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CA releases its 2003 annual Credit Card Rates Survey

New study highlights anti-consumer practices that are becoming standard in the industry

For the entire survey, click here. It is also offered free to consumers who send a self-addressed, stamped (60¢) envelope to Consumer Action-CC Survey, 717 Market St., Suite 310, San Francisco, CA 94103. If you would like to publish a phone number, please use (415) 255-3879.

Tuesday, March 11, 2003 — The new national Credit Card Survey by Consumer Action (CA), released today, takes a close look at 143 credit cards issued by 47 companies. The survey, published in the Spring issue of the San Francisco-based non-profit advocacy organization’s Consumer Action News, uncovered a sinkhole of anti-consumer practices — tiny minimum monthly payments, outrageous late fees and significantly higher penalty rates.

Consumer Action was startled to find that more than one-third of surveyed issuers said they will raise existing cardholders’ rates because of their poor credit record with other creditors — even if the cardholder has made no late payments or other missteps with the card in question.

Consumer Action sees great potential for abuse in these at-will rate hikes because the industry appears to believe that no advance disclosure or explanation is required under federal credit card and fair credit reporting rules. The consumer advocacy organization believes that raising cardholders’ rates without prior notice because of their poor credit records with other creditors violates at the very least the spirit of the Truth-in-Lending Act's notice requirements.

"When you’re turned down for credit, the law requires that you receive a letter explaining why," said Linda Sherry of Consumer Action, who led the survey team. But if your card is repriced, you don't learn about it until your next statement arrives."

Consumer Action calls on regulators and lawmakers to look closely at the practice to see if card companies are holding to the spirit of federal notice requirements. "Consumers have no idea what could trigger a repricing — the boom just falls," said Sherry. "For all we know, if you finance a new car, your credit card rate might skyrocket unexpectedly."

Other key findings from the survey:

• The vast majority of surveyed cards have significantly higher penalty rates that are triggered by one or two late payments in a period of six months to a year.
• One-fifth of surveyed issuers have shifted to tiered late payments, which Consumer Action interprets as a deceptive way of charging higher-than-average late fees.
• The number of cards with $35 late fees has more than doubled from last year.
• More than half the cards surveyed require cardholders to pay only 2% of the monthly balance each month—a disturbing trend that dramatically increases the overall interest paid by cardholders.
• More than one-third of surveyed institutions will not provide a firm annual percentage rate (APR) until they have screened the applicant’s credit history. Instead, they give only a meaningless range of rates before screening, which makes comparison shopping difficult if not impossible.

Consumer Action has been conducting its annual review of credit card rates and terms since the mid-1980s to track trends in the industry and assist consumers in comparing cards. This year’s survey was conducted between Dec. 10, 2002 and Feb. 11, 2003 by Consumer Action staff members.

This year the team collected information on 104 cards without fees (73%) and 39 cards with fees (27%). Rates ranged from 4.25% (Huntington Direct Bank) to 23.99% (Providian). The average APR on all cards was 12.19% — an increase of about a half-percentage point from last year’s overall average of 11.73%. The finding is notable because the prime rate — the index to which most variable rate cards are tied — fell by a half percentage point to 4.25% since Consumer Action’s last survey.

According to the survey, annual fees have dropped on average by 20% in one year. This year’s average annual fee for cards with fees was $35.67, while last year’s survey found a $44.48 average annual fee.

Surveyed cards included 99 cards (or 69%) with variable APRs and 44 cards (or 31%) with fixed APRs. The average interest rate on surveyed variable rate cards was 12.06%. The average interest rate on surveyed fixed rate cards was 12.49%. APRs on fixed rate cards ranged from 5.50% (Pulaski Bank) to 21.90% (Sears National Bank and Generations Bank). The range of rates on variable cards is the same as on all cards—from 4.25% (Huntington Direct Bank) to 23.99% (Providian).

Consumer Action, founded in 1971, is a non-profit education and advocacy organization based in San Francisco, CA.