Credit Card Terms and Conditions Have a Highly Deceptive Effect
but Credit Union Issued Cards are Fairer than Bank Issued Cards
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Credit Card Terms and Conditions Have a Highly Deceptive Effect
but Credit Union Issued Cards are Fairer than Bank Issued Cards

New Woodstock Institute Report - The Chicago-based Woodstock Institute has just released a report describing the fees, rates, and terms of the largest credit card providers in the U.S. titled "Blindfolded Into Debt: A Comparison of Credit Card Costs and Conditions at Banks and Credit Union." The report documents the highly confusing terms and conditions now used in the credit card industry. It suggests that the deceptive effect of these complexities massively raises the cost of using credit cards and contributes to rising levels of consumer debt. (Both Bank of America and MBNA are included in the survey. Bank of America has just announced plans to acquire MBNA.)
The report also shows that credit cards issued by credit unions have similar purchase interest rates but come with fewer fees, lower fees, lower default rates, and conditions that are much clearer. The details of the credit union card show how credit card lending can be done sustainably without exorbitant penalties and misleading terms and conditions.
The complete report is available at

Key findings of the survey include:
' Banks' credit cards come with a variety of very high fees. The highest of these is the default rate which often approaches 30 percent. While banks advertise 0 percent annual percentage rates (APRs) for balancestransferred to their card, only the fine print reveals that they charge a balance transfer fee, usually a percent of the amount transferred, for the service. Banks are twice as likely to charge fees on balance transfers and cash advances than credit unions.

' APRs are very hard to understand. Nowadays, a single credit card issued by a bank may have three rates: one rate for purchases, a higher rate for cash advances, and a lower rate for balance transfers. Furthermore, providers may offer an introductory rate, but it may apply to only one of these rates. Even so called convenience checks that come with the monthly statement and are checks drawn on the credit card may have different rates with the first several convenience checks charging a different rate than the others in the set.
' APRs in credit card solicitations are not fixed. Many banks advertise a range of purchase rates a consumer may be charged and the rate is only fixed after the customer has responded to the solicitation.

' Banks solicit customers indiscriminately. Banks sent five billion mail solicitations to Americans last year, indiscriminately extending credit to those who can't afford it or do not need it. Credit unions, on the other hand, only market to their clearly-defined field of membership.

' Nine out of ten bank issuers in the survey include "universal default" in their terms. This grants the issuer the right to increase a consumer's interest rate when (s)he is late or delinquent with an entirely different creditor or utility provider. Usually, the rate increases to the default rate; among the ten banks in the survey, this rate averaged 25.4 percent. It becomes very difficult for consumers to pay off their balancesat rates this high. No credit unions in the survey implement a universal default scheme.

The report suggests that the intricate web of penalties and fees implemented by the credit card industry may be one of the key factors for the high level of indebtedness among Americans. In January 2005, the average U.S. household had seven credit cards and carried a balance of $14,000, the highest level of debt ever. Between 1989 and 2001, despite the unmatched economic prosperity of the 1990s, credit card debt in America almost tripled, from $238 billion to $692 billion. And while in 1980, U.S. households' outstanding debt was about 70 percent of disposable household income, today it is over 105 percent.

"The costs of credit cards are excessive," concludes Malcolm Bush, President of Woodstock Institute. "What's worse, banks go out of their way to hide the costs. The result is an increasing number of households trapped in a downward cycle of debt."
The report includes policy recommendations. These recommendations are particularly timely because the Federal Reserve Board is currently considering changes to Regulation Z, the regulation that implements the Truth in Lending Act. Also Congress is currently considering a ban on universal default.

Woodstock Institute, founded in 1973, is a nationally-recognized resource on credit and capital needs of low-income and minority communities. The Institute engages in applied research, policy development, and technical assistance to promote community economic development.

Thomas Feltner
Communications/Development Associate
Woodstock Institute
407 South Dearborn Suite 550
Chicago, IL 60605
(312) 427-8070 tel.
(312) 427-4007 fax


About the ICFE:

The Institute of Consumer Financial Education (ICFE) was founded in 1982 by the late Loren Dunton (creator of the Certified Financial Planner (CFP) designation and founder of the College for Financial Planning in Denver, CO.) The ICFE is dedicated to helping consumers of all ages to improve their spending practices, increase savings and use credit more wisely.

The ICFE is an award winning, nonprofit, consumer education organization that has helped millions of people through its financial continuing education courses programs and resources. In addition to eight Certification courses covering identity theft, credit files, credit repair and credit scoring, among others, it also publishes the Do-It-Yourself Credit File correction Guide, which is updated annually. The ICFE has distributed over one million Credit/Debit Card Warning Labels and Credit/Debit Card Sleeves world wide.

The ICFE is a partner with the national Jump$tart Coalition for Financial Literacy and the California Jump$tart chapter. The ICFE staff is also active with San Diego Saves and Military Saves, both offshoots of America Saves.

The ICFE is also an on-line help for consumers who spend too much. ICFE's spending help was featured in PARADE Magazine in the Intelligence Report section. The money helps and tips are from the ICFE's Money Instruction Book, our course in personal finance.

The ICFE helps consumers and students with mending spending, learning about the proper use of credit, budget and expense guidelines, how to set up and implement a spending-plan and also how to access financial education courses and how to teach children about money. Other ICFE services include: Ask Mr. G library, a free eNews service, and an online resource center for students, parents and educators, plus financial education learning tools in the ICFE Book Store.

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