Credit Cards and Common Sense

The sunny economy and low unemployment rate haven’t kept some consumers from racking up debt. In fact, personal credit card debt and bankruptcies are at record highs. According to the Federal Reserve, U.S. credit card debt now stands at an unprecedented $633 billion, and the number of middle-class families declaring “complete financial failure” soared from 313,000 in 1980 to just under 1.3 million last year.

Government can do little to stop the fiscal mismanagement or personal disasters that lead to runaway debt. However, Gov. Gray Davis can take a remarkably simple step toward preventing credit card holders from being lulled into a false sense of security: He can sign AB 1963, a bill by Assemblyman Bob Hertzberg (D-Sherman Oaks) that landed on his desk last week.

The bill would require credit card companies to disclose to consumers the total interest cost they will incur and the amount of time it will take to retire their debt if they make just the minimum monthly payment. Few people understand that the minimum payment barely covers interest, meaning it makes almost no dent in the principal owed.

Helping consumers see the true costs of long-term debt would seem a sure bet for the governor’s signature. However, Davis has not indicated whether he supports the measure, and earlier this month the banking industry said its No. 1 legislative priority is persuading the governor to veto it.

The California Bankers Assn. says Hertzberg’s bill is unnecessary because Congress is now considering federal bankruptcy legislation that would require credit card companies to print a toll-free number on credit card statements that customers could call to get an estimate of how much time it would take to repay their specific balances.

That is a foolish argument. Even in the far-from-certain event that the federal legislation is eventually enacted, Californians would be far better served by Hertzberg’s bill. Detailing an individual customer’s specific long-term debt obligation carries a much stronger cautionary message than listing a telephone number.

The state Legislature’s common-sense approach with AB 1963 provides a much needed wake-up call for credit card holders. The measure rightly puts the burden on overspending consumers but gives them information they can use to rein themselves in.

To Take Action: Gov. Gray Davis, (916) 445-2841, or e-mail: graydavis@governor.ca.gov