Senator Feinstein Introduces Legislation Requiring Credit Card Companies to Inform Consumers of the Costs of Paying Only the Monthly Minimum Payment
-Legislation requires information to be listed on monthly statements-
Jan 23 2008
Washington, DC – U.S. Senator Dianne Feinstein (D-Calif.) has introduced legislation that would require credit card companies to warn American consumers of the financial dangers of making only minimum monthly payments on credit card debt.
“Many American consumers today receive no information from credit card companies on the dangers of carrying a balance with compounding interest, and the results are staggering,” Senator Feinstein said.
“For example, the average American household has roughly $9,500 in credit card debt – twice the average level of debt of 10 years earlier. If this average household makes only the minimum monthly payment, it will take them 35 years to pay off their card – assuming 13.74 percent interest and no additional purchases. And so they would be paying $12,000 in interest on principal of $9,500.”
“Yet many consumers make only these minimum payments without the full knowledge of the dangers involved. It is no secret that credit card debt fueled the rise in personal bankruptcies, and today’s credit crisis shows that some people may not appreciate the dangers inherent in borrowing money.
“This legislation is intended to ensure the people who need it the most will get the information they need – every month – to make intelligent financial decisions.”
Following is a summary of the Credit Card Minimum Payment Notification Act:
Requires credit card companies to add the following to each consumer’s monthly credit card statement:
- A warning that making only the minimum payment each month will increase the interest paid and the time needed to repay the debt; and either
- Examples of the amounts of time and money required to repay a credit card debt if only minimum payments are made; or
- A notice of the time and money required to repay the debt under terms of the credit card agreement (for consumers making only minimum payments for six consecutive months).
- A toll-free number consumers can call to get estimates of the time and money required to repay their credit card balance if only minimum payments are made;
- A toll-free number to an accredited credit counseling service (for consumers making only minimum payments for six consecutive months).
These requirements would not apply if the credit card agreement requires a minimum payment that is at least 10% of the debt on the card. They also would not apply in any billing cycle in which no finance charges are imposed on the account.
A retail credit card issuer would not be required to provide examples of the amounts of money and time required to repay the debt if the balance on the card is less than $500.
The past two decades have seen a sharp rise in both the number of credit cards issued to American consumers and the total debt held by these consumers.
In 2006, credit card companies sent 9.2 billion solicitations to American homes, up from 1.1 billion solicitations in 1990. Meantime, total credit card debt soared to more than $900 billion by the end of 2007, according to the Federal Reserve, up from $238 billion in 1989.
The sharp rise in credit card debt accompanied a sharp rise in the number of personal bankruptcies, which exceeded 2 million in 2005, just before implementation of the Bankruptcy Reform Act.
The language in Senator Feinstein’s legislation, introduced Tuesday, is based on a California law -- the California Credit Card Payment Warning Act -- passed in 2001. This law was struck down by a federal court, which ruled this state law was pre-empted by the 1968 Truth in Lending Act.
The Truth in Lending Act was based in part on Congress’ belief that “the informed use of credit cards results from an awareness of the cost thereof by consumers.”
Senator Feinstein’s legislation would amend and strengthen the Truth in Lending Act, which was based in part on Congress’ belief that “the informed use of credit results from an awareness of the cost thereof by consumers.”
The Credit Card Minimum Payment Notification Act was originally introduced by Senator Feinstein in the 109th Congress.