wannemacher out there in front of us every day to 
have his debt forgiven. I wish we could, but we cannot.
    We have done some good just with this process you have 
announced in the last couple of days, in which Chase has 
changed the terms of these multiple over-the-limit fees, and 
that is welcome.
    As Senator Carper points out, however, there are I do not 
know how many thousands of companies out there that are not 
going to put limits on how many over-the-limit fees they 
charge. Mr. Wannemacher was hit 47 times for a $200 over-the-
limit fee. He was charged $1,500 in fees for a $200 over-the-
limit amount.
    I think your three companies are now intending, with 
Chase's addition today, to stop that. But all those other 
companies that Senator Carper referred to are out there. And 
the question is how do we get them to stop that abuse? We 
cannot have a hearing with a thousand companies here, put the 
spotlight on them. And so you have to have some regulation and 
you have to have legislation. That is the line that we have to 
figure out where to stop and where to cross.
    Some of these practices are not fair. We have talked about 
the trailing interest. We have talked about these multiple 
over-limit fees on consumers. We have talked about piling 
penalty interest on top of penalty fees because people, as Mr. 
Wannemacher says, are charged interest when those penalty fees 
are added to the amount that is owing.
    I believe it is wrong for people to pay interest on debt 
which they pay on time. I think most people do not believe it. 
In fact, it is counterintuitive when I ask colleagues of mine, 
are you aware of the fact that if you pay a big chunk of your 
credit card bill on time that you are still going to be charged 
interest on the amount that you paid on time next month? And 
they all look at me like are you kidding?
    So maybe it is in the fine print somewhere in the 
disclosure, but I think it is wrong.
    I do not think we ought to charge consumers a fee to pay 
their bills. And I did not have a chance to ask you all about 
this but apparently it is the practice that if you pay your 
bill by phone that you are going to be charged a fee even if 
that bill is paid on time. That does not strike me as being 
fair. If you pay by computer there is no fee. If you pay by 
mail, someone has got to open an envelope, there is no fee. But 
if you place a call to the company and transfer money from 
another account or a bank to pay that credit card bill, you are 
charged a fee. And that is troubling, as well.
    We are going to keep the spotlight on. This oversight 
hearing has been very valuable to us in terms of the road that 
we are going to walk. Hopefully not needing too much 
legislation. But I think at least for all those other companies 
that are not put right under the microscope as you folks have 
been today, that those companies have got to be reined in as 
well. And I do not know how to do it, except through regulation 
or through legislation or through the industry adopting some 
kind of a code of practices which everybody signs up to.
    But there clearly are excesses out there. There are abuses 
out there. We appreciate not only the steps that you have 
taken, in a number of instances, to correct some of those 
abuses and very honestly and openly saying, in a number of 
cases, it is because of these oversight hearings and the 
Banking Committee's hearings. But also the fact that you have 
been very cooperative with the Subcommittee.
    You have always provided us the information which we have 
sought. You have been helpful in that regard. And we appreciate 
that. And we will keep the spotlight on, the one that you faced 
today.
    We appreciate your being here.
    Thank you so much and we will stand adjourned.
    [Whereupon, at 12:50 p.m., the Subcommittee was adjourned.]
                            A P P E N D I X

                              ----------                              


                 PREPARED STATEMENT OF SENATOR COLLINS
    Mr. Chairman, I commend and share your long-standing interest in 
consumer protection and fair play.
    Within the lifetimes of many of us in this room, credit cards have 
grown from a novelty for the affluent, to an essential element of daily 
life for many Americans. A recent Government Accountability Office 
(GAO) report cited evidence that Americans hold nearly 700 million 
credit cards, use them more than 2 billion times a month, and charge 
nearly 2 trillion dollars a year.
    The GAO report noted that nearly half of cardholders pay off their 
balances month to month, and that competition among card issuers has 
brought interest rates below 20 percent for four-fifths of card users. 
For most people, credit cards are a clear boon.
    Unfortunately, as the GAO report, our own observations, and our 
constituent mail can testify, many people find themselves shocked--and 
their budgets strained--by fees, penalties, or rate changes that were 
not explained well, or that defy our basic sense of fair dealing.
    The GAO found, for example, that some credit-card disclosure text 
is written at third-year college level, even though about half of the 
population reads at eighth-grade level or below. Complicated 
explanations in tiny type may explain why over half of cardholders 
surveyed said they didn't read disclosures closely--or at all.
    Informed consumers are key to reaping the advantages of competition 
and choice that help our people and our nation to prosper. Making sure 
that credit-card users can understand their choices among differing 
rate and fee structures will help them avoid unsuitable choices and 
will sharpen competition among card issuers.
    Improved disclosure--which ideally includes simpler language and 
clearer displays--will also call attention to practices like double-
cycle billing, through which a card holder paying off even a large part 
of a balance during the grace period gets charged interest on the 
entire amount in the next bill.
    Mr. Chairman, I look forward to studying the views of the 
Subcommittee's witnesses today. I am sure that card issuers and users 
can help us identify improvements in practices and disclosures that 
will make credit cards an even more useful and beneficial part of our 
national commerce.
    Thank you.
    [GRAPHIC] [TIFF OMITTED] 34409.001
    
    [GRAPHIC] [TIFF OMITTED] 34409.002
    
    [GRAPHIC] [TIFF OMITTED] 34409.003
    
    [GRAPHIC] [TIFF OMITTED] 34409.004
    
    [GRAPHIC] [TIFF OMITTED] 34409.005
    
    [GRAPHIC] [TIFF OMITTED] 34409.006
    
    [GRAPHIC] [TIFF OMITTED] 34409.007
    
    [GRAPHIC] [TIFF OMITTED] 34409.008
    
    [GRAPHIC] [TIFF OMITTED] 34409.009
    
    [GRAPHIC] [TIFF OMITTED] 34409.010
    
    [GRAPHIC] [TIFF OMITTED] 34409.011
    
    [GRAPHIC] [TIFF OMITTED] 34409.012
    
    [GRAPHIC] [TIFF OMITTED] 34409.013
    
    [GRAPHIC] [TIFF OMITTED] 34409.014
    
    [GRAPHIC] [TIFF OMITTED] 34409.015
    
    [GRAPHIC] [TIFF OMITTED] 34409.016
    
    [GRAPHIC] [TIFF OMITTED] 34409.017
    
    [GRAPHIC] [TIFF OMITTED] 34409.018
    
    [GRAPHIC] [TIFF OMITTED] 34409.019
    
    [GRAPHIC] [TIFF OMITTED] 34409.020
    
    [GRAPHIC] [TIFF OMITTED] 34409.021
    
    [GRAPHIC] [TIFF OMITTED] 34409.022
    
    [GRAPHIC] [TIFF OMITTED] 34409.023
    
    [GRAPHIC] [TIFF OMITTED] 34409.024
    
    [GRAPHIC] [TIFF OMITTED] 34409.025
    
    [GRAPHIC] [TIFF OMITTED] 34409.026
    
    [GRAPHIC] [TIFF OMITTED] 34409.027
    
    [GRAPHIC] [TIFF OMITTED] 34409.028
    
    [GRAPHIC] [TIFF OMITTED] 34409.029
    
    [GRAPHIC] [TIFF OMITTED] 34409.030
    
    [GRAPHIC] [TIFF OMITTED] 34409.031
    
    [GRAPHIC] [TIFF OMITTED] 34409.032
    
    [GRAPHIC] [TIFF OMITTED] 34409.033
    
    [GRAPHIC] [TIFF OMITTED] 34409.034
    
    [GRAPHIC] [TIFF OMITTED] 34409.035
    
    [GRAPHIC] [TIFF OMITTED] 34409.036
    
    [GRAPHIC] [TIFF OMITTED] 34409.037
    
    [GRAPHIC] [TIFF OMITTED] 34409.038
    
    [GRAPHIC] [TIFF OMITTED] 34409.039
    
    [GRAPHIC] [TIFF OMITTED] 34409.040
    
    [GRAPHIC] [TIFF OMITTED] 34409.041
    
    [GRAPHIC] [TIFF OMITTED] 34409.042
    
    [GRAPHIC] [TIFF OMITTED] 34409.043
    
    [GRAPHIC] [TIFF OMITTED] 34409.044
    
    [GRAPHIC] [TIFF OMITTED] 34409.045
    
    [GRAPHIC] [TIFF OMITTED] 34409.046
    
    [GRAPHIC] [TIFF OMITTED] 34409.047
    
    [GRAPHIC] [TIFF OMITTED] 34409.048
    
    [GRAPHIC] [TIFF OMITTED] 34409.049
    
    [GRAPHIC] [TIFF OMITTED] 34409.050
    
    [GRAPHIC] [TIFF OMITTED] 34409.051
    
    [GRAPHIC] [TIFF OMITTED] 34409.052
    
    [GRAPHIC] [TIFF OMITTED] 34409.053
    
    [GRAPHIC] [TIFF OMITTED] 34409.054
    
    [GRAPHIC] [TIFF OMITTED] 34409.055
    
    [GRAPHIC] [TIFF OMITTED] 34409.056
    
    [GRAPHIC] [TIFF OMITTED] 34409.057
    
    [GRAPHIC] [TIFF OMITTED] 34409.058
    
    [GRAPHIC] [TIFF OMITTED] 34409.059
    
    [GRAPHIC] [TIFF OMITTED] 34409.060
    
    [GRAPHIC] [TIFF OMITTED] 34409.061
    
    [GRAPHIC] [TIFF OMITTED] 34409.062
    
    [GRAPHIC] [TIFF OMITTED] 34409.063
    
    [GRAPHIC] [TIFF OMITTED] 34409.064
    
    [GRAPHIC] [TIFF OMITTED] 34409.065
    
    [GRAPHIC] [TIFF OMITTED] 34409.066
    
    [GRAPHIC] [TIFF OMITTED] 34409.067
    
    [GRAPHIC] [TIFF OMITTED] 34409.068
    
    [GRAPHIC] [TIFF OMITTED] 34409.069
    
    [GRAPHIC] [TIFF OMITTED] 34409.070
    
    [GRAPHIC] [TIFF OMITTED] 34409.071
    
    [GRAPHIC] [TIFF OMITTED] 34409.072
    
    [GRAPHIC] [TIFF OMITTED] 34409.073
    
    [GRAPHIC] [TIFF OMITTED] 34409.074
    
    [GRAPHIC] [TIFF OMITTED] 34409.075
    
    [GRAPHIC] [TIFF OMITTED] 34409.076
    
    [GRAPHIC] [TIFF OMITTED] 34409.077
    
    [GRAPHIC] [TIFF OMITTED] 34409.078
    
    [GRAPHIC] [TIFF OMITTED] 34409.079
    
    [GRAPHIC] [TIFF OMITTED] 34409.080
    
    [GRAPHIC] [TIFF OMITTED] 34409.081
    
    [GRAPHIC] [TIFF OMITTED] 34409.082
    
    [GRAPHIC] [TIFF OMITTED] 34409.083
    
    [GRAPHIC] [TIFF OMITTED] 34409.084
    
    [GRAPHIC] [TIFF OMITTED] 34409.085
    
    [GRAPHIC] [TIFF OMITTED] 34409.086
    
    [GRAPHIC] [TIFF OMITTED] 34409.087
    
    [GRAPHIC] [TIFF OMITTED] 34409.088
    
    [GRAPHIC] [TIFF OMITTED] 34409.089
    
    [GRAPHIC] [TIFF OMITTED] 34409.090
    
    [GRAPHIC] [TIFF OMITTED] 34409.091
    
    [GRAPHIC] [TIFF OMITTED] 34409.092
    
    [GRAPHIC] [TIFF OMITTED] 34409.093
    
    [GRAPHIC] [TIFF OMITTED] 34409.094
    
    [GRAPHIC] [TIFF OMITTED] 34409.095
    
    [GRAPHIC] [TIFF OMITTED] 34409.096
    
    [GRAPHIC] [TIFF OMITTED] 34409.097
    
    [GRAPHIC] [TIFF OMITTED] 34409.098
    
    [GRAPHIC] [TIFF OMITTED] 34409.099
    
    [GRAPHIC] [TIFF OMITTED] 34409.100
    
    [GRAPHIC] [TIFF OMITTED] 34409.101
    
    [GRAPHIC] [TIFF OMITTED] 34409.102
    
    [GRAPHIC] [TIFF OMITTED] 34409.103
    
    [GRAPHIC] [TIFF OMITTED] 34409.104
    
    [GRAPHIC] [TIFF OMITTED] 34409.105
    
    [GRAPHIC] [TIFF OMITTED] 34409.106
    
    [GRAPHIC] [TIFF OMITTED] 34409.107
    
    [GRAPHIC] [TIFF OMITTED] 34409.108
    
    [GRAPHIC] [TIFF OMITTED] 34409.109
    
    [GRAPHIC] [TIFF OMITTED] 34409.110
    
    [GRAPHIC] [TIFF OMITTED] 34409.111
    
    [GRAPHIC] [TIFF OMITTED] 34409.112
    
    [GRAPHIC] [TIFF OMITTED] 34409.113
    
    [GRAPHIC] [TIFF OMITTED] 34409.114
    
    [GRAPHIC] [TIFF OMITTED] 34409.115
    
    [GRAPHIC] [TIFF OMITTED] 34409.116
    
    [GRAPHIC] [TIFF OMITTED] 34409.117
    
    [GRAPHIC] [TIFF OMITTED] 34409.118
    
    [GRAPHIC] [TIFF OMITTED] 34409.119
    
    [GRAPHIC] [TIFF OMITTED] 34409.120
    
    [GRAPHIC] [TIFF OMITTED] 34409.121
    
    [GRAPHIC] [TIFF OMITTED] 34409.122
    
    [GRAPHIC] [TIFF OMITTED] 34409.123
    
    [GRAPHIC] [TIFF OMITTED] 34409.124
    
    [GRAPHIC] [TIFF OMITTED] 34409.125
    
    [GRAPHIC] [TIFF OMITTED] 34409.126
    
    [GRAPHIC] [TIFF OMITTED] 34409.127
    
    [GRAPHIC] [TIFF OMITTED] 34409.128
    
    [GRAPHIC] [TIFF OMITTED] 34409.129
    
    [GRAPHIC] [TIFF OMITTED] 34409.130
    
    [GRAPHIC] [TIFF OMITTED] 34409.131
    
    [GRAPHIC] [TIFF OMITTED] 34409.132
    
    [GRAPHIC] [TIFF OMITTED] 34409.133
    
    [GRAPHIC] [TIFF OMITTED] 34409.134
    
    [GRAPHIC] [TIFF OMITTED] 34409.135
    
    [GRAPHIC] [TIFF OMITTED] 34409.136
    
    [GRAPHIC] [TIFF OMITTED] 34409.137
    
    [GRAPHIC] [TIFF OMITTED] 34409.138
    
    [GRAPHIC] [TIFF OMITTED] 34409.139
    
    [GRAPHIC] [TIFF OMITTED] 34409.140
    
    [GRAPHIC] [TIFF OMITTED] 34409.141
    
    [GRAPHIC] [TIFF OMITTED] 34409.142
    
    [GRAPHIC] [TIFF OMITTED] 34409.143
    
    [GRAPHIC] [TIFF OMITTED] 34409.144
    
    [GRAPHIC] [TIFF OMITTED] 34409.145
    
    [GRAPHIC] [TIFF OMITTED] 34409.146
    
    [GRAPHIC] [TIFF OMITTED] 34409.147
    
    [GRAPHIC] [TIFF OMITTED] 34409.148
    
    [GRAPHIC] [TIFF OMITTED] 34409.149
    
    [GRAPHIC] [TIFF OMITTED] 34409.150
    
    [GRAPHIC] [TIFF OMITTED] 34409.151
    
    [GRAPHIC] [TIFF OMITTED] 34409.152
    
    [GRAPHIC] [TIFF OMITTED] 34409.153
    
    [GRAPHIC] [TIFF OMITTED] 34409.154
    
    [GRAPHIC] [TIFF OMITTED] 34409.155
    
    [GRAPHIC] [TIFF OMITTED] 34409.156
    
    [GRAPHIC] [TIFF OMITTED] 34409.157
    
    [GRAPHIC] [TIFF OMITTED] 34409.158
    
    [GRAPHIC] [TIFF OMITTED] 34409.159
    
    [GRAPHIC] [TIFF OMITTED] 34409.160
    
    [GRAPHIC] [TIFF OMITTED] 34409.161
    
    [GRAPHIC] [TIFF OMITTED] 34409.162
    
    [GRAPHIC] [TIFF OMITTED] 34409.163
    
    [GRAPHIC] [TIFF OMITTED] 34409.164
    
    [GRAPHIC] [TIFF OMITTED] 34409.165
    
    [GRAPHIC] [TIFF OMITTED] 34409.166
    
    [GRAPHIC] [TIFF OMITTED] 34409.167
    
    [GRAPHIC] [TIFF OMITTED] 34409.168
    
    [GRAPHIC] [TIFF OMITTED] 34409.169
    
    [GRAPHIC] [TIFF OMITTED] 34409.170
    
    [GRAPHIC] [TIFF OMITTED] 34409.171
    
    [GRAPHIC] [TIFF OMITTED] 34409.172
    
    [GRAPHIC] [TIFF OMITTED] 34409.173
    
    [GRAPHIC] [TIFF OMITTED] 34409.174
    
    [GRAPHIC] [TIFF OMITTED] 34409.175
    
    [GRAPHIC] [TIFF OMITTED] 34409.176
    
    [GRAPHIC] [TIFF OMITTED] 34409.177
    
    [GRAPHIC] [TIFF OMITTED] 34409.178
    
    [GRAPHIC] [TIFF OMITTED] 34409.179
    
    [GRAPHIC] [TIFF OMITTED] 34409.180
    
    [GRAPHIC] [TIFF OMITTED] 34409.181
    
    [GRAPHIC] [TIFF OMITTED] 34409.182
    
    [GRAPHIC] [TIFF OMITTED] 34409.183
    
    [GRAPHIC] [TIFF OMITTED] 34409.184
    
    [GRAPHIC] [TIFF OMITTED] 34409.185
    
    [GRAPHIC] [TIFF OMITTED] 34409.186
    
    [GRAPHIC] [TIFF OMITTED] 34409.187
    
    [GRAPHIC] [TIFF OMITTED] 34409.188
    
    [GRAPHIC] [TIFF OMITTED] 34409.189
    
    [GRAPHIC] [TIFF OMITTED] 34409.190
    
    [GRAPHIC] [TIFF OMITTED] 34409.191
    
    [GRAPHIC] [TIFF OMITTED] 34409.192
    
    [GRAPHIC] [TIFF OMITTED] 34409.193
    
    [GRAPHIC] [TIFF OMITTED] 34409.194
    
    [GRAPHIC] [TIFF OMITTED] 34409.195
    
    [GRAPHIC] [TIFF OMITTED] 34409.196
    
    [GRAPHIC] [TIFF OMITTED] 34409.197
    
    [GRAPHIC] [TIFF OMITTED] 34409.198
    
    [GRAPHIC] [TIFF OMITTED] 34409.199
    
    [GRAPHIC] [TIFF OMITTED] 34409.200
    
    [GRAPHIC] [TIFF OMITTED] 34409.201
    
    [GRAPHIC] [TIFF OMITTED] 34409.202
    
    [GRAPHIC] [TIFF OMITTED] 34409.203
    
    [GRAPHIC] [TIFF OMITTED] 34409.204
    
    [GRAPHIC] [TIFF OMITTED] 34409.205
    
    [GRAPHIC] [TIFF OMITTED] 34409.206
    
    [GRAPHIC] [TIFF OMITTED] 34409.207
    
    [GRAPHIC] [TIFF OMITTED] 34409.208
    
    [GRAPHIC] [TIFF OMITTED] 34409.209
    
    [GRAPHIC] [TIFF OMITTED] 34409.210
    
    [GRAPHIC] [TIFF OMITTED] 34409.211
    
    [GRAPHIC] [TIFF OMITTED] 34409.212
    
    [GRAPHIC] [TIFF OMITTED] 34409.213
    
    [GRAPHIC] [TIFF OMITTED] 34409.214
    
    [GRAPHIC] [TIFF OMITTED] 34409.215
    
    [GRAPHIC] [TIFF OMITTED] 34409.216
    
    [GRAPHIC] [TIFF OMITTED] 34409.217
    
    [GRAPHIC] [TIFF OMITTED] 34409.218
    
    [GRAPHIC] [TIFF OMITTED] 34409.219
    
    [GRAPHIC] [TIFF OMITTED] 34409.220
    
    [GRAPHIC] [TIFF OMITTED] 34409.221
    
    [GRAPHIC] [TIFF OMITTED] 34409.222
    
    [GRAPHIC] [TIFF OMITTED] 34409.223
    
    [GRAPHIC] [TIFF OMITTED] 34409.224
    
    [GRAPHIC] [TIFF OMITTED] 34409.225
    
    [GRAPHIC] [TIFF OMITTED] 34409.226
    
    [GRAPHIC] [TIFF OMITTED] 34409.227
    
    [GRAPHIC] [TIFF OMITTED] 34409.228
    
    [GRAPHIC] [TIFF OMITTED] 34409.229
    
    [GRAPHIC] [TIFF OMITTED] 34409.230
    
    [GRAPHIC] [TIFF OMITTED] 34409.257
    
    [GRAPHIC] [TIFF OMITTED] 34409.232
    
    [GRAPHIC] [TIFF OMITTED] 34409.233
    
    [GRAPHIC] [TIFF OMITTED] 34409.234
    
    [GRAPHIC] [TIFF OMITTED] 34409.235
    
    [GRAPHIC] [TIFF OMITTED] 34409.236
    
    [GRAPHIC] [TIFF OMITTED] 34409.237
    
    [GRAPHIC] [TIFF OMITTED] 34409.238
    
    [GRAPHIC] [TIFF OMITTED] 34409.239
    
    [GRAPHIC] [TIFF OMITTED] 34409.240
    
    [GRAPHIC] [TIFF OMITTED] 34409.241
    
    [GRAPHIC] [TIFF OMITTED] 34409.242
    
    [GRAPHIC] [TIFF OMITTED] 34409.243
    
    [GRAPHIC] [TIFF OMITTED] 34409.244
    
    [GRAPHIC] [TIFF OMITTED] 34409.245
    
    [GRAPHIC] [TIFF OMITTED] 34409.246
    
    [GRAPHIC] [TIFF OMITTED] 34409.247
    
    [GRAPHIC] [TIFF OMITTED] 34409.248
    
    [GRAPHIC] [TIFF OMITTED] 34409.249
    
    [GRAPHIC] [TIFF OMITTED] 34409.250
    
    [GRAPHIC] [TIFF OMITTED] 34409.251
    
    [GRAPHIC] [TIFF OMITTED] 34409.252
    
    [GRAPHIC] [TIFF OMITTED] 34409.253
    
    [GRAPHIC] [TIFF OMITTED] 34409.254
    
    [GRAPHIC] [TIFF OMITTED] 34409.255
    
    [GRAPHIC] [TIFF OMITTED] 34409.256
    
    [GRAPHIC] [TIFF OMITTED] 34409.026
    
    1[GRAPHIC] [TIFF OMITTED] 34409.026
    
    2[GRAPHIC] [TIFF OMITTED] 34409.026
    
    3[GRAPHIC] [TIFF OMITTED] 34409.026
    
    4[GRAPHIC] [TIFF OMITTED] 34409.026
    
    5[GRAPHIC] [TIFF OMITTED] 34409.026
    
    6[GRAPHIC] [TIFF OMITTED] 34409.026
    
    7[GRAPHIC] [TIFF OMITTED] 34409.026
    
    8[GRAPHIC] [TIFF OMITTED] 34409.026
    
    9[GRAPHIC] [TIFF OMITTED] 34409.027
    
    0[GRAPHIC] [TIFF OMITTED] 34409.027
    
    1[GRAPHIC] [TIFF OMITTED] 34409.027
    
    2[GRAPHIC] [TIFF OMITTED] 34409.027
    
    3[GRAPHIC] [TIFF OMITTED] 34409.027
    
    4[GRAPHIC] [TIFF OMITTED] 34409.027
    
    5[GRAPHIC] [TIFF OMITTED] 34409.027
    
    6[GRAPHIC] [TIFF OMITTED] 34409.027
    
    7[GRAPHIC] [TIFF OMITTED] 34409.027
    
    8[GRAPHIC] [TIFF OMITTED] 34409.027
    
    9[GRAPHIC] [TIFF OMITTED] 34409.028
    
    0[GRAPHIC] [TIFF OMITTED] 34409.028
    
    1[GRAPHIC] [TIFF OMITTED] 34409.028
    
    2[GRAPHIC] [TIFF OMITTED] 34409.028
    
    3[GRAPHIC] [TIFF OMITTED] 34409.028
    
    4[GRAPHIC] [TIFF OMITTED] 34409.028
    
    5[GRAPHIC] [TIFF OMITTED] 34409.028
    
    6[GRAPHIC] [TIFF OMITTED] 34409.028
    
    7[GRAPHIC] [TIFF OMITTED] 34409.028
    
    8[GRAPHIC] [TIFF OMITTED] 34409.028
    
    9[GRAPHIC] [TIFF OMITTED] 34409.029
    
    0[GRAPHIC] [TIFF OMITTED] 34409.029
    
    1[GRAPHIC] [TIFF OMITTED] 34409.029
    
    2[GRAPHIC] [TIFF OMITTED] 34409.029
    
    3[GRAPHIC] [TIFF OMITTED] 34409.029
    
    4[GRAPHIC] [TIFF OMITTED] 34409.029
    
    5[GRAPHIC] [TIFF OMITTED] 34409.029
    
    6[GRAPHIC] [TIFF OMITTED] 34409.029
    
    7[GRAPHIC] [TIFF OMITTED] 34409.029
    
    8[GRAPHIC] [TIFF OMITTED] 34409.029
    
    9[GRAPHIC] [TIFF OMITTED] 34409.030
    
    0[GRAPHIC] [TIFF OMITTED] 34409.030
    
    1[GRAPHIC] [TIFF OMITTED] 34409.030
    
    2[GRAPHIC] [TIFF OMITTED] 34409.030
    
    3[GRAPHIC] [TIFF OMITTED] 34409.030
    
    4[GRAPHIC] [TIFF OMITTED] 34409.030
    
    5[GRAPHIC] [TIFF OMITTED] 34409.030
    
    6[GRAPHIC] [TIFF OMITTED] 34409.030
    
    7[GRAPHIC] [TIFF OMITTED] 34409.030
    
    8[GRAPHIC] [TIFF OMITTED] 34409.030
    
    9[GRAPHIC] [TIFF OMITTED] 34409.031
    
    0[GRAPHIC] [TIFF OMITTED] 34409.031
    
    1[GRAPHIC] [TIFF OMITTED] 34409.031
    
    2[GRAPHIC] [TIFF OMITTED] 34409.031
    
    3[GRAPHIC] [TIFF OMITTED] 34409.031
    
    4[GRAPHIC] [TIFF OMITTED] 34409.031
    
    5[GRAPHIC] [TIFF OMITTED] 34409.031
    
                                 6
