Permanent Subcommittee on Investigations

Senator Carl Levin is the chairman of the Permanent Subcommittee on Investigations and previously chaired the Subcommittee from June 2001 to January 2003. The Subcommittee is part of the Homeland Security and Governmental Affairs Committee and has jurisdiction to conduct investigations into a broad range of issues, including federal waste, fraud, and abuse, corporate crime, offshore banking and tax practices, energy markets, corruption, and national security.

RECENT AND ONGOING INVESTIGATIONS -

Credit Card Industry Investigation

Through his role as Chairman of the Permanent Subcommittee on Investigations, Senator Levin has initiated an in-depth investigation into unfair practices in the credit card industry. In 2006, at Senator Levin’s request, the Government Accountability Office (GAO) released a 125-page report which, for the first time in years, provided a detailed description of the various interest rates, fees, and disclosure practices associated with 28 popular credit cards and the profits they were producing for six large credit card issuers.

In 2007, Sen. Levin held two hearings in March and December that examined a host of unfair credit card practices and introduced legislation to stop the abuses. The March 2007 hearing chaired by Senator Levin focused on three fundamental credit card issues: grace periods, interest rates, and fees.

Grace Periods. Although many consumers think that all credit cards provide them with a grace period before interest is charged, the investigation disclosed that, in fact, most credit card issuers do not provide a grace period to cardholders unless they pay their credit card balances in full each month. If a consumer owes any balance on a card from the prior month, there is no grace period on new purchases -- every purchase racks up interest charges from day one.

Interest Rates. Credit cards used to bear one interest rate that applied to all transactions, but the investigation found that, today, credit card issuers typically apply multiple interest rates to the same card, depending on the circumstances. For example, the credit card industry typically uses one interest rate for cash advances, another for regular purchases, a third for balance transfers, and if a cardholder pays late or exceeds a credit limit, the company may substitute a so-called penalty interest rate that can exceed 30 percent. These interest rates may vary if they rise and fall with the prime rate. Multiple interest rates that change over time make it nearly impossible for consumers to track their finance charges. In addition, when a consumer pays off a portion - or even the majority - of a monthly balance, the investigation disclosed that credit card issuers charge interest on the entire amount previously owed, including the portion that was paid on time. Sen. Levin believes it is indefensible to charge interest on money that is paid on time.

Fees. In addition to interest, credit card issuers impost a host of fees on card holders, including late fees, over-limit fees, and fees charged for paying a bill over the telephone.  The March 2007 hearing featured an Ohio consumer who exceeded the $3,000 limit on his card by $200, and was then charged 47 over-limit fees totaling $1,500, an amount seven times greater than the amount for which he was being penalized.  He was also charged $1,100 in late fees.  This example illustrates the use of excessive fees in the credit card industry.  These high fees are made worse by the industry practice of including all fees in a consumer’s outstanding balance so that they incur added interest.  It’s one thing for a company to charge interest on funds lent to a consumer; charging interest on penalty fees as well goes too far.

The December 2007 hearing chaired by Senator Levin focused on the problem of unfair interest rate increases, in particular the industry practice of increasing interest rates on card holders who have paid their credit card bills on time, stayed below their credit limits, and paid at least the minimum amount due.  Three consumers described their experiences. 

Janet Hard of Freeland, Michigan, had her Discover credit card interest rate increased from 18% to 24% in 2006, even though she had made payments to Discover on time and paid at least the minimum amount due for over two years.  Discover applied the 24% rate retroactively to her existing credit card debt of $8,300, increasing her minimum payments and increasing the amount that went to finance charges instead of the principal debt.  The result was that, despite making steady payments totaling $2,400 in twelve months and keeping her purchases to less than $100, Ms. Hard’s credit card debt went down by only $350. 

Millard Glasshof of Milwaukee, Wisconsin, a senior citizen on a fixed income, made a $119 monthly payment for years to Chase to pay off a credit card debt of about $5,000.  In December 2006, Chase increased his interest rate from 15% to 17%, and then hiked it to 27%.  Retroactive application of the 27% rate to Mr. Glasshof’s existing debt meant that, out of his $119 payment, about $114 went to pay finance charges and only $5 went to reducing his principal debt.  Despite making payments totaling $1,300 over twelve months, Mr. Glasshof found that, due to high interest rates and excessive fees, his credit card debt did not go down at all.

Bonnie Rushing of Naples, Florida, had a Bank of America card with an interest rate of about 8%.  In April 2007, despite a history of timely payments, Bank of America nearly tripled her interest rate to 23%.  Ms. Rushing closed her account and complained to the Florida Attorney General, Senator Levin’s subcommittee, and her card sponsor, American Automobile Association.  Bank of America eventually restored the 8% rate on her closed account.

In May 2007, Senator Levin introduced the Stop Unfair Practices in Credit Cards Act, S. 1395, [PDF] in an effort to ban the unfair practices exposed in this investigation and to protect consumers who seek to pay off their debts in good faith. If passed, this law would stop credit card companies from charging interest on debt that is paid on time; it would crack down on abusive fees, including duplicative over-the-limit fees and fees to pay a bill; it would prohibit the charging of interest on fees; it would prohibit interest rate increases on card holders who pay their bills on time without their consent; it would put a cap on penalty interest rate hikes at no more than seven percent; and it would require that increased interest rates apply only to future credit card debt, and not to debt already incurred.  It would also ensure that consumer payments are applied first to the credit card debt carrying the most expensive interest charges.  This bill has ten senators as cosponsors and has been endorsed by consumer, labor and small business groups.  It has been referred to the Senate Banking Committee.

In April 2008, Senator Levin cosponsored a comprehensive credit card reform bill introduced by Senator Chris Dodd, D-Conn., chairman of the Senate Committee on Banking, Housing and Urban Development. The bill, the Credit Card Accountability, Responsibility and Disclosure Act (C.A.R.D. Act), incorporates nearly all of the provisions of Senator Levin's credit card bill and adds other important consumer protections.

During the course of this investigation, Senator Levin has received letters from more than 1,500 consumers across Michigan and the nation.  These letters have been used by his Subcommittee staff to examine a variety of unfair practices.  If you would like to tell Senator Levin's investigative staff about an unfair credit card practice that you have experienced, please send an e-mail to creditcards@hsgac.senate.gov.

More Information on the Credit Card Industry Investigation:

Additional Resources

If you have a specific credit card problem and would like to seek immediate help, you may want to consider contacting Consumer Action. Consumer Action is a national, non-profit education and advocacy organization that provides free, non-legal advice and referrals on a number of consumer issues, including credit cards.

To get help from Consumer Action, you must leave a message with their hotline either by phone, online or email. There will not be a live person when you leave the message, but they will have a counselor review your complaint and follow up with you.

A complaint may be submitted to the Consumer Action hotline by:

Abusive Tax Schemes

Senator Levin continues to lead investigations into abusive tax shelters and offshore tax havens used by businesses and individuals to dodge payment of their U.S. taxes.

Offshore tax havens and secrecy jurisdictions today hold trillions of dollars in assets. While these jurisdictions claim to offer clients financial privacy, limited regulation, and low taxes, too often these jurisdictions have instead become havens for tax evasion, financial fraud, and money laundering. A sophisticated offshore industry, composed of a cadre of international professionals including tax attorneys, accountants, bankers, brokers, corporate service providers, and trust administrators, aggressively promotes offshore jurisdictions to U.S. citizens as a means to avoid taxes and creditors in their home jurisdictions.

These professionals, many of whom are located or do business in the United States, advise and assist U.S. citizens on opening offshore accounts, establishing sham trusts and shell corporations, hiding assets offshore, and making secret use of their offshore assets here at home. Experts estimate that Americans now have more than $1 trillion in assets offshore and illegally evade between $40 and $70 billion in U.S. taxes each year through the use of offshore tax schemes. U.S. corporations are estimated to illegally evade another $30 billion in taxes each year through offshore tax dodges. America 's working people bear the burden of this $100 billion tax gap.

Since 2001, the Subcommittee has held a series of hearings on offshore tax abuses used by some U.S. businesses and individuals dodge payment of U.S. taxes. In August 2006, the Subcommittee held a hearing and released a report detailing six case histories that revealed how Americans use offshore trusts, corporations, and tax shelters to evade payment of their taxes. In one case history, two brothers built a network of 58 offshore trusts and corporations to avoid paying taxes on hundreds of millions of dollars in income. In another case history, two billionaires, using offshore corporations, staged a fake sale of securities to avoid paying taxes on more than $2 billion in income. The Subcommittee report makes a number of recommendations to combat these abusive tax practices.

In July 2008, the Senator Levin chaired a hearing entitled, Tax Haven Banks and U.S. Tax Compliance, that examined how tax haven banks facilitate tax evasion by U.S. clients, hide client and bank misconduct behind the cloak of bank secrecy laws, and add to the offshore abuses that cost U.S. taxpayers an estimated $100 billion dollars each year. The Subcommittee also released a report by the same name.

In September 2008, Senator Levin chaired a hearing, Dividend Tax Abuse: How Offshore Entities Dodge Taxes on U.S. Stock Dividends, that examined how some financial institutions have designed, marketed and implemented transactions to enable foreign taxpayers, including offshore hedge funds, to dodge millions of dollars of taxes on U.S. stock dividends each year. The hearing followed a year-long bipartisan investigation.

PSI Press Releases, Statements and Reports on Abusive Tax Schemes:

Legislation supported by Senator Levin to address these problems:

Oil and Energy Prices

For the past five years, the U.S. Senate Permanent Subcommittee on Investigations has conducted a number of investigations into the pricing of energy commodities, including gasoline, crude oil, and natural gas. These investigations reflect a continuing concern over the sustained increases in the price and price volatility of these essential commodities, and, in light of these increases, the adequacy of governmental oversight of the markets that set these prices.

In 2001, Senator Levin directed the subcommittee to begin an investigation into recent gasoline and crude oil price spikes. Senator Levin chaired hearings in the spring of 2002 detailing how U.S. retail gasoline prices are set. The hearings and a 400-page staff report identified several factors responsible for rising prices and frequent price spikes, including oil industry mergers, refinery closings, tight gasoline supplies, and regional pipeline limitations. In March 2003, the subcommittee released a second staff report detailing the operation of crude oil markets that affect the price of not only gasoline, but also key commodities like home heating oil, jet fuel, and diesel fuel. The report warned that these markets are vulnerable to price manipulation. The report also warned that ongoing large deposits of oil into the Strategic Petroleum Reserve while oil prices are high and oil supplies are tight have increased prices but not overall U.S. energy security.

The Subcommittee's report, The Role of Market Speculation in Rising Oil and Gas Prices: A Need to Put a Cop on the Beat, [PDF] released in June 2006, found that the traditional forces of supply and demand no longer fully account for sustained increases and price volatility in the oil and gasoline markets. The report determined that market speculation contributed to rising oil and gasoline prices, perhaps accounting for $20 out of a $70 barrel of oil, and that too many energy trades occurred without regulatory oversight. The report recommended new laws to increase market oversight and stop market manipulation.

PSI Gasoline and Crude Oil Reports:

Legislation supported by Senator Levin to address these problems:

Money Laundering and Foreign Corruption

From 1999 to 2001, the Subcommittee held a series of hearings on money laundering activities in the U.S. financial services sector, including in-depth examinations of money laundering activities in private banking, correspondent banking, and the securities industry. This investigative work provided the foundation of many of the anti-money laundering provisions in Title III of the Patriot Act.

In February 2003, the Subcommittee initiated a followup investigation to evaluate the enforcement and effectiveness of key anti-money laundering provisions of the Patriot Act, using Riggs Bank, a prominent bank that held the accounts of most of the foreign embassies in Washington , as a case study. A report released by Senator Levin's Subcommittee staff in July 2004, revealed that Riggs Bank maintained a dysfunctional anti-money laundering program and allowed or, at times, actively facilitated suspicious financial activity, using case histories involving Augusto Pinochet, the former President of Chile, and Teodoro Obiang, the President of Equatorial Guinea. The report detailed serious shortcomings in federal oversight of Riggs Bank, a regulatory failure particularly troubling in light of the potential for criminals and corrupt officials to misuse the U.S. financial system. The report also made a series of recommendations to correct the regulatory and legislative deficiencies it identified.

PSI Reports on Money Laundering and Foreign Corruption:

Legislation supported by Senator Levin to address these problems:

Shell Companies

In April 2006, Senator Levin released a report prepared at his request by the Government Accountability Office (GAO) that found that states routinely incorporate new non-publicly traded companies without learning the identity of the owners, and that the absence of this company ownership information impedes law enforcement. The result is that anonymous non-publicly traded companies are able to engage in illegal activities such as money laundering or other crimes, knowing that U.S. law enforcement has no ready way to identify the company owners.

In one example cited in the report, the FBI told GAO that U.S. shell companies are being used to launder as much as $36 billion from the former Soviet Union . The FBI also reported that they had 103 open cases investigating market manipulation, most of which involved U.S. shell companies. In November 2006, the Subcommittee held a hearing showing that when U.S. shell companies become involved in criminal misconduct, the lack of ownership information has impeded law enforcement efforts. In addition, by failing to obtain corporate ownership information, the United States has violated its international commitment to install strong anti-money laundering laws. Senator Levin announced an effort to work with the states and law enforcement to address this problem.

PSI Reports on Shell Companies:

Federal Contractors' Tax Delinquencies

For the past three years, the Subcommittee has conducted an extended investigation into federal contractors that provide goods or services to the federal government but fail to pay their taxes. A 2004 hearing determined that 27,000 contractors with the Department of Defense had unpaid taxes totaling about $3 billion. A 2005 hearing determined that 33,000 contractors doing business with civilian federal agencies had unpaid taxes totaling $3.3 billion.

In March 2006, the Subcommittee held a hearing examined similar misconduct by contractors for the General Services Administration (GSA) and determined that 3,800 GSA contractors owed $1.4 billion in unpaid taxes. Further, the Subcommittee found that the federal government does not ask potential contractors if they have tax debt or unresolved tax liens before awarding them a contract. As a result, tens of thousands of contractors have been awarded federal contracts despite having outstanding tax debt.

PSI Reports on Federal Contractors' Tax Delinquencies:

Misconduct in the United Nations Oil-for-Food Program

The Subcommittee has conducted a three-year investigation into evidence of improper conduct associated with the United Nations Oil-for-Food (OFF) program and whether such misconduct negatively affected the interests of the United States .

In November 2004, the Subcommittee held a hearing that examined how Saddam Hussein's regime exploited and manipulated the OFF program. A hearing in February 2005, examined the operations of the independent inspection agents hired by the United Nations, as well as the operations and oversight of the OFF program by the U.N. Office of the Iraq Program and the U.N. Office of Internal Oversight Services.

In May 2005, a hearing and Subcommittee staff reports presented evidence that the Hussein regime awarded valuable allocations of oil to political allies, including Russian politician Vladimir Zhirinovsky, the Russian Presidential Council, British Member of Parliament George Galloway, and French senator Charles Pasqua. Senator Levin's staff released an additional report that examined open sales of oil from the Iraqi port of Khor al-Amaya outside of the OFF program, which took place with U.S. government knowledge.

In an October 2005 hearing, the Subcommittee considered the most effective manner to achieve meaningful reform at the United Nations and Senator Levin's Subcommittee staff also released a report on illegal surcharges paid to the Hussein regime by a U.S. company, Bayoil (USA), Inc.

PSI Reports on the United Nations Oil-for-Food Program:

Enron

In 2002, Senator Levin led a bipartisan, in-depth examination into the collapse of Enron. The Permanent Subcommittee on Investigations reviewed over two million pages of documents and conducted over 100 interviews. Senator Levin chaired four hearings probing the causes of the Enron debacle.

The Subcommittee also issued two bipartisan reports, one examining the role of Enron Board of Directors, and the other examining the role of certain major U.S. financial institutions, in Enron's use of misleading financial accounting. The reports concluded that the Enron Board of Directors and some U.S. financial institutions had contributed to Enron's accounting deceptions, corporate abuses, and ultimate collapse.

The Subcommittee's investigative work contributed to passage of the Sarbanes-Oxley Act in July 2002, enacting accounting and corporate reforms.

PSI Enron Reports:

Visit the Permanent Subcommittee on Investigations website

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COMMITTEES

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TASK FORCES
Task forces are working groups formed to address issues of particular concern. Senator Levin is a leader of four such task forces benefiting both Michigan and the nation. more