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Fed considering revisions to credit card term disclosures

WASHINGTON—Growing consumer unease with credit card practices is fueling a call for action as lawmakers and regulators debate making changes.

For the first time since 1980, the Federal Reserve Board is considering major revisions to the clarity and content of credit card disclosures so consumers can better understand the terms of their cards and make more informed decisions about using them.

The Fed also is reviewing the effectiveness of consumer protections against unfair card practices and inaccurate billing in the wake of unprecedented growth in credit card usage and public outcry over rising interest rates and penalties along with costly, abrupt changes in card agreements.

The Fed recently sought public comment on a number of issues, including whether to make card disclosures more consistent so comparison shopping is easier, the costly trend of allowing borrowers to be over their credit limits for multiple billing cycles, whether minimum monthly payments should be raised so consumers would pay off their card debt more quickly and whether cards should provide more information about the cost of making only the minimum payments.

According to CardWeb, an online research firm, average household credit-card debt has more than tripled, from $2,966 in 1990 to $9,312 in 2004. If a family made the minimum 2 percent payment on that $9,312 at a 16 percent interest rate, it would take more than 43 years to pay off the balance—at a total cost of $27,265.44. Of that amount, nearly $18,000 is interest.

Possible recommendations by the Fed, which could include calls for congressional action, aren't expected until next year. It's unclear in what direction the agency might go.

"Trying to guess what they'll do is like trying to figure out who the College of Cardinals is going to pick as pope. It's virtually impossible," said Travis Plunkett, the legislative director for the Consumer Federation of America.

Nessa Feddis, senior counsel for the American Bankers Association, said the card industry was getting a bad rap from a small group of "vociferous" cardholders and consumer advocates: "Everybody likes to pick on credit cards because they're such a successful product."

Most cardholders, 55 percent, pay off their balances at the end of each month, Feddis said. More than 90 percent make their payments on time, she added, noting that those who complain about tough card terms have only themselves to blame for managing their money poorly.

Based on consumers' comments to the Fed, it's clear that many consumers think credit card companies are taking advantage of borrowers who don't fully understand the terms of their cards and feel powerless to contest changes when they're made.

"The people who are getting ripped off can't even understand what the hell is being written on the back of their statements. They should just have it in the clearest possible language and not in a complicated chain of words," said Brad Hoffman, a 25-year-old mortgage loan officer from Philadelphia who wrote to federal regulators urging them to address the problem.

Others, such as Derek Addams of Providence, R.I., told regulators of high fees on one of his cards and said the interest rate on another jumped from 17 percent to 28 percent in two months despite a "flawless payment history."

William Ridlon of Portland, Maine, complained about getting unsolicited credit card checks "sometimes two or three times a month."

"It's almost as bad as cocaine dealers trying to get you hooked, but on credit instead of drugs," Ridlon wrote. "We're not treated as valued customers, we're treated as money sponges that the credit card companies find new ways to squeeze every few months."

Those concerns found a sympathetic ear in Congress recently when several members of the Senate Committee on Banking, Housing and Urban Affairs said they also had trouble understanding their card disclosure forms.

"A magnifying glass and an attorney should not be necessary to understand a credit card agreement," Sen. Elizabeth Dole, R-N.C., testified at the hearing May 17.

Credit card industry officials, who have long complained of too many regulations, say the disclosures are fine as they are.

"We're not talking about a complicated product," said Feddis of the bankers' association. "There may be ways to improve it, but the basic model is very good. What we really need to do is some better consumer education," so that people know what to look for and where, she said.

Nevertheless, Sen. Christopher Dodd, D-Conn., the committee's ranking minority member, said high-interest credit cards were "nothing less than wallet-sized predatory loans" and warned that sentiment for congressional action was "building and building."

But Plunkett said the Republican-controlled Congress was unlikely this year to pass proposals by Dodd or Sen. Dianne Feinstein, D-Calif., that addressed complaints about credit cards.

He said committee Chairman Richard Shelby, R-Ala., kept his promise to conduct the hearing, which he made earlier this year during debate on bankruptcy legislation. It was the second oversight hearing on possible credit card abuses that he could recall in his six years of working on the issue.

Plunkett agreed sentiment for congressional action is growing but said it might take several years to build bipartisan support for meaningful legislation.

In the meantime, the Fed's possible call for change appears to be the most immediate source for revisions. But the industry is resisting.

A frustrated Donald L. Nightengale, the senior vice president for retail banking at First National Bank, North Platte, Neb., gave the Fed a tongue-lashing for even considering more credit card regulations.

"Did it ever occur to you nincompoops that the part (consumers) don't understand is the thousands of words of regu-babble you so ridiculously refer to as disclosures?

"A Ph.D. would have a hard time understanding the overcomplicated idiotic procedures you have forced on the banking industry in your usual misguided and pathetic attempt to legislate illegality out of existence."

Clearly, Nightengale had second thoughts afterward.

In a later note to the Fed, he apologized for the "tone and style" of his earlier comments, noting that they were "personal" and didn't represent the perspective of his employer.

He wrote: "I deeply regret the embarrassment I have caused those organizations and the fine people they employ."

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To view public comment letters to the Federal Reserve about proposed changes to credit card disclosures, go to http://www.federalreserve.gov/generalinfo/foia/index.cfm?doc_id=R%2D1217&doc_ver=1.

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(c) 2005, Knight Ridder/Tribune Information Services.

PHOTOS (from KRT Photo Service, 202-383-6099): CREDITCARDS

GRAPHIC (from KRT Graphics, 202-383-6064): CREDITCARDS

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