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.)

 

Published 10/18/06 (Modified 04/20/12)