[Congressional Record Volume 150, Number 73 (Friday, May 21, 2004)]
[Senate]
[Pages S6093-S6096]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. AKAKA (for himself, Mr. Durbin, Mr. Leahy, and Mr. 
        Schumer):
  S. 2475. A bill to require enhanced disclosure to consumers regarding 
the consequences of making only minimum required payments in the 
repayment of credit card debt; to the Committee on Banking, Housing, 
and Urban Affairs.
  Mr. AKAKA. Mr. President, I rise today to introduce the Credit Card 
Minimum Payment Warning Act. I greatly appreciate the significant 
contributions Senator Durbin made to this

[[Page S6094]]

bill, and I thank him very much for that. Also, I thank Senator Leahy 
and Senator Schumer for cosponsoring this legislation.
  Americans are carrying enormous amounts of debt. In 2003, consumer 
debt increased for the first time to more than $2 trillion, according 
to the Federal Reserve. This is a 28-percent increase since the year 
2000. According to the Daily Bankruptcy News, consumer debt is now 
equal to 110 percent of disposable income. Ten years ago, it was 85 
percent; and 20 years ago, it was 65 percent. A key component of 
household debt can be attributed to the use of credit cards. Revolving 
debt, mostly comprised of credit card debt, has more than doubled from 
$313 billion in January 1994 to $753 billion in debt in January 2004. A 
U.S. Public Interest Research Group and Consumer Federation of America 
analysis of Federal Reserve data indicates that the average household 
with debt carries approximately $10,000 to $12,000 in total revolving 
debt and has nine credit cards.
  More and more working families are trying to meet growing financial 
obligations and are having difficulties surviving financially. When 
interest rates do eventually rise, consumers' increasing debt 
obligations will be compounded further.
  As household debt has increased, bankruptcy filings have surged to 
record levels. In the year 2003, more than 1.6 million consumers filed 
for bankruptcy. This staggering amount is an increase of 5.6 percent 
over the previous record set in 2002. Bankruptcies disrupt the lives of 
consumers and limit their ability to access credit in the future. In 
addition, bankruptcies lead to significant financial losses for 
creditors. It is imperative that we make consumers more aware of the 
long-term effects of their financial decisions, particularly in 
managing their credit card debt, so that they can avoid bankruptcy.

  Even as we contemplate the consequences of more and more debt, it has 
become easier to access credit. Pre-approved credit card offers are now 
a routine piece of mail. Students are offered credit cards at earlier 
ages, especially in view of the success that credit card companies are 
having with their aggressive campaigns targeted towards college 
students. Mr. President, 55 percent of college students acquire their 
first credit card during their first year in college, and 83 percent of 
college students have at least one credit card. Forty-five percent of 
college students are in credit card debt, with the average debt being 
over $3,000.
  While it is relatively easy to obtain credit, not enough is done to 
ensure that credit is properly managed. Currently, credit card 
statements fail to include all of the information necessary to allow 
individuals to make fully informed financial decisions. Additional 
disclosure is needed to ensure that individuals completely understand 
the implications of their credit card use.
  Our legislation will provide a wakeup call for consumers. It will 
make it very clear what costs consumers will incur if they make only 
the minimum payments on their credit cards. The personalized 
information they will receive for each of their accounts will help them 
to make informed choices about the payments that they choose to make 
towards their balance.
  This bill requires a minimum payment warning notification on monthly 
statements stating that making the minimum payment will increase the 
amount of interest that will be paid and extend the amount of time it 
will take to repay the outstanding balance. Consumers would have to be 
informed of how many years and months it will take to repay their 
entire balance if they make only the minimum payments. In addition, the 
total costs in interest and principal, if the consumer pays only the 
minimum payment, would have to be disclosed. These provisions will make 
individuals much more aware of the true costs of their credit card 
debts.
  The bill also requires that credit card companies provide useful 
information so that people can develop strategies to free themselves of 
credit card debt. Consumers would have to be provided with the amount 
they need to pay to eliminate their outstanding balance within 36 
months. Finally, the legislation would require that creditors establish 
a toll-free number so that consumers can access trustworthy credit 
counselors. In order to ensure that consumers are referred from the 
toll-free number to only trustworthy organizations, the agencies for 
referral would have to be approved by the Federal Trade Commission and 
the Federal Reserve Board as having met comprehensive quality 
standards. These standards are necessary because certain credit 
counseling agencies have abused their nonprofit, tax-exempt status and 
have taken advantage of people seeking assistance in managing their 
debts. People believe, sometimes mistakenly, that they can place blind 
trust in nonprofit organizations and that their fees will be lower than 
those of other credit counseling organizations.
  Too many individuals may not realize that the credit counseling 
industry does deserve the trust that consumers often place in it.
  The Credit Card Minimum Payment Warning Act has been endorsed by the 
Consumer Federation of America, Consumers Union, and U.S. Public 
Interest Research Group.
  I ask unanimous consent that the letter of support and factsheet from 
these organizations be printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:
         Consumers Union, Consumer Federation of America, U.S. 
           Public Interest Research Group,
                                                     May 13, 2004:
       Dear Senators Akaka and Durbin The undersigned national 
     consumer organizations write to strongly support the Credit 
     Card Minimum Payment Warning Act. The act would require 
     credit card issuers to disclose more information to consumers 
     about the costs associated with paying their bills at ever-
     declining minimum payment rates. The Act provides a 
     personalized ``price tag'' so consumers can understand what 
     are the real costs of credit card debt and avoid financial 
     problems in the future.
       Undisputed evidence links the rise in bankruptcy in recent 
     years to the increase in consumer credit outstanding. These 
     numbers have moved in lockstep for more than 20 years. 
     Revolving credit, for example (most of which is credit card 
     debt) ballooned from $214 billion in January 1990 to over 
     $750 billion currently. As a family debt increases, debt 
     service payments on items such as interest and late fees take 
     an ever-increasing piece of their budget. For some families, 
     this contributes to the collapse of their budget. Bankruptcy 
     becomes the only way out. (See the attached fact sheet for 
     more information about the scope and impact of credit card 
     debt.)
       Credit card issuers have exacerbated the financial problems 
     that many families have faced by lowering minimum payment 
     amounts, from around 4 percent of the balance owed, to about 
     2 percent currently. This decline in the typical minimum 
     payment is a significant reason for the rise in consumer 
     bankruptcies in recent years. A low minimum payment often 
     barely covers interest obligations. It convinces many 
     borrowers that they are financially sound as long as they can 
     meet all of their minimum payment obligations. However, those 
     that cannot afford to make these payments often carry so much 
     debt that bankruptcy is usually the only viable option.
       This bill will provide consumers several crucial pieces of 
     information on their monthly credit card statement:
       A ``minimum payment warning'' that paying at the minimum 
     rate will increase the amount of interest that is owed and 
     the time it will take to repay the balance.
       The number of years and months that it will take the 
     consumer to pay off the balance at the minimum rate.
       The total costs in interest and principal if the consumer 
     pays at the minimum rate.
       The monthly payment that would be required to pay the 
     balance off in three years.
       The bill also requires that credit card companies provide a 
     toll-free number that consumers can call to receive 
     information about credit counseling and debt management 
     assistance. In order to assure that consumers are referred to 
     honest, legitimate non-profit credit counselors, the bill 
     requires the Federal Reserve to screen these agencies to 
     ensure that they meet rigorous quality standards.
       Our groups command you for offering this very important and 
     long-overdue piece of legislation. It provides the kind of 
     personalized, timely disclosure information that will help 
     debt-choked families make informed decisions and start to 
     work their way back to financial health.
           Sincerely,
     Travis B. Plunkett,
       Legislative Director, Consumer Federation of America.
     Adam Goldberg,
       Policy Analyst, Consumers Union.
     Edmund Mierzwinski,
       Consumer Programs Director, U.S. Public Interest Research 
     Group.

[[Page S6095]]

     
                                  ____
                      FACTS ABOUT CREDIT CARD DEBT

       Revolving debt (most of which is credit card debt) has 
     ballooned from $54 billion in January 1980 to over $750 
     billion currently.

                                                            In billions
January 1980.........................................................54
January 1984.........................................................79
January 1990........................................................214
January 1994........................................................313
January 2004........................................................753

Source: http://www.federalreserve.gov/Releases/G19/his/cc his sa.html.

       About one-twelfth of this debt is paid off before it incurs 
     interest, so Americans pay interest on an annual load of 
     about $690 billion in revolving debt.
       According to the Federal Reserve, the most recent average 
     credit card interest rate is 12.4% APR. At simple interest, 
     with no compounding, then, consumers pay at least $85 billion 
     annually in interest on credit card and other revolving debt.
       Just about 55 percent of consumers carry debt. The rest are 
     convenience users.
       From PIRG/CFA analysis of Federal Reserve data, the average 
     household with debt carriers approximately $10,000-12,000 in 
     total revolving debt and has approximately nine cards.


           FACTS ABOUT THE EFFECT OF MINIMUM MONTHLY PAYMENTS

       A household making the monthly minimum required payments on 
     this debt (usually the greater of 2 percent of the unpaid 
     balance or $20) at the very low average 12.4% APR (many 
     consumers pay much higher penalty rates than this FRB-
     reported average) would pay $1,175 in interest just in the 
     first year, even if these cards are cut up and not used 
     again.
       This household would pay a total of over $9,800 in interest 
     over a period of 25 years and three months. That fact is not 
     disclosed.
       A household or consumer who merely doubled their minimum 
     payment and paid 4% of the amount due would fare better. A 
     household or consumer that paid 10% of the balance each month 
     would fare much better. Here is comparison.
       Minimum Payment Warnings Would Encourage Larger Payments 
     and Save Consumers Thousands of Dollars in High-Priced Credit 
     Card Debt.

------------------------------------------------------------------------
                                           Monthly Payment (% of unpaid
 Credit Card Debt of $10,000 at Modest               balance)
               12.4% APR                --------------------------------
                                             2%         4%        10%
------------------------------------------------------------------------
First Year Interest....................     $1,175     $1,054       $775
Total Interest Owed....................     $9,834     $3,345     $1,129
Months To Pay Owed.....................        303        127         52
Years to Pay...........................       25.3       10.6        4.3
------------------------------------------------------------------------
 Calculations by U.S. PIRG. also see http://www.truthaboutcredit.org/
lowerapr.htm for additional comparisons and amortization tables

       Giving consumers a minimum payment warning on their credit 
     card statements is the most powerful action Congress could 
     take to increase consumer understanding of the cost of credit 
     card debt.


                 FACTS ABOUT WHO OWES CREDIT CARD DEBT

       Credit card debt has risen fastest among lower-income 
     Americans. These families saw the largest increase--a 184 
     percent rise in their debt--but even very high-income 
     families had 28 percent more credit card debt in 2001 than 
     they did in 1989. Source: Demos
       Thirty-nine percent of student loan borrowers now graduate 
     with unmanageable levels of debt, meaning that their monthly 
     payments are more than 8 percent of their monthly incomes. 
     According to PIRG analysis of the 1999-2000 NPSAS data, in 
     2001, 41 percent of the graduating seniors carried a credit 
     card balance, with an average balance of $3,071. Student loan 
     borrowers were even more likely to carry credit card debt, 
     with 48 percent of borrowers carrying an average credit card 
     balance of $3,176. See ``The Burden of Borrowing,'' 2002, 
     Tracey King, the State PIRGs, http://www.pirg.org/highered/
BurdenofBorrowing.pdf
       While less likely to have credit cards than white families, 
     data show that African-American and Hispanic families are 
     more likely to carry debt.

------------------------------------------------------------------------
                                         % With                 Average
                                         credit   Cardholding    credit
                                         cards    % with debt  card debt
                                          2001        2001        2001
------------------------------------------------------------------------
All families.........................         76          55      $4,126
White families.......................         82          51       4,381
Black families.......................         59          84       2,950
Hispanic families....................         53          75       3,691
------------------------------------------------------------------------
 Demos calculation using 2001 Survey of Consumer Finance. See Borrowing
  To Make Ends Meet. Demos, http://www.demos-usa.org/pubs/
borrowing_to_make_ends_meet.pdf.

                         seniors (over age 65)

       Credit card debt among older Americans increased by 89 
     percent from 1992 to 2001. Average balances among indebted 
     adults over 65 increased by 89 percent, to $4,041.
       Seniors between 65 and 69 years old, presumably the newly-
     retired, saw the most staggering rise in credit card debt--
     217 percent--to an average of $5,844.
       Female-headed senior households experienced a 48 percent 
     increase between 1992 and 2001, to an average of $2,319.
       Among seniors with incomes under $50,000 (70 percent of 
     seniors), about one in five families with credit card debt is 
     in debt hardship--spending over 40 percent of their income on 
     debt payments, including mortgage debt.


                       transitioners (ages 55-64)

       Transitioners experienced a 47 percent increase in credit 
     card debt between 1992 and 2001, to an average of $4,088.
       The average credit card-indebted family in this age group 
     now spends 31 percent of their income on debt payments, a 10 
     percent increase over the decade.
       Source: ``Retiring in the Red: The Growth of Debt Among 
     Older Americans''; http://www.demos-usa.org/pub101.cfm.
       Other fact sheet sources include ``Deflate Your Rate,'' 
     MASSPIRG, 2002, see http://www.truthaboutcredit.org and other 
     reports by Demos. See http://www.demos-usa.org/page38.cfm.

  Mr. AKAKA. I also ask unanimous consent that the text of the Credit 
Card Minimum Payment Warning Act be printed in the Record following my 
remarks.
  The ACTING PRESIDENT pro tempore. Without objection, it is so 
ordered.
  Mr. AKAKA. Mr. President, I urge my colleagues to support this 
legislation that will empower consumers by providing them with detailed 
personalized information to assist them in making informed choices 
about their credit card use and repayment. This bill makes clear the 
adverse consequences of uninformed choices, such as making only minimum 
payments, and provides opportunities to locate assistance to eliminate 
credit card debt.

                                S. 2475

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Credit Card Minimum Payment 
     Warning Act''.

     SEC. 2. ENHANCED CONSUMER DISCLOSURES REGARDING MINIMUM 
                   PAYMENTS.

       Section 127(b) of the Truth in Lending Act (15 U.S.C. 
     1637(b)) is amended by adding at the end the following:
       ``(11)(A) Information regarding repayment of the 
     outstanding balance of the consumer under the account, 
     appearing in conspicuous type on the front of the first page 
     of each such billing statement, and accompanied by an 
     appropriate explanation, containing--
       ``(i) the words `Minimum Payment Warning: Making only the 
     minimum payment will increase the amount of interest that you 
     pay and the time it will take to repay your outstanding 
     balance.';
       ``(ii) the number of years and months (rounded to the 
     nearest month) that it would take for the consumer to pay the 
     entire amount of that balance, if the consumer pays only the 
     required minimum monthly payments;
       ``(iii) the total cost to the consumer, shown as the sum of 
     all principal and interest payments, and a breakdown of the 
     total costs in interest and principal, of paying that balance 
     in full if the consumer pays only the required minimum 
     monthly payments, and if no further advances are made;
       ``(iv) the monthly payment amount that would be required 
     for the consumer to eliminate the outstanding balance in 36 
     months if no further advances are made; and
       ``(v) a toll-free telephone number at which the consumer 
     may receive information about accessing credit counseling and 
     debt management services.
       ``(B)(i) Subject to clause (ii), in making the disclosures 
     under subparagraph (A) the creditor shall apply the interest 
     rate in effect on the date on which the disclosure is made.
       ``(ii) If the interest rate in effect on the date on which 
     the disclosure is made is a temporary rate that will change 
     under a contractual provision specifying a subsequent 
     interest rate or applying an index or formula for subsequent 
     interest rate adjustment, the creditor shall apply the 
     interest rate in effect on the date on which the disclosure 
     is made for as long as that interest rate will apply under 
     that contractual provision, and then shall apply the adjusted 
     interest rate, as specified in the contract. If the contract 
     applies a formula that uses an index that varies over time, 
     the value of such index on the date on which the disclosure 
     is made shall be used in the application of the formula.''.

     SEC. 3. ACCESS TO CREDIT COUNSELING AND DEBT MANAGEMENT 
                   INFORMATION.

       (a) Guidelines Required.--
       (1) In general.--Not later than 1 year after the date of 
     enactment of this Act, the Board of Governors of the Federal 
     Reserve System and the Federal Trade Commission (in this 
     section referred to as the ``Board'' and the ``Commission'', 
     respectively) shall jointly, by rule, regulation, or order, 
     issue guidelines for the establishment and maintenance by 
     creditors of a toll-free telephone number for purposes of the 
     disclosures required under section 127(b)(11) of the Truth in 
     Lending Act, as added by this Act.
       (2) Approved agencies.--Guidelines issued under this 
     subsection shall ensure that referrals provided by the toll-
     free number include only those agencies approved by the Board 
     and the Commission as meeting the criteria under this 
     section.
       (b) Criteria.--The Board and the Commission shall only 
     approve a nonprofit budget and credit counseling agency for 
     purposes of this section that--
       (1) demonstrates that it will provide qualified counselors, 
     maintain adequate provision

[[Page S6096]]

     for safekeeping and payment of client funds, provide adequate 
     counseling with respect to client credit problems, and deal 
     responsibly and effectively with other matters relating to 
     the quality, effectiveness, and financial security of the 
     services it provides;
       (2) at a minimum--
       (A) is registered as a nonprofit entity under section 
     501(c) of the Internal Revenue Code of 1986;
       (B) has a board of directors, the majority of the members 
     of which--
       (i) are not employed by such agency; and
       (ii) will not directly or indirectly benefit financially 
     from the outcome of the counseling services provided by such 
     agency;
       (C) if a fee is charged for counseling services, charges a 
     reasonable and fair fee, and provides services without regard 
     to ability to pay the fee;
       (D) provides for safekeeping and payment of client funds, 
     including an annual audit of the trust accounts and 
     appropriate employee bonding;
       (E) provides full disclosures to clients, including funding 
     sources, counselor qualifications, possible impact on credit 
     reports, any costs of such program that will be paid by the 
     client, and how such costs will be paid;
       (F) provides adequate counseling with respect to the credit 
     problems of the client, including an analysis of the current 
     financial condition of the client, factors that caused such 
     financial condition, and how such client can develop a plan 
     to respond to the problems without incurring negative 
     amortization of debt;
       (G) provides trained counselors who--
       (i) receive no commissions or bonuses based on the outcome 
     of the counseling services provided;
       (ii) have adequate experience; and
       (iii) have been adequately trained to provide counseling 
     services to individuals in financial difficulty, including 
     the matters described in subparagraph (F);
       (H) demonstrates adequate experience and background in 
     providing credit counseling;
       (I) has adequate financial resources to provide continuing 
     support services for budgeting plans over the life of any 
     repayment plan; and
       (J) is accredited by an independent, nationally recognized 
     accrediting organization.

  Mr. DURBIN. Mr. President, I am delighted to be working with my 
friend the distinguished Senator from Hawaii, Senator Akaka, to 
introduce a measure that provides a simple yet vital commodity to users 
of credit cards. The commodity I speak of: information.
  The modern-day credit-reporting system has benefitted consumers by 
making affordable credit more widely available than ever before, and 
the spread of credit cards is an important part of this ``credit 
revolution.'' Along with this revolution in credit availability, 
however, we need a revolution in consumers' ability to manage their 
credit. Two facts provide a quick and simple snapshot of our progress 
in that regard. In the fourth quarter of 2003, the number of 
delinquencies on regular consumer loans went down. That same quarter, 
the number of past-due credit card accounts hit an all-time high. 
Clearly, an increasing number of credit card holders need to do a 
better job of responsibility managing their credit exposure.
  This bill is designed to help them to do just that by providing that 
vital commodity, information. It would require credit card statements 
to provide information that will help consumers understand the 
relationships among their total balance, the minimum payment due, and 
the accumulation of interest over time. Specifically, this bill would 
require that statements provide the following information: the amount 
of time it would take to pay off the total balance if just minimum 
payments are made each month; the total cost to the consumer that would 
be incurred over that time period, broken into interest and principle; 
the payment amount that would be necessary each month to pay off the 
total balance in three years; and a toll-free telephone number 
consumers could call to get a referral to a legitimate, accredited, 
non-profit credit counseling agency.
  We would like to think that the credit card companies would be glad 
to provide whatever information their consumers needed to responsibly 
manage their credit. The fact of the matter is, though, that they do 
not provide the information I just described, and chances are they will 
not begin doing so on their own initiative. These numbers are not all 
that hard to calculate. A few lines of computer code is all it would 
take. And yet provision of these three simple numbers would provide a 
huge payback by helping credit card users quickly and easily get a 
clearer understanding of the size of their balance and what the 
consequences will be for them--in terms of time and financial cost--of 
carrying that balance.
  Let me be extra clear about one thing: This bill will help markets 
for credit work better. As Adam Smith told us, the free flow of 
information is an absolute prerequisite of an efficient market. For 
markets to work, buyers must know and understand what they are buying. 
When our bill becomes law, credit card holders--who are simply buyers 
of credit in the marketplace--will have a better understanding of what 
exactly they are buying into, for the long term. The result can only be 
that the credit markets will better serve us, and that our households 
and our Nation will be on stronger financial footing.
  I thank my friend Senator Akaka for working with me on this important 
measure. I am also delighted that my friends Senator Schumer and 
Senator Leahy have joined us as original cosponsors. I urge the rest of 
my colleagues to join us by cosponsoring this bill.
                                 ______