New Credit Card Disclosure Law Would Leave Burden on You to Shop Around

New legislation passed by the House this week requiring greater disclosure of credit card terms should make it easier for many consumers nationwide to compare rates and fees. But it will have only limited benefit for California consumers, who already had a state law mandating certain disclosures.

More important, the new rules still leave the burden on you to look for the best card deals. Unfortunately, most card borrowers don’t shop around.

The Fair Credit and Charge Card Disclosure Act of 1988, expected to be signed soon by President Reagan as Senate approval was given last week, mandates that mail solicitations for new credit cards include the following in an easy to read, prominently displayed table:

- Annual percentage rate, including how it is computed if it is variable.

- Annual fees, as well as such other fees as minimum finance charges, transaction charges, cash advance fees, late payment fees and over-the-limit fees.

- Length of the grace period under which you can pay your bill and incur no interest charges. Card issuers also must disclose if no grace period is offered or describe any range in the length of the grace period.

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

Up-front disclosure of this information will help many consumers in states with no previous laws mandating it. Mail solicitations--the predominant method of “selling” credit cards--often don’t disclose rates and fees prominently, if at all. Until now, federal law only required such disclosures after the card is issued.

But for California consumers, the new federal legislation doesn’t go much beyond a state law that took effect last October. That law already had required disclosure of rates and most fees on mail solicitations. The federal legislation goes further in requiring information about cash advance fees, late fees and over-the-limit fees, but these are not nearly as important to most consumers as interest rates, annual fees and grace periods.

The federal legislation falls short in several other key areas. It prohibits states from passing tougher legislation. Also, it doesn’t require up-front disclosure when cards are pitched by phone. Instead, marketers only must provide written disclosures within 30 days of your request for a card.

Such looser rules governing telemarketing have alarmed consumer groups who fear that more solicitations may come through the phones. Telemarketing has become the fastest growing form of credit card solicitation, says David Robertson, vice president for marketing at the Nilson Report, a Santa Monica newsletter covering the credit card industry. Consumers are more likely to respond to telephone pitches, with three in 100 taking cards hawked over the phone versus two in 100 responding to mailed offers, Robertson says.

And the new legislation doesn’t stop marketers from claiming in their mail pitches that they offer low-rate or low-fee cards--even if their rates and fees are, in fact, high. And the legislation won’t help you at all if you don’t want to make the effort to compare rates and fees among card issuers. But many people don’t, instead being grateful that anyone would offer them a line of credit.

“The new law won’t make much difference unless people use the information to shop around,” says Michael Heffer, senior staff member of Consumer Action, a San Francisco consumer organization. “We have a wide range of credit card deals and unless people shop for low rates, those companies offering high rates will get away with charging high rates.”

Indeed, card rates vary widely nationwide, from as low as 11% to as high as 21%, Heffer says. Annual fees vary from zero in some cases to as high as $35, he says. Larger issuers often charge the highest fees and rates.

With such variation, “don’t take the first offer that comes up,” suggests Gale Baker, legislative analyst with the California Department of Consumer Affairs.

Several consumer organizations and private firms will provide, at low or no cost, lists of cards charging low rates or fees.

Consumer Action provides a free list of fees and rates on cards in California. To get it, send a self-addressed business-size envelope with 45 cents postage to Consumer Action Credit Cards, 693 Mission St., San Francisco, Calif. 94105.

For $1.50, Bankcard Holders of America offers a list of cards nationwide charging no annual fee. For another $1.50, you can get a list of cards with low rates. Send a check or money order to the organization at 460 Spring Park Place, Suite 1000, Herndon, Va. 22070.

For $10, the Nilson Report offers a list of rates, annual fees and grace periods on 500 cards nationwide. It also includes a kit describing your borrowing rights and other useful tips. Send a check or money order to Consumer Credit Card Rating Service, Box 5219, Ocean Park Station, Santa Monica, Calif. 90405.

Another source of low-cost cards: credit unions, which often charge less than banks. Also consider cards offered by institutions in Texas, Arkansas, Connecticut or Washington; they have laws keeping card rates at 15% or below. You can obtain a card from issuers in these states even if you don’t live there, although qualification standards may be more stringent for out-of-state applicants.

Consumer experts offer these additional tried-and-true tips on taking advantage of the new disclosure rules:

- Know what you will use the card for. If you plan to pay off outstanding balances each month--as about 40% of all credit card holders do--you are better off with a card charging no or low annual fees and providing a longer grace period. If you keep a big balance month to month, you are better off with a card charging a lower interest rate.

If you have a high-rate card, try to get a low-rate card and use the borrowings from it to pay off the balance on the high-rate card. Another reason to do this: Under tax reform, interest on credit card and other non-mortgage borrowings are only 40% deductible this year and won’t be deductible at all in 1991 and beyond.

- Don’t ever agree to accept a card without knowing its annual fee, rate and grace period. When being pitched over the phone, insist on getting rate and fee information or a toll-free telephone number to find it out. And remember, you are under no obligation to accept any card and pay any fee until you know and accept the terms of the card.

- Be aware that the grace period may not apply all the time. Many consumers are unaware, for example, that grace periods may not apply if you have an outstanding balance. For example, if you have a $100 balance and borrow an additional $200, you might be charged interest on the $200 right away.

- Be sure you know terms for cash advance fees, late fees and over-the-limit fees--whether or not they are fully disclosed. Realize, for example, that many cards don’t offer a grace period on cash advances, so you will pay finance charges immediately.