[Congressional Record Volume 154, Number 9 (Tuesday, January 22, 2008)]
[Senate]
[Pages S105-S107]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
By Mrs. FEINSTEIN:
S. 2542. A bill to amend the Truth in Lending Act to provide for
enhanced disclosure under an open end credit plan; to the Committee on
Banking, Housing, and Urban Affairs.
Mrs. FEINSTEIN. Mr. President, I rise to introduce the Credit Card
Minimum Payment Notification Act.
Many Americans now own multiple credit cards. The average American
has four credit cards, and 1 in 7 Americans hold more than 10 cards.
The proliferation of credit cards can be traced, in part, to a
dramatic increase in credit card solicitation. In 1990, credit card
companies sent about 1.1 billion solicitations to American homes; in
2006, they sent over 9.2 billion.
As one would expect, the increase in credit card ownership has also
yielded an increase in credit card debt. Individuals get 6, 7, or 8
different credit cards, pay only the minimum payment required, and many
end up drowning in debt. That happens in case after case.
Over the past two decades, the credit card debt of American consumers
has nearly tripled--from $238 billion in 1989 to a staggering $800
billion in 2005.
As a result, the average American household now has about $9,500 of
credit card debt. That is almost twice the average level of credit card
debt from just 10 years ago.
In light of these figures it should be no surprise that vast numbers
of Americans have been filing for bankruptcy in recent years. In 2005--
just before the implementation date of the Bankruptcy Reform Act--over
2 million non-business bankruptcies were filed.
Many of these personal bankruptcies are people who utilize credit
cards. The benefits and flexibility these cards offer are enormously
attractive. However, these individual credit card holders receive no
information on the impact of carrying a balance with compounding
interest. Too often individuals make just the minimum payment. They pay
it for 1 year, 2 years--they make additional purchases, they get
another card, and another, and another.
After, 2 or 3 years, many find that the interest on the debt is
larger than the total purchases they originally made, such that they
can never repay these cards--and they do not know what to do about it.
The Credit Card Minimum Payment Notification Act would help prevent
this problem. Let me tell you exactly what the bill would do. It would
require credit card companies to add two items to each consumer's
monthly credit card statement: a notice warning credit card holders
that making only the minimum payment each month will increase the
interest they
[[Page S106]]
pay and the amount of time it takes to repay their debt; and examples
of the amount of time and money required to repay a credit card debt if
only minimum payments are made.
If the consumer makes only minimum payments for, 6 consecutive
months, the amount of time and money required to repay the individual's
specific credit card debt, under the terms of their credit card
agreement.
The bill would also require that a toll-free number be included on
statements, to allow consumers to call and speak to a live person to
get an estimate of the time and money required to repay their balance
if only minimum payments are made.
If the consumer makes only minimum payments for 6 consecutive months,
they will receive a toll-free number for an accredited credit
counseling service.
The disclosure requirements in this bill would only apply if the
consumer has a minimum payment that is less than 10 percent of the debt
on the credit card. Otherwise, none of these disclosures would be
required on their statement.
Statistics vary about the number of individuals who make only the
minimum payments. One study in 2004 determined that 35 million people
pay only the minimum on their credit cards. In a 2005 poll, 40 percent
of respondents said that they pay the minimum or slightly more.
What is certain is that many Americans pay only the minimum, and that
paying only the minimum has harsh financial consequences.
I suspect that most people would be surprised to know how much
interest can pile up when paying the minimum. Take the average
household, with $9,500 of credit card debt, and the average credit card
interest rate, which last week was 13.74 percent. If only the 2 percent
minimum payment is made, it will take them 35 years and $21,799.07 to
pay off the card.
That is if the family doesn't spend another cent on their credit
cards--an unlikely assumption. In other words, the family will need to
pay over $12,000 in interest to repay just $9,500 of principal.
For individuals or families with more than average debt, the pitfalls
are even greater. $20,000 of credit card debt at the average 13.74
percent interest rate will take 42 years and more than $46,300 to pay
off if only the minimum payments are made.
Mr. President, 13.74 percent is only the average rate. Interest rates
around 20 percent are not uncommon. Penalty interest rates on credit
cards average 27.3 percent, and seven major credit cards charge penalty
rates of more than 30 percent.
Even if we assume only a 20 percent interest rate, a family that has
the average debt of $9,500 at a 20 percent interest rate and makes the
minimum payments will need an incredible 82 years and $55,084 to pay
off that initial $9,500 of debt. That's $45,584 in interest payments--
an amount that approaches 5 times the original debt. These examples are
far from extreme.
Last March, the Permanent Subcommittee on Investigations of the
Committee on Homeland Security and Governmental Affairs heard testimony
from Wesley Wannemacher, a consumer from Lima, OH.
Mr. Wannemacher charged $3,200 to a credit card in 2001 and 2002. He
never charged anything on the card again, but he spent the next 6 years
struggling to pay it off, as he experienced the kinds of events that
American households routinely face--unexpected medical expenses, a
growing family, and so on.
By early 2007 Mr. Wannemacher had paid $6,300 on the initial $3,200
in debt, but he still owed $4,400 on the card. Interest charges, late
fees, and $1,500 in fees for going over the limit--even though the
balance had only exceeded the limit three times--had resulted in total
charges of $10,700 for that initial $3,200 in credit.
Fortunately for Mr. Wannemacher, his credit card company reviewed his
account--after it became known that he was going to testify to Congress
about his experience. The remaining balance on his account was
forgiven.
Mr. President, testifying before a Senate committee is not something
that Americans could--or should have to--do to escape from crushing
credit card debt.
That is one of the reasons why it is so important for this Congress
to pass the Credit Card Minimum Payment Notification Act.
There will always be people who cannot afford to pay more than their
minimum payments. But there is also a large number of consumers who can
afford to pay more but feel comfortable paying the minimum payment
because they don't realize the consequences of doing so.
Now I am certainly not trying to demonize credit cards or the credit
card industry. Credit cards are an important part of everyday life, and
they help the economy operate more smoothly by giving consumers and
merchants a reliable, convenient way to exchange funds.
However, I do think that people should understand the dangers of
paying only their monthly minimums. In this way individuals will be
able to act responsibly.
The bottom line is that for many consumers, the two percent minimum
payment is a financial trap.
The Credit Card Minimum Payment Notification Act is designed to
ensure that people are not caught in this trap through lack of
information. The bill tracks the language of an amendment I cosponsored
during the debate on the 2005 bankruptcy bill.
The language of this bill is based on a California law, the
California Credit Card Payment Warning Act, passed in 2001.
Unfortunately, in 2002, this California law was struck down in U.S.
District Court as being preempted by the 1968 Truth in Lending Act.
The Truth in Lending Act was enacted in part because Congress found
that, ``The informed use of credit results from an awareness of the
cost thereof by consumers.''
This bill would amend the Truth in Lending Act, and would also
further its core purpose.
These disclosures will allow consumers to know exactly what it means
for them to carry a balance and only make minimum payments, so they can
make informed decisions on credit card use and repayment.
The disclosure required by this bill is straightforward--how much it
will cost to pay off the debt if only minimum payments are made, and
how long it will take to do it. As for expense, my staff tells me that
on the Web site Cardweb.com, there is a free interest calculator that
does these calculations in under a second. Moreover, I am told that
banks make these calculations internally to determine credit risk. The
expense of making these disclosures would be minimal.
Percentage rates and balances are constantly changing, and each
month, the credit card companies are able to assess the minimum
payment, late fees, over-the-limit fees and finance charges for
millions of accounts.
If the credit card companies can put in their bills what the minimum
monthly payment is, they can certainly figure out how to disclose to
their customers how much it might cost them if they stick to that
minimum payment.
The credit card industry is the most profitable sector of banking,
and in 2006 it made $36.8 billion in profits--an increase of nearly 80
percent from their profits in 2000. I don't think they will have any
trouble implementing the requirements of this bill.
I believe that this legislation is extraordinarily important and that
it will reduce bankruptcies. In the face of the subprime mortgage
crisis, and as we appear to be heading toward a recession, this bill is
needed now more than ever.
The harsh effects of the 2005 bankruptcy bill are starting to become
apparent. I continue to believe that a bill requiring a limited but
meaningful disclosure by credit card companies is a necessary
accompaniment. I think you will see consumers acting more cautiously if
these disclosures are made, and I believe that will be good for the
bankruptcy courts in terms of reducing their caseloads, and also good
for American consumers.
The credit card debt problem facing our Nation is significant. I
believe that this bill is an important step in providing individuals
with the information needed to act responsibly, and it does so with a
minimal burden on the industry.
I urge my colleagues to support this legislation.
[[Page S107]]
Mr. President, I ask unanimous consent that the text of the bill be
printed in the Record.
There being no objection, the text of the bill was ordered to be
printed in the Record, as follows:
S. 2542
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
Notification Act of 2008''.
SEC. 2. ENHANCED DISCLOSURE UNDER AN OPEN END CREDIT PLAN.
Section 127(b) of the Truth in Lending Act (15 U.S.C.
1637(b)) is amended by adding at the end the following:
``(13) Enhanced disclosure under an open end credit plan.--
``(A) In general.--A credit card issuer shall, with each
billing statement provided to a cardholder in a State,
provide the following on the front of the first page of the
billing statement, in type no smaller than that required for
any other required disclosure, but in no case in less than 8-
point capitalized type:
``(i) A written statement in the following form: `Minimum
Payment Warning: Making only the minimum payment will
increase the interest you pay and the time it takes to repay
your balance.'.
``(ii) Either of the following:
``(I) A written statement in the form of and containing the
information described in item (aa) or (bb), as applicable, as
follows:
``(aa) A written 3-line statement, as follows: `A one
thousand dollar ($1,000) balance will take 17 years and 3
months to pay off at a total cost of two thousand five
hundred ninety dollars and thirty-five cents ($2,590.35). A
two thousand five hundred dollar ($2,500) balance will take
30 years and 3 months to pay off at a total cost of seven
thousand seven hundred thirty-three dollars and forty-nine
cents ($7,733.49). A five thousand dollar ($5,000) balance
will take 40 years and 2 months to pay off at a total cost of
sixteen thousand three hundred five dollars and thirty-four
cents ($16,305.34). This information is based on an annual
percentage rate of 17 percent and a minimum payment of 2
percent or ten dollars ($10), whichever is greater.'. In the
alternative, a credit card issuer may provide this
information for the 3 specified amounts at the annual
percentage rate and required minimum payment that are
applicable to the cardholder's account. The statement
provided shall be immediately preceded by the statement
required by clause (i).
``(bb) Instead of the information required by item (aa),
retail credit card issuers shall provide a written 3-line
statement to read, as follows: `A two hundred fifty dollar
($250) balance will take 2 years and 8 months to pay off at a
total cost of three hundred twenty-five dollars and twenty-
four cents ($325.24). A five hundred dollar ($500) balance
will take 4 years and 5 months to pay off at a total cost of
seven hundred nine dollars and ninety cents ($709.90). A
seven hundred fifty dollar ($750) balance will take 5 years
and 5 months to pay off at a total cost of one thousand
ninety-four dollars and forty-nine cents ($1,094.49). This
information is based on an annual percentage rate of 21
percent and a minimum payment of 5 percent or ten dollars
($10), whichever is greater.'. In the alternative, a retail
credit card issuer may provide this information for the 3
specified amounts at the annual percentage rate and required
minimum payment that are applicable to the cardholder's
account. The statement provided shall be immediately preceded
by the statement required by clause (i). A retail credit card
issuer is not required to provide this statement if the
cardholder has a balance of less than five hundred dollars
($500).
``(II) A written statement providing individualized
information indicating an estimate of the number of years and
months and the approximate total cost to pay off the entire
balance due on an open-end credit card account if the
cardholder were to pay only the minimum amount due on the
open-ended account based upon the terms of the credit
agreement. For purposes of this subclause only, if the
account is subject to a variable rate, the creditor may make
disclosures based on the rate for the entire balance as of
the date of the disclosure and indicate that the rate may
vary. In addition, the cardholder shall be provided with
referrals or, in the alternative, with the `800' telephone
number of the National Foundation for Credit Counseling
through which the cardholder can be referred, to credit
counseling services in, or closest to, the cardholder's
county of residence. The credit counseling service shall be
in good standing with the National Foundation for Credit
Counseling or accredited by the Council on Accreditation for
Children and Family Services. The creditor is required to
provide, or continue to provide, the information required by
this clause only if the cardholder has not paid more than the
minimum payment for 6 consecutive months, beginning after
July 1, 2002.
``(iii)(I) A written statement in the following form: `For
an estimate of the time it would take to repay your balance,
making only minimum payments, and the total amount of those
payments, call this toll-free telephone number: (Insert toll-
free telephone number).'. This statement shall be provided
immediately following the statement required by clause
(ii)(I). A credit card issuer is not required to provide this
statement if the disclosure required by clause (ii)(II) has
been provided.
``(II) The toll-free telephone number shall be available
between the hours of 8 a.m. and 9 p.m., 7 days a week, and
shall provide consumers with the opportunity to speak with a
person, rather than a recording, from whom the information
described in subclause (I) may be obtained.
``(III) The Federal Trade Commission shall establish not
later than 1 month after the date of enactment of this
paragraph a detailed table illustrating the approximate
number of months that it would take and the approximate total
cost to repay an outstanding balance if the consumer pays
only the required minimum monthly payments and if no other
additional charges or fees are incurred on the account, such
as additional extension of credit, voluntary credit
insurance, late fees, or dishonored check fees by assuming
all of the following:
``(aa) A significant number of different annual percentage
rates.
``(bb) A significant number of different account balances,
with the difference between sequential examples of balances
being no greater than $100.
``(cc) A significant number of different minimum payment
amounts.
``(dd) That only minimum monthly payments are made and no
additional charges or fees are incurred on the account, such
as additional extensions of credit, voluntary credit
insurance, late fees, or dishonored check fees.
``(IV) A creditor that receives a request for information
described in subclause (I) from a cardholder through the
toll-free telephone number disclosed under subclause (I), or
who is required to provide the information required by clause
(ii)(II), may satisfy the creditor's obligation to disclose
an estimate of the time it would take and the approximate
total cost to repay the cardholder's balance by disclosing
only the information set forth in the table described in
subclause (III). Including the full chart along with a
billing statement does not satisfy the obligation under this
paragraph.
``(B) Definitions.--In this paragraph:
``(i) Open-end credit card account.--The term `open-end
credit card account' means an account in which consumer
credit is granted by a creditor under a plan in which the
creditor reasonably contemplates repeated transactions, the
creditor may impose a finance charge from time to time on an
unpaid balance, and the amount of credit that may be extended
to the consumer during the term of the plan is generally made
available to the extent that any outstanding balance is
repaid and up to any limit set by the creditor.
``(ii) Retail credit card.--The term `retail credit card'
means a credit card that is issued by or on behalf of a
retailer, or a private label credit card, that is limited to
customers of a specific retailer.
``(C) Exemptions.--
``(i) Minimum payment of not less than ten percent.--This
paragraph shall not apply in any billing cycle in which the
account agreement requires a minimum payment of not less than
10 percent of the outstanding balance.
``(ii) No finance charges.--This paragraph shall not apply
in any billing cycle in which finance charges are not
imposed.''.
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