Most recently Sen. Daniel Akaka has again introduced legislation to require credit card companies to plainly tell card holders about the impact of making only the minimum payment. This includes how long it will take to repay your credit card and the extra amount in interest you’ll pay when you make only the minimum payment.
The Credit Card Minimum Payment Warning Act of 2007 requires companies to include the total length of time and the additional fees it will take to pay off the consumer's balance if only the minimum payments are made.
Whether or not the act passes, it is important that consumers be more empowered and know completely what it is they’re getting into by making only minimum monthly payments. By only making the minimum payment a small percentage actually goes toward your balance. The lions share is applied to the interest, making a $500 balance actually $800 after it is finally paid off in about seven and a half years!
It has been endorsed by the Consumer Federation of America, the Consumers Union, the National Association of Consumer Advocates and the National Consumer Law Center, among others. But is this enough to get the bill passed?
The bill makes clear the adverse consequences of uninformed choices, such as making only minimum payments and provides opportunities to locate assistance to better manage credit card debt.
The Credit Card Minimum Payment Warning Act will require that monthly statements include:
A warning that paying the minimum rate will increase the interest owed.
The years and months it will take to pay off at the minimum rate.
The total costs in interest and principal at the minimum rate.
The monthly payment required to pay the balance off in three years.
A toll-free number for credit counseling and debt management assistance.
Sounds like a pretty good plan and common sense dictates that it should and needs to pass right?
Truth be told this bill has been floating around congress since 2005. Why hasn’t it been passed yet?
Could our government be in colussion with our banking system to keep consumers unaware and in debt bondage? Let’s examine what else was being pushed through congress over the last couple of years. The Bankruptcy Reform Act immediately comes to mind, which makes it difficult for consumers to file for bankruptcy Chapter 13 and almost impossible to file Chapter 7.
Hmmm…It’s seems the plot thickens.
I’m not trying to push a conspiracy theory but facts are facts.
Why is it that a person practically needs a law degree to decipher a credit card disclosure statement, where things like universal default, a practice where credit card companies regularly check cardholders credit reports and raise interest rates if the consumer is late on other monthly bills and double-cycle billing that allows card firms to retroactively charge interest rates on purchases even after they are partially paid for.
Most people agree to these terms without even reading or not understanding them.
Credit cards are unsafe, because they are designed to be unsafe. Card issuers make hefty profits from consumers who don't make their payments in full every month, so card issuers are constantly looking for the consumers who stumble, but don't quite collapse into bankruptcy. In 2006, the credit card companies made over 17 BILLION DOLLARS in penalty fee’s alone.
That last sentence needs to be repeated:
In 2006, the credit card companies made over 17 BILLION DOLLARS in penalty fee’s alone.
The penalty fee issue is critical. Most consumers compare credit cards based on advertised interest rates and perks, said Plunkett. Few if any think enough to compare late fees, over-limit fees, and the like when choosing their credit card. In fact, such comparisons may not be possible. The fees are hard to find, and they can change at any time.
There needs to be regulations that protect consumers from deceptive credit card practices like the ones that protect them from driving an unsafe vehicle and other “unsafe” products.
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