[Congressional Record Volume 151, Number 17 (Wednesday, February 16, 2005)]
[Senate]
[Pages S1518-S1520]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. AKAKA (for himself, Mr. Durbin, Mr. Leahy, Mr. Sarbanes, 
        and Mr. Schumer):
  S. 393. A bill to require enhanced disclosure to consumers regarding 
the consequences of making only minimum required payments in the 
repayment of credit card debt, and for other purposes; to the Committee 
on Banking, Housing, and Urban Affairs.
  Mr. AKAKA. Mr. President, I rise to introduce the Credit Card Minimum 
Payment Warning Act. I thank Senators Durbin, Leahy, Sarbanes, and 
Schumer for working with me on this legislation and for cosponsoring 
this bill.
  I am deeply concerned about the enormous debt burdens that Americans 
are currently carrying. I share the concern on debts we expect from the 
Social Security program. Revolving Debt, mostly comprised of credit 
card debt, has increased from $54 billion in January 1980 to more than 
$780 billion in November 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.
  During all of 1980, only 287,570 consumers filed for bankruptcy. As 
consumer debt burdens have ballooned, the number of bankruptcies have 
increased significantly. From January through September of 2004, 
approximately 1.2 million consumers filed for bankruptcy, keeping pace 
with last year's record level.
  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 financial pitfalls that may 
lead to bankruptcy.
  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 and costs of only making the 
minimum payments required by credit card companies.
  Our legislation will provide a wake up 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 reducing 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. The bill also requires 
informing consumers 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 cost 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. Many 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 
not 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, U.S. Public Interest 
Research Group, and Consumer Action.
  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 debts.
  I ask unanimous consent that a letter of support and fact sheet from 
organizations in support of the legislation be printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                                 January 28, 2005.
     Hon. Daniel K. Akaka,
     U.S. Senate,
     Washington, DC.
     Hon. Paul S. Sarbanes,
     U.S. Senate,
     Washington, DC.
     Hon. Richard J. Durbin
     U.S. Senate,
     Washington, DC.
       Dear Senators Akaka, Durbin and Sarbanes: 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 
     $780 billion currently. As 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.)

[[Page S1519]]

       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 payoff 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 commend 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.
     Susanna Montezemolo,
       Policy Analyst, Consumers Union.
     Edmund Mierzwinski,
        Consumer Programs Director, U.S. Public Interest Research 
     Group.
     Linda Sherry,
       Editorial Director, Consumer Action.
                                  ____


                      Facts About Credit Card Debt

     Revolving debt (most of which is credit card debt) has 
         ballooned from $54 billion in January 1980 to over $780 
         billion currently.


                                                                Billion
January 1980........................................................$54
January 1984.........................................................79
January 1990........................................................214
January 1994........................................................313
November 2004.....................................................780.1

Source: http://www.federalreserve.gov/Releases/G19/hist/cc hist 
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 carries 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 a 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.............................       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% of their monthly incomes. According 
     to PIRG analysis of the 1999-2000 NPSAS data, in 2001, 41% 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% 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    Cardholding    Average
                                      credit    % with debt  credit card
                                    cards 2001      2001      debt 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 calculations using 2001 Survey of Consumer Finances. See Borrowing
  To Make Ends Meet. Demos, http://www.demos2/3usa.org/pubs/
borrowing_tomake_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 hardhip--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.

  Mr. AKAKA. I also ask unanimous consent that the text of the Credit 
Card Minimum Payment Warning Act be printed in the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                 S. 393

       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 of 2005''.

     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

[[Page S1520]]

     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 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.
                                 ______