Report warns of credit card fees

By Tyler Armao, staff writer

Published Oct. 27, 2006

The local supermarket is not the only place where the question of paper or plastic matters. American consumers sometimes saddle debt on credit cards instead of always paying for things outright with paper currency.

The U.S. Government Accountability Office, a legislative agency that supports the Congress, evaluated the tenuous relationship between credit cards and consumers in a September 2006 report. The main point of the more than 100 pages of content is covered in the report's title, "Increased Complexity in Rates and Fees Heightens Need for More Effective Disclosures for Consumers."

When credit cards display their rates and fees to consumers, they are said to be disclosing such information. The disclosures are often difficult to find and comprehend, the report stated.

"For example, although about half of adults in the United States read at or below the eighth-grade level, most of the credit card materials were written at a tenth- to twelfth-grade level," the report stated. "In addition, the required disclosures often were poorly organized, burying important information in text or scattering information about a single topic in numerous places."

This report is not new to the government, though. David Wood, GAO spokesman and director of Financial Markets and Community Investment, said the GAO produced a report entitled "College Students and Credit Cards" in 2001. This report states the advantages and disadvantages of owning a credit card as a college student, among other things.

Reports like these often result from requests by congressmen, leaders of the House and Senate, and leaders of Senate and House committees (either chairpeople or ranking members) such as Sen. Carl Levin, D-Mich. Levin requested an inquiry in spring 2005 of the issues now compiled in the newest report.

MU's Office for Financial Success director Mark Oleson has seen the summary of the report and said he discovered "no real surprises" in that summary. He said it discussed common credit card problems among students, low-income people and others being taken advantage of financially.

Since 2005, Oleson has been e-mailing weekly financial tips to MU students. The tips are also posted on financialtip.blogspot.com, a service of the OFS and Personal Financial Planning department.

In the Oct. 19 "Financial Tip of the Week," 10 pitfalls of credit card companies are explained, including penalty rates.

"More and more companies are becoming less forgiving of late payments. Bank of America, Citibank and other notable card companies currently raise rates to 30 percent-plus for a single missed payment! Ouch," the blog states.

The September report by the GAO mentions penalty rates in its reason for conducting the study.

"With credit card penalty rates and fees now common, the Federal Reserve has begun efforts to revise disclosures to better inform consumers of these costs," the report states.

For the latest GAO report, the Permanent Subcommittee on Investigations interviewed 112 cardholders. These interviews "indicated that many failed to understand key rates or terms applicable to the cards," the report stated.

Wood said credit card consumers, including college students, should read and understand their disclosures.

"It's as pertinent to them as in any other population," Wood said.

Some students are paying off credit cards with student loans, Oleson said. He has seen college students accrue $80,000 to $100,000 of debt.

"I think that students are of the misperception that 'while I'm in this university, I'm in this 'bubble,' where I will be protected,'" Oleson said.