Overview

Credit card companies use a variety of unfair practices to trap consumers in a cycle of over-priced debt. The companies are allowed by regulators to raise your rates for any reason, including no reason. They are allowed to operate nationally out of states, like Delaware and South Dakota, with weak consumer laws and no limits on interest rates or fees.

Consumers should either pay balances in full, or make the largest payments they can afford, and always pay early in the cycle to avoid late fees. But for years the firms lowered minimum monthly payments and encouraged the use of cards for everyday expenses—through rewards programs—so that many consumers accumulated massive amounts of credit card debt. Until recently, a consumer who owed credit card debt of $5,000 at a common 16 percent APR, who only made the typical 2 percent minimum payment, would take 26 years to pay off the card, even if it was cut up and never used again. Even the federal regulators finally took notice, and recently ordered banks to increase minimum payments by a modest amount.

In 2005, Congress passed punitive legislation long sought by the powerful credit card industry to make it harder and more expensive to file for bankruptcy, and to force consumers to pay off more credit card debt if they do so.

The new law includes a weak yet-to-be-implemented disclosure of how many years it will take to pay off the card if you only make the minimum requested payment. S 393, the Akaka Credit Card Minimum Payment Warning Act, would replace that industry-approved disclosure with a specific, customized warning.

Although the ability of states to regulate the fees and interest rates (APRs) of credit card companies has been severely restricted by federal preemption doctrine, which has allowed the weak laws of Delaware and South Dakota to override the state laws where credit card customers live, states are taking action in one area. In response to the growing problem of aggressive credit card marketing to young people on college campuses, some states, such as California, have restricted campus credit card marketing. Several colleges and universities have taken similar actions at the local level. See the U.S. PIRG report, "Graduating Into Debt: Credit card marketing on college campuses," for more information.