[Congressional Record Volume 152, Number 47 (Wednesday, April 26, 2006)]
[Senate]
[Pages S3592-S3593]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. MENENDEZ:
  S. 2655. A bill to amend the Truth in Lending Act, to prohibit 
universal default practices by credit card issuers, to limit fees that 
may be imposed on credit card accounts, and to require credit card 
issuers to verify a prospective consumer's ability to pay before 
extending credit to the consumer, and for other purposes; to the 
Committee on Banking, Housing, and Urban Affairs.
  Mr. MENENDEZ. Mr. President, today, families across this country face 
a growing problem of rising credit card debt. In 2004, the average 
American household had $9,300 in credit card debt, up from $3,200 just 
12 years earlier. More and more Americans are using credit card debt to 
manage daily living expenses such as basic living costs, medical bills, 
and house or automotive repairs. And for college students, the problem 
cannot be overstated. According to university administrators, colleges 
lose more students to credit card debt than to academic failure.
  To fuel that growth, credit card issuers have increased the number of

[[Page S3593]]

solicitations sent to consumers 500 percent since 1990 to a record 5.23 
billion in 2004. And they start sending them to children at younger and 
younger ages. Last year, AJ, the son of my State director received his 
very first solicitation at the age of 2 years old. If you have a pulse 
and a social security number, you can get a credit card.
  Credit card companies are increasingly targeting people who are 
likely to default. They have focused their attention on teenagers and 
college students, people who live beyond their means, and those who 
have declared bankruptcy. Clearly, credit card companies are not paying 
attention to whom they are giving a credit card, much less if the 
applicant can afford to pay the balance.
  There is no question that we must demand personal responsibility from 
consumers, but at the same time credit card companies should not be 
allowed to take advantage of consumers with excessive fees and 
unreasonable interest rates. One study found that people in this Nation 
pay $90 billion each year in penalty fees and interest payments. Just 
think about that for a second--- $90 billion annually. It is money that 
could be used to send our children to college, to pay the health care 
bills of both our children in the dawn of their lives and our parents 
in the sunset of theirs, while still saving for our own retirements.
  One of the most egregious practices is known as ``universal 
default.'' It involves credit card companies raising interest rates, up 
to 30 percent APR, on customers who have a perfect record with the 
credit card but miss a payment with any other creditor. So a person can 
make their credit card payment on time every month but see their 
interest rate skyrocket because they paid their gas bill late. Further, 
this penalty interest rate is often applied not only to future 
purchases but retroactively to current balances as well. This is a 
completely arbitrary rate-hike intended solely to hike the company's 
bottom line.
  That is why I am introducing the Credit Card Bill of Rights--two 
pieces of legislation that, taken together, will stop some of the most 
egregious practices of credit card issuers while also ensuring that 
future generations have the information to make financial decisions.
  Many American adolescents are inadequately prepared for the complex 
financial world that awaits them. In 2004, almost two-thirds of the 
students who took a personal finance survey failed the test.
  The causes for this failure are largely due to the lack of high 
school finance courses available to teenagers combined with 
insufficient parental mentoring. Statistics show that while a large 
majority of both college and high school students rely on their parents 
for financial guidance, only 26 percent of 13- to 21-year-olds reported 
their parents actively taught them how to manage money. Public 
education has not filled this void as only about one in five students 
between the ages of 16 and 22 say they have taken a personal finance 
course in school.
  Credit card companies are exploiting this financial inexperience of 
young Americans with an aggressive marketing strategy designed to 
maximize enrollment and profit, with little regard for a potential 
customer's ability to pay. As a result, over 20 percent of children 
between the ages of 12 to 19 have access to a credit card.
  This credit card marketing blitz further intensifies once an 
individual enters college. During the first week college freshmen 
arrive on campus, they are barraged by an average of eight credit card 
offers. Students actually double their average credit card debt, and 
triple the number of credit cards in their wallets, from the time they 
arrive on campus until graduation. This large number of new credit card 
owners combined with the lack of financial illiteracy of high school 
graduates leads to high levels of debt amongst undergrads.
  Credit card companies have actually encouraged this rise in credit 
card debt through increasing the median balance for undergraduates. As 
a result, 21 percent of undergraduates that have credit cards, have 
high-level balances between $3,000 and $7,000.
  The Protection of Young Consumers Act will protect people, especially 
college students and other young people, against skyrocketing consumer 
debt and the barrage of credit card solicitations that lead to it. The 
bill will do so by building on the current opt-out program for pre-
approved credit card solicitations by requiring young consumers under 
age 21 to proactively opt-in to receive solicitations from credit card 
companies. This proposal will also establish a financial literacy and 
education program in elementary and secondary schools to help prepare 
young people to be financially responsible consumers.
  In addition to targeting high school and college students, credit 
card companies have become very adept at increasing their profits 
through hidden fees and deceptive advertising, taking advantage of 
Americans of all ages.
  The Credit Card Reform Act will protect consumers against hidden fees 
and excessive interest rates. It does so by: 1) prohibiting ``universal 
defaults'' that I mentioned earlier, 2) banning unilateral changes in 
credit card agreements without written consent, and 3) requiring that 
the fees charged by creditors are ``reasonably related'' to the cost 
incurred by the issuer.
  The bill will also establish standards that would prohibit unfair or 
deceptive acts or practices, while tightening regulations on credit 
card companies to ensure that they are not offering credit to high-risk 
cardholders without verifying their ability to pay.
  I would like to be clear that I am not trying to remove the 
obligation for consumers to behave responsibly. Every individual must 
take responsibility for their own actions, but at the same time it is 
the obligation of the companies who are earning billions in profits 
from credit cards to behave ethically as well.
  This Credit Card Bill of Rights will help ensure that New Jersey 
consumers and consumers across the country are given a fair chance at 
being responsible consumers who will enjoy economic security as well as 
economic opportunity in their futures.
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