What You May Not Know About Your Credit Card Bill

When you get your credit card bill this month, take a good look at the fine print. Are there any charges or fees you don’t recognize? Is it difficult to find details on what you’re being charged for and why? If so, you are not alone. Credit card companies are making more and more of their money off of hidden and unfair fees, complex interest charges and poor disclosure practices that take advantage of working families.

Millions of Americans use their credit cards every day to purchase essentials like groceries and gas. In fact, Americans used nearly 700 million credit cards last year to purchase more than $1.8 trillion in goods and services, a 25-fold increase since 1980. Credit cards make it easier to purchase the things we need, but there are also traps that can be difficult to avoid.

Not surprisingly, this increased use of credit cards has put many families in debt. The Federal Reserve estimates that the average American household owed about $5,100 in credit card debt in 2004. I often hear from constituents that they are having a hard time figuring out their credit card bill and climbing out of that debt.

With that in mind, I asked the Government Accountability Office (GAO), the investigative arm of Congress, to look into the billing practices of credit card companies. The GAO report helped to shine a light on several abusive or confusing practices that are hurting Americans’ efforts to pay off debt and ought to be stopped as a matter of simple fairness.

First, the practice of so-called “double-cycle” billing is particularly galling. With double-cycle billing, practiced by a third of the credit card issuers studied by the GAO, consumers are charged interest on debt that has already been repaid. As an example, imagine a cardholder who begins a billing cycle with a zero balance, charges $500 on his or her credit card and makes an on-time payment of $450. Under double-cycle billing, he or she would be charged interest on the full $500, rather than on only the $50 that is still owed. This is a dishonest way to make a few bucks at the expense of a responsible and unwitting consumer.

Second, the GAO found that the account information provided to consumers is often inadequate or confusing. Current fee disclosures are difficult to understand and poorly organized, with much of the important information buried deep in the fine print, and it is often unclear when or under what circumstances late fees or penalty interest will be charged.

Third, some fees are plain unfair. For instance, some card issuers charge a fee of $5 to $15 to make an on-time payment by telephone without any mention of this fee in the account materials. This means that some families are being charged $15 to pay their bill over the phone before the due date. It is inexcusable to charge families a fee to pay their bill on time.

Finally, penalty interest rates and fees are higher now than they ever have been. In 2005, the average fee was $34 for a late payment and $31 for going over a credit limit. Both fees have more than doubled from $13 in 1995. In addition, interest rates for those who pay late or exceed their credit limit can reach over 30 percent. These are hefty penalties that can take a real bite out of the family budget and hinder a good faith effort to pay off debt.

It is outrageous for credit card companies to use hidden fees, penalty interest charges and unfair practices to exploit consumers. American families simply cannot afford to hire a lawyer to decipher their credit card statements, and they shouldn’t have to. If credit card companies do not take the initiative to clean up their act, I will introduce legislation to ban these abuses.

Carl Levin is the senior U.S. senator from Michigan.