Owning a Credit Card Company Is a License to Steal

Widespread abuses sink consumers deeper into debt.

“Owning a credit card company is a license to steal,” says a leading consumer advocate. Harsh words, but the government itself seems to back them up. A 2006 study by Congress’s watchdog arm, the Government Accountability Office (GAO), found the nation’s six largest credit card issuers guilty of charging excessive fees, unfair interest rates and inadequate disclosure practices.

Should we care? Just consider these facts:

Some 115 million Americans carry credit card debt. Americans hold 690 million credit cards and owe $770 billion on them. Eighty percent of American households have at least one credit card. The average family owes $9,300 in credit card debt and the average interest rate is 16 percent per month on outstanding balances. But penalty interest rates, triggered by late payments or exceeding one’s credit limit, average 30 percent, with one bank charging 35 percent.
 
Exorbitant rates like these were banned until 25 years ago, when the banking industry won elimination of laws restricting credit card interest rates. Partly because of that, credit card issuers now are twice as profitable as commercial banks. Credit card companies annually generate record highs in two areas: profits and consumer complaints.

Excessive interest rates are only one of the problems. The GAO found skyrocketing fees included late fees, which rose 162 percent from 1995 to 2005, and over-the-limit fees which rose nearly 250 percent during the same period. Some 35 percent of cardholders are charged special fees like these. And because of gobbledygook in the small print, the average consumer has no idea she or he is liable for fees like these.

1199SEIU members, like most Americans, have credit card problems. One member fell behind in credit card payments because of illness and faces having her wages garnisheed. Another took advantage of initially attractive credit card offers and accumulated 18 cards, went into serious debt, and then ended up owing additional money to a company she hired to consolidate her debt. A third member reports fighting a $14,000 credit card balance she thinks is a bank fraud.

Members seeking advice on problems such as these can call the 1199SEIU Credit Union at 212-957-1055 and ask for Joseph Romero.

Yolanda Jimenez is a medical clerical associate at Manhattan’s Mt. Sinai Hospital’s call center. Jimenez, a single mother, had a $5,000 credit card debt and an outstanding loan of $20,000 just five years ago. Her credit card debt is gone and she has just a few payments left on her loan. “I put myself on a strict budget and I used the 1199 credit union and other union resources,” she says.

She also credits 1199SEIU’s Young Worker Program’s seminars. “I got a lot of good ideas from them,” she says. “We discuss many financial issues.”

On the national scene, in May Sen. Carl Levin (D-Michigan) introduced the Stop Unfair Practices in Credit Cards Act. The bill would forbid practices recently exposed by the Senate’s Permanent Subcommittee on Investigations, practices that allow credit card issuers to assess unjustifiable fees and interest rates.

“This important legislation will stop credit card companies from using a variety of traps and tricks that harm consumers and illegitimately pump up profits,” says a spokesperson for the Consumer Federation of America.