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Press
Release Contact:
Friday, September 29,
2000
Shelley Curran or Michael McCauley
415-431-6747
Consumers
Union's West Coast Regional Office
Landmark Measure Would Have Helped
Consumers
Better Understand the Cost of Long-Term Credit Card Debt
Following intense lobbying by the banking
industry, California Governor Gray Davis vetoed a bill today that
would have required credit card companies to disclose information on
their billing statements to help consumers better understand the cost
of making the minimum payment on their debt. AB 1963 was authored by
California Assembly Speaker Bob Hertzberg and supported by Consumers
Union and other consumer groups throughout the state.
"We are deeply disappointed that the Governor
has vetoed this common sense consumer measure," said Shelley Curran,
Policy Analyst with the West Coast Regional Office of Consumers
Union. "This bill would have helped Californians better understand
the financial consequences of carrying long-term credit card debt.
It is particularly frustrating that the Governor vetoed this measure
since it enjoys strong popular support and passed by such a wide
margin when it was considered by lawmakers in Sacramento."
The bill would have required credit card
companies to disclose to consumers the total cost they would incur
and the total amount of time it would take to retire their debt if
they made the minimum monthly payment on their bill. For example,
consumers who owe $2,500 on their credit card at 17 percent APR,
would learn that it would take 363 months to pay off their bill for a
total cost of $7,773 if they made a monthly payment equal to 2
percent of their balance. Consumers who owe $5,000 would learn that
they would end up making payments totaling $16,304 over 482 months if
they made the minimum monthly payment.
Personal credit card debt and bankruptcies have
reached all-time highs in recent years. In 1980, 313,000 middle class
families declared "complete financial failure." That number jumped
to 1,281,000 in 1999. The non-mortgage debt that these families
carried also grew from the equivalent of nine months of income in
1981 to 22 months of income in 1997. At the same time, credit card
debt as a proportion of outstanding debt for consumers has also
risen. Credit card debt has increased from 2.8 percent of the
average family's debt in 1989 to 3.8 percent in 1998.
According to an April 1999 Opinion Research
Corporation International Survey, 85 percent of the respondents
supported a disclosure requirement that would tell consumers how much
total interest they would owe and how long it would take to pay off
their debt if they made the minimum payment on their bill.
Approximately 25 percent of all cardholders make the minimum payment
on their monthly bill according to CardWeb in Gettysburg,
Pennsylvania, which collects industry statistics.
"Credit card holders are often lulled into a
false sense of security by making the minimum payment on their
accounts," said Curran. "But by doing so, they end up paying far
more in interest than their actual debt. This disclosure requirement
would have helped consumers realize the true cost of long-term credit
card borrowing and allowed them to make more informed financial
decisions. We hope that Speaker Hertzberg will continue to push for
this important disclosure requirement when lawmakers return to
Sacramento next year."
Consumers Union, publisher of Consumer Reports, is an independent, nonprofit testing and information organization, serving only the consumer. We are a comprehensive source of unbiased advice about products and services, personal finance, health, nutrition, and other consumer concerns. Since 1936, our mission has been to test products, inform the public, and protect consumers.
