In a time of record-setting consumer debt, the U.S. General Accounting Office has delivered a 109-page report arguing that credit-card issuers have not been clear enough in detailing their intricate penalty schedules to users. TheyÃ¢â‚¬â„¢ve recommended that the Federal Reserve take a greater role in ensuring that consumers are well-informed of their cardsÃ¢â‚¬â„¢ rates and fees.
In their bluntly titled report, Ã¢â‚¬Å“Increased Complexity in Rates and Fees Heightens Need for More Effective Disclosures for Consumers,Ã¢â‚¬Â the GAO found that Ã¢â‚¬Å“disclosures by the largest issuers have various weaknesses that reduced consumersÃ¢â‚¬â„¢ ability to use and understand themÃ¢â‚¬Â¦. Contrary to usability and readability best practices, the disclosures buried important information in text, failed to group and label related material, and used small typefaces. Perhaps as a result, cardholders Ã¢â‚¬Â¦ often had difficulty using the disclosures to find and understand key rates or terms applicable to the cards.Ã¢â‚¬Â
In 2005, the GAO notes, roughly 20 percent of consumers of the six largest card issuers were subject to interest rates of 20 percent or greater. Additionally, 35 percent of active accounts had been assessed late fees in 2005, with penalties for late payment climbing as high as $39. The GAO also notes that Ã¢â‚¬Å“revenues from penalty interest and fees has increasedÃ¢â‚¬Â and that the Ã¢â‚¬Å“portion [of overall revenues] attributable to penalty rates has grown.Ã¢â‚¬Â
Included in the GAOÃ¢â‚¬â„¢s report were examinations of the evolution of card fees and their effects on users; the effectiveness of company disclosures; the correlation between penalties and bankruptcies; and card issuersÃ¢â‚¬â„¢ profitability and revenue streams. They conclude, Ã¢â‚¬Å“In the absence of any regulatory or legal limits on the interest or fees that cards can impose, providing consumers with adequate information on credit card costs and practices is critical to ensuring that vigorous competition among card issuers produces a market that provides the best possible rates and terms for U.S. consumers.Ã¢â‚¬Â
The GAO has strongly advised the Federal Reserve to create a coherent, detailed set of disclosure requirements for card issuers.