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October 18th, 2006

GAO Reports Lower Credit Card Interest Rates, Higher Late Fees, Confusing Disclosures

By Justin McHenry

In a report succinctly titled, “Credit Cards: Increased Complexity in Rates and Fees Heightens Need for More Effective Disclosures to Consumers”, the Government Accountability Office (GAO) noted that while credit card companies offer interest rates that are on average significantly lower than in the past, these same companies have increased late fees significantly and are offering disclosure statements that leave consumers confused about rates, fees, and card policies.

The report, requested by Michigan Senator Carl Levin, suggests that the Federal Reserve “should ensure that such disclosure materials more clearly emphasize those terms that can significantly affect cardholder costs, such as the actions that can cause default or other penalty pricing rates to be imposed.” According to the report, the Fed generally agrees with that recommendation.

In creating the report, the GAO used information on 28 of the most-issued cards from the top 6 credit card issuers, and they also interviewed over 100 cardholders to gauge their abilities to understand the typical credit card disclosure statement.

The report found that credit card rates have come down from a past era in which rates were over 20% as a standard, but many different rates are now applied to different transactions, from purchases to balance transfers to cash advances. This can create confusion. The report also found that credit card late fees have increased to an average of almost $34, up from $15 in 1995, and over-the-limit fees have increased to an average of $31, up from $13 in 1995. (In June, IndexCreditCards.com reported the average late fee at $35, and the average over-the-limit fee at $32.24.)

Most popular / best credit cards according to IndexCreditCards.com visitors:

  1. Discover® More Card
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    Chase Freedom Card - 0% Intro APR and no Annual Fee, 5% bonus cash back in popular categories , 1% cash bank on everything else
  3. Citi Platinum Select MasterCard
    3.
    Citi® Platinum Select® MasterCard® - 0% on purchases & balance transfers for Up to 18 months, APR as low as 9.99% variable. $30 statement credit.
  4. Blue Cash from American Express
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    Blue Cash® from American Express - Earn up to 5% cash back on gas, groceries and drug store purchases, and up to 1.5% back on all other purchases, no annual fee, fast approval under 60 seconds
  5. Slate from Chase
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  6. American Express® Gold Card
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  7. TrueEarnings® Business Card from Costco & American Express
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    TrueEarnings® Business Card from Costco & American Express - 4% cash back for annual gas purchases up to $6,000, 3% restaurants, 2% travel, 1% everywhere else, 0% APR on purchases for first 6 months

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* variable rate = credit card interest rate changes in line with federal interest rates or other rate index; fixed rate = credit card rate stays the same regardless of changes in federal rates, but still may be changed by credit card issuer in the future.

** See the online Discover credit card application for details about terms and conditions. Reasonable efforts are made to maintain accurate information. However all credit card information is presented without warranty. When you click on the "Apply Now" button, you can review the credit card terms and conditions on Discover's website.

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