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Rights that credit-card users deserve now
More than 5 billion credit-card offers bombarded Americans last year, burying them in paper and, in many cases, debt. Families
who carry a credit-card balance now owe, on average, $9,312.
Credit cards come with a cost far higher to consumers than the price of the items they buy. High fees, short grace periods,
late fees for payments that were mailed on time but delivered late, and penalties when the consumer has missed a payment on
a different card are driving credit-card debt to record levels. Consumers Union (publisher of Consumer Reports), the Consumer Federation of America, Consumer Action, the U.S. Public Interest Research Group, the Center for Responsible
Lending, and the National Consumer Law Center have called for Congress to enact a variety of strong reforms. Consumers Union
believes the following measures are essential:
• Congress should cap interest rates on credit cards at no more than the prime interest rate plus 10 percent. Now, penalty
rates can go as high as 35 percent, about 28 points over mid-August’s prime rate.
• The first page of every month’s bill should state how long it will take and how much it will cost--interest included--to
pay off the balance at the minimum payment. A consumer who owes $5,000 on a credit card at an annual percentage rate of 16
percent, and who makes a requested 2 percent minimum payment each month, will need almost 36 years to pay off the balance
and will rack up $9,329 in interest.
• The number and types of fees should be restricted to make it easier for consumers to compare cards. Congress should also
require that fees be closely related to the actual costs to the card issuer, so that fees don’t drive up the true cost of
the credit to the consumer.
• Card companies shouldn’t be allowed to add new terms and pile on increases after the consumer has signed on. Card companies
that raise the interest rate should not be allowed to apply the higher rate to existing balances, that is, money already borrowed
at a lower rate. Ads and applications for cards with artificially low “teaser” rates should clearly explain what the higher
rate will be once the low rate ends.
• Card companies should be prohibited from increasing the periodic interest rate because a cardholder missed a payment to
a different creditor or because his or her credit score changed.
• Credit-card companies should be required to evaluate each consumer’s ability to repay before issuing a credit card. Cards
that encourage unrealistically high balances keep consumers on a debt treadmill. Aggressive marketing to, and high credit
limits for, young people can mar their futures by ruining their credit records early in life.
• Practices that trigger unnecessary fees, such as setting short grace periods and failing to count a payment from the date
of the postmark, should be banned.Consumers should be guaranteed 30 days to pay and shouldn’t have to pay a late fee if the
envelope is postmarked on time.
• Congress should clarify that both state and federal laws and agencies can simultaneously protect credit-card consumers.
A regulation of the federal Office of the Comptroller of the Currency asserts that states may not enforce most of their own
consumer-protection laws against national banks. Since national banks issue the vast majority of credit cards, this OCC rule
stymies state consumer protection.
Consumers deserve a fair deal. Consumers Union believes it is long past time for Congress to improve credit-card contracts
for consumers. For more information, go to Consumers Union’s new Web site, YourWallet.org.
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Extreme remote control
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