GAO report faults credit-card late fees

ASSOCIATED PRESS

Late fees for credit-card payments have jumped, but card issuers have done a poor job of explaining their policies on fees and penalties to consumers, a new study by congressional investigators has found.

The report released yesterday by the Government Accountability Office, Congress’ investigative arm, described the fees, interest rates and disclosure practices of 28 popular credit cards. It found that late fees averaged $34, up from $13 in 1995, while some credit-card issuers impose penalty interest rates of more than 30 percent on consumers who pay late or exceed the credit limit.

“Millions of Americans depend on credit cards to pay their bills and buy essentials like groceries or gas. Unfair or confusing credit-card practices take advantage of working families,” said Sen. Carl Levin of Michigan, the senior Democrat on the Senate’s permanent subcommittee on investigations, part of the Homeland Security and Governmental Affairs Committee.

“This report shines a needed spotlight on excessive credit-card fees, unfair interest rates and inadequate disclosure practices that ought to be stopped,” Mr. Levin said.

Credit cards have become a ubiquitous and indispensable part of the culture, with an estimated 690 million cards in Americans’ wallets and more than $1.8 trillion charged on them in 2005. Consumer groups have frequently criticized credit-card fees as excessive. The banking industry maintains that the costs of using a card can vary according to the risk posed by the account holder.

Although interest rates vary widely, the GAO report said, “many cardholders now appear to have cards with interest rates less than the 20 percent rate that most cards charged prior to 1990.”

In addition, the study found, holders of nearly half of all active credit-card accounts paid little or no interest in 2005 because they generally paid their balances in full.

Disclosure material explaining fees that is provided by the largest issuers of credit cards has “various weaknesses that reduced consumers’ ability to use and understand” it, the report said. It found that the disclosures are written in language that is hard to understand, bury important information in text, fail to put related material together and use small typefaces.

Some fees, such as a $5-to-$15 charge to pay a credit-card bill by phone, are often not disclosed, according to the report.

It recommended that the Federal Reserve should revise rules on credit-card disclosures to require that they more clearly emphasize penalty fees and rates and what triggers them.

The study found that consumers can be charged:

• As many as three different interest rates for different transactions, such as one for purchases and another for cash advances, with rates for purchases ranging from 8 percent to 19 percent.

• Penalty fees for making a late payment or exceeding a credit limit, with the latter averaging $31, up from $13 in 1995.

• A higher interest rate — sometimes exceeding 30 percent — as a penalty for paying late or other actions.

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