All You Need: A Pulse And A Social Security Number

U.S. Senator Robert Menendez (D-NJ) today introduced sweeping legislation aimed at ending the egregious marketing and business practices of some in the credit card industry and providing safeguards for American consumers. The “Credit Card Bill of Rights” follows numerous studies and personal accounts of families crushed under the weight of credit card debt, which is often-times exacerbated by excessive fees, as well as intense marketing to high-risk consumers and college-aged students.

“American families are being crushed by credit card debt, and the increasingly predatory behavior of some credit card companies makes no sense beyond increasing the bottom-line for the companies,” Menendez said. “The ‘Credit Card Bill of Rights’ will stop some of the most egregious credit card practices while also ensuring that future generations have the information they need to make financial decisions.”

American families increasingly face a growing problem of rising credit card debt. In 2004, for example, the average American household had $9,300 in credit card debt, up from $3,200 just 12 years earlier. And for college students, the problem cannot be overstated. According to the Jump$tart Coalition for Personal Financial Literacy, some colleges lose more students to credit card debt than to academic failure.

“When a family sends their son or daughter off to college, they should only have to worry about their report card, not their credit report,” Menendez said.

To fuel growth, credit card issuers have increased the number of solicitations sent to consumers 500 percent since 1990 to a record 5.23 billion in 2004. Credit card companies target college-aged students for billions of solicitations and also market to “high-risk” consumers who already have challenges paying their bills. One study found that Americans pay $90 billion each year in credit card penalty fees and interest payments, money that could be better spent on college tuition, health care, and homeownership.

The Menendez “Credit Card Bill of Rights” is comprised of two complementary bills geared toward offering legislative protections to consumers: the Protection of Young Consumers Act and the Credit Card Reform Act.

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 proposal will: 1) build on the current “opt-out” provision regarding pre-approved credit card offers by prohibiting credit card solicitations to consumers under 21 unless they proactively “opt-in” to receive such solicitations; and 2) establish a financial literacy and education program in elementary and secondary schools to help prepare young people to be financially responsible consumers.

The Credit Card Reform Act will also protect consumers against excessive fees and interest rates. It will: 1) prohibit “universal defaults” in which a credit card company imposes excessive increases in interest rates for events completely unrelated to the payment history on that account; 2) restrict excessive late fees; and 3) tighten regulations on credit card companies to ensure that they are not offering credit to high-risk cardholders without verifying their ability to pay.

Consumer advocates hailed the Menendez legislation.

“The National Consumer Law Center, on behalf of our low-income clients, supports Senator Menendez’s efforts today to curb some of the most destructive practices by credit card companies,” said Alys Cohen, staff attorney at the National Consumer Law Center. “These bills would put an end to abuses such as universal default, unilateral changes in terms, and unfair imposition of exorbitant late fees, and also would require a card issuer to assess a consumer’s ability to repay the debt. Consumers deserve access to fair credit including credit card terms they can afford.”

"In today's volatile economy, family income has not kept pace with the growing costs of housing, education, and health care,” said Tamara Draut, director of the Demos Economic Opportunity Program. “Americans are increasingly turning to credit cards as a safety net, and an out-of-control lending industry has adopted abusive practices to capitalize on this fragile household economy. By addressing these industry tactics, this legislation would be a step towards a more fair and transparent lending environment for America's families."