Financial Privacy & Security News

Deceptive credit card offers and practices are sinking more and more consumers and college students into high-cost credit card debt, according to a survey of 100 credit card offers released today by the Colorado Public Interest Research Group (CoPIRG) Citizen Lobby. To fight the practices the report identifies, CoPIRG Citizen Lobby also announced a new credit card education campaign featuring both the website “truthaboutcredit.org” and a new brochure describing how consumers can avoid credit card hazards.

“Credit card companies aren’t satisfied with a fair profit, so they’re gouging consumers with outrageous interest rates as high as 30% APR,” said Emily Hoopes, Consumer Advocate with CoPIRG Citizen Lobby. “But even worse, credit card companies are deceiving consumers into paying unfair late fees and burying deceptive conditions in the small print,” she continued.

Among the key findings of the State PIRGs’ report, “The Credit Card Trap: How to Spot It, How to Avoid It,” are that credit card terms and conditions are becoming less favorable to consumers; credit card marketing practices are misleading and deceptive; and card marketing to college students is too aggressive.

Deceptive and anti-consumer industry tricks exposed in the report and detailed online at www.truthaboutcredit.org include:

PUNITIVE APR INCREASES: The survey found average penalty APRs—a higher interest rate triggered by a late or missed payment—of 22.84%, nearly eight percentage points higher than the average regular (non-penalty, non-introductory) APR.

SKYROCKETING LATE FEES: The survey found average late fees of $27.61. Credit card companies are reaping more profit than ever before from late fee income, for three reasons: (1) the average late fee has more than doubled in ten years, (2) companies have decreased the amount of time between when they mail a bill and when payment is due; and (3) nearly two-thirds of companies have eliminated leniency periods, and have begun to impose late fees immediately.

“Credit card marketing has become reckless and deceptive, and sometimes violates consumer protection laws,” said Hoopes. “These deceptive tactics are used by some of the country's largest card issuers and affect millions of consumers each year.”

Some of the largest credit card companies have recently paid major settlements and penalties in lawsuits by consumers and civil actions by the government, for amounts ranging from $7-105 million. Alleged practices include purposely posting monthly payments late in order to increase cardholders’ APRs and to gain more late fee income. For example, Providian was found by the federal Office of the Comptroller of the Currency and the San Francisco District Attorney to have violated the Federal Trade Commission Act, which prohibits unfair and deceptive practices, when it said a card had no annual fees, even though mandatory monthly fees on the card totaled $156/year. The bank agreed to settle the charges and had to pay consumer restitution of $300 million.

While Congress has failed to enact meaningful credit card marketing reforms, it has worked overtime to pass a one-sided bankruptcy bill, noted Hoopes. “The bankruptcy proposal that has passed both houses is a poster child for campaign finance reform that will force indebted consumers into draconian repayment plans they can’t afford and don’t deserve, all for the benefit of the credit card banks that lured them into debt in the first place,” added Emily Hoopes.

COLLEGE STUDENTS & CREDIT CARDS:

The report also included a survey of campus credit card marketing. “Credit card companies target students because they hope to establish brand loyalty with these young consumers at an early age,” said Hoopes. “But the credit card companies don’t seem to care that some students without jobs are falling into a credit card trap.” Among the findings of the state PIRGs’ nationwide survey of 460 college students were that nearly half of all students with one or more cards have paid a late fee. The survey also found that one-third of students have applied for a credit card at an on-campus table and that, of these, 80% cite free gifts as a reason for applying. In Colorado CoPIRG Citizen Lobby surveyed 138 students at University of Southern Colorado (USC), Western State College (WSC), University of Colorado (UC), University of Northern Colorado (UNC), and Metropolitan State College (Metro). Key findings of the state wide survey were:

49% of Colorado students report having more than one credit card, compared to the national average of 37%.
Colorado students have an average number of 1.95 major credit cards, nationally students report an average of 1.09 major credit cards.

Colorado students report an average of 1.5 "other" credit cards (gas,department stores etc...), nationally the average is .59.

23% of Colorado students report credit card balance of $0, 44% report a balance of <$1,000, 15% report a balance between $1,000-$2,000, and 18% report holding a balance of over $2,000 on their credit cards.

Nationally students report that 29% hold a balance of $0, 42% report a balance of <$1,000, 18% report balance between $1,000-$2,000, and 11% report holding a balance of $2,000.

40% of Colorado students report seeing a solicitor at an on-campus table more than 5 days this semester, compared to the national average of 25%.

44% of Colorado students report they have filled out a credit card application at an on-campus table. 50% of Colorado students report receiving free items or gifts was the most important factor that encouraged them to fill out an application at an on-campus table.

In addition to releasing the report, CoPIRG Citizen Lobby announced a new “Truth About Credit” campaign, featuring a Web site – truthaboutcredit.org – which includes a credit cost calculator and describes the worst hazards credit card users face and what to do about them. CoPIRG Citizen Lobby also released a new consumer brochure called a “Road Map to Avoiding Credit Card Hazards.”

The calculator can also tell a consumer how long it will take to pay off their balance if they only make the minimum payment. For example, at a 15% APR, a $2000 unpaid balance and a commonly required minimum payment of just 2% of the unpaid balance, it would take 169 months to pay off the balance, even if you stop using the card. “Never pay the minimum, always pay as much as you can afford,” added Hoopes, “Or else you’ll stay trapped on the high cost credit card debt treadmill.”

“We urge consumers to shop around before accepting a credit card offer, and read the fine print. Carry only one or two cards and if you can’t pay the balance in full, always pay as much as you can afford.”