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Executive Summary
Credit card companies are flooding us with card solicitations,
deceiving us with misleading offer terms, and gouging us with
higher-than-ever fees. As a result, consumers are sinking further into
high-cost credit card debt.
As credit card companies intensify
their marketing campaigns to boost profits, consumers are being flooded
with more flashy credit card offers than ever before. In the second
quarter of 2000, credit card companies sent a combined total of 992
million solicitations, a record high. The average household receives
eight credit card offers each month, and students, who often have no
regular income, are encouraged several times a week by posters, fliers,
and on-campus marketers to apply for credit cards.
At the same
time, credit card companies are charging outrageous interest rates as
high as 30% per year. Consumers, students, and others are subject to a
host of unfair and deceptive terms and conditions, saddled with
enormous fees, and encouraged by credit card companies to make low
minimum payments so that the companies can earn more in interest. As a
result, the average credit card debt for Americans who carry balances
reached $5610 in 2000, an increase of nearly one-third since 1995.
As
consumers struggle, credit card companies are making bigger profits
than ever. Between 1995 and 1999, thanks in part to aggressive
marketing and misleading practices, companies’ profits skyrocketed from
$7.3 billion to $20 billion.
In order to reduce their own debt
losses and increase profits, the credit card industry is spending
millions—more than $6 million in the first half of 2000––to pass
further bankruptcy restrictions and to defeat pro-consumer bankruptcy
legislation. The credit card industry is seeking to make it more
difficult for consumers to declare bankruptcy and to increase the
amount of debt for which consumers will be liable after declaring
bankruptcy. Economic experts have pointed out that by making it more
difficult for cardholders to default through bankruptcy, these
industry-sponsored, anti-consumer bankruptcy restrictions will
encourage credit card companies to be more predatory in lending,
because the risk of issuing cards to higher-risk consumers such as
students and those with low incomes will decline.
An additional
measure of the problem with credit card marketing is increased
attention by regulators. In June 2000, the Treasury Department’s Office
of the Comptroller of the Currency (OCC) imposed a civil penalty and
restitution order totaling over $300 million against the sixth largest
credit card bank, Providian. In September 2000, the Federal Reserve
Board issued new regulations requiring improved disclosures in credit
card solicitations.
The state PIRGs conducted two surveys for
this report. In a survey of 100 credit card offers during the summer of
2000, the state PIRGs found two major themes: (1) credit card terms and
conditions are becoming less favorable to consumers; and (2) credit
card marketing practices are misleading and deceptive. In an on-campus
survey of college students, conducted during the current school year,
the state PIRGs found that the marketing of credit cards to college
students is too aggressive. The state PIRGs compared these results to
those of a 1998 PIRG survey and found that the situation has not
improved.
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