House Votes for More Disclosure on Credit Cards

Moving to dispel consumer confusion, the House Wednesday overwhelmingly approved legislation requiring credit card companies to provide information about interest rates, membership fees, late charges and other costs when people apply for the cards.

The bill, which had been passed by the Senate last week, was approved on a voice vote and sent to President Reagan, who is expected to sign the measure into law.

Under present federal law, credit card firms must disclose such information only after a card has been issued. Sponsors said that the new law is needed to help consumers make the often bewildering choices about which company offers them the best financial deal.

“This bill ends the hide-and-seek approach to disclosures on credit card terms,” said Rep. Fernand J. St Germain (D-R.I.), chairman of the House Banking, Finance and Urban Affairs Committee. “It prevents sneak attacks on unsuspecting consumers, who often learn of charges and fees long after the fact, too late to reject the card and seek alternatives.”

‘Open-Ended’ Cards

The new law would apply to applications for “open-ended” credit cards like VISA and Master Card, as well as charge cards like American Express, which require payment in full each month. Companies also would be required to give the information to consumers when they decide whether to renew their cards.

Currently, California and nine other states have laws requiring that customers be told about financial costs before they receive their credit cards. But the federal law, which preempts all state regulations, is significantly stronger than any of those laws. In California, for example, the state regulations do not apply to telephone solicitations for new credit cards, a practice that is covered by the federal legislation.

The state law, which was approved in 1986, requires that information about rates, fees and charges be disclosed in “pre-approved” applications for credit cards, charge cards and retail store cards that are sent to consumers. But, unlike the federal legislation, it does not regulate the applications for cards that are found in retail catalogues, restaurants, stores or newspapers and magazines, according to Gayle Baker, a legislative analyst with the state Department of Consumer Affairs.

Leaders of the credit card industry decided to support the bill, but only after Congress agreed to the provision preempting all state laws mandating such disclosure. Although none of the state laws were stronger than the new federal legislation, the companies wanted one standard law rather than 50 different sets of regulations.

Lower Rates

Despite these stronger protections, critics of the federal bill charged that states should be free to set their own regulations. And they said that the estimated 105 million Americans holding credit cards need lower annual credit card interest rates, rather than a maze of new financial information.

“There is nothing in this legislation that will cause credit card interest rates to fall,” Rep. Frank Annunzio (D-Ill.) said. “It will only be a matter of time before credit card issuers increase the rates on their products and blame the increase on the increased disclosures, paper work, printing and mailing costs required under this legislation.”

Under the new law, all credit card application forms, telephone solicitations and written offers to open accounts must provide basic information to consumers, including:

--The annual interest rate for credit purchases, including information on variable rates that may be charged by the company.

--The method of calculating the outstanding balance upon which finance charges are levied.

--Any annual or membership fee that a company charges.

--The so-called “grace” period during which people can pay off their credit card expenses without incurring any interest charges. If the company does not provide such a service, this information must be disclosed.

Telephone Solicitation

In the case of some telephone solicitations, Congress would allow companies to provide the information in writing within 30 days of a customer’s request for a card. The written information must clearly inform consumers that they are under no obligation to accept the card or pay any of the fees unless they choose to accept and use the credit card.

As for written applications sent through the mail or found in catalogues, the law provides three ways for companies to meet new disclosure requirements.

First, credit card firms could disclose the information on the applications in a special, easy-to-read box. They could also publish a statement that there are special costs connected with the card and that a customer might get information about them from a toll-free number. Finally, companies could send detailed information before the credit cards are issued. Those disclosures, which include interest rates, membership fees, late charges and other costs, are now typically published in a lengthy format after the card is issued.

Rep. Charles E. Schumer (D-N.Y.), who helped develop the legislation, predicted that it would help consumers save millions of dollars in annual credit card costs. Currently, American consumers are shouldering more than $150 billion in outstanding credit card balances, he said.

Before Congress moved to remedy the problem, “consumers had no way of comparing the interest rates different cards charge . . . they had no way of knowing the grace period for repayment. Sometimes the annual fee the card charges was not even listed,” Schumer said.

Under the new disclosure law, credit card companies would be more likely to compete for consumer business and lower their rates, he said. Noting that some companies have already begun lowering their interest rates from 19% down to 11%, Schumer said that the “time may be ripe” for cuts.