Editorial: Giving consumers credit

Saturday, Oct. 14, 2006 | 8:02 a.m.

A federal report released earlier this week says that credit card fees and interest rates are increasingly complicated and often are not properly communicated to the consumers who use the cards.

The report released Wednesday by the Government Accountability Office, the investigating arm of Congress, says that credit cards have evolved from having fixed rates around 20 percent and few fees, to cards that can charge 30 percent or more in interest and up to $39 every time a consumer makes a late payment.

The companies that issue these cards told the GAO that charging riskier consumers stiff penalties and high interest rates allows them to offer far lower interest rates to consumers who pay on time and are otherwise considered safer risks. These rates and fees and the reasons for raising them must be fully disclosed to all consumers who receive credit cards. And, the GAO says, therein lies the problem. These disclosures often "have various weaknesses" that make them difficult to read and understand.

Anyone who possesses a credit card has received the pages-long disclosure that uses single-spaced, tiny print and a vocabulary that would challenge the shrewdest of actuaries. The GAO found that "the disclosures buried important information in text, failed to group and label related material and used small typefaces." Many of the 112 cardholders interviewed by the GAO, said they didn't understand basic information, such as when they would be charged for late fees and under what circumstances interest rates could be raised.

The GAO recommended that the Federal Reserve revise the policy for credit card disclosures, making certain that the information regarding rate increases or fees is more clearly explained and obvious.

While we understand the need to treat credit consumers differently based on their payment histories, we also believe that the best consumers are fully informed ones. The Federal Reserve should see to it that these disclosures are clear, concise and, of course, printed large enough to actually read.