Credit Card Debate over Consumers' IQ

Consumers wouldn't act so clueless if we had some basic facts.

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Over the past week, I've attended two heated discussions on the future of the credit card industry. The first, last Friday, was hosted by the Consumer Federation of America, and the second, Tuesday, was a Senate hearing on credit card interest rates.

The arguments are basically over whether credit card companies treat their customers fairly. Consumer rights groups and certain members of Congress, such as Sens. Carl Levin and Claire McCaskill, Democrats from Michigan and Missouri respectively, think credit card companies are unfair in the aggressive way they solicit customers and then raise interest rates when customers start to struggle with their debt.

As McCaskill put it, "It seems part of the problem is that the behavior you encourage is the behavior you use to raise interest rates." (McCaskill has personal knowledge of the problems with this system: Even after the senator closed one of her mother's credit card accounts, her mother received blank checks from the company in the mail.)

On the other side of the debate, credit card providers argue that without the ability to raise rates on those with high risk factors, they may have to raise rates on all customers to offset the losses from that group, or stop offering credit to some people altogether.

The thing that strikes me about this debate is how often we consumers are talked about as if our minds are barely functioning. One woman, who identified herself as an employee of the Washington, D.C., government, stood up at the Consumer Federation of America meeting and suggested that card companies put the following warning, written in large lettering, on all of their statements: "If you use credit cards, you could end up in major debt." As one woman whispered to her friend behind me, "That's like writing on candy, 'Eating sugar may rot your teeth.'"

We don't need such obvious statements. We just need some basic facts. For example, how much am I paying each month in interest? What will cause my interest rate to go up, and how will I be notified if it does? What fees am I paying, and why? Without that information, a customer can suddenly find herself paying 24 percent interest, as Janet Hard testified she did with her Discover card. Her interest rate ballooned even after she made her Discover payments on time, partly because her credit score had declined and Discover deemed her a credit risk. Had she known about the interest rate hike, she could have closed her account in advance of it. (Credit card companies do often disclose this information somewhere, but it tends to be in an unintelligible form or in small print that's easily missed.)

Customers aren't stupid. We just need to be informed of how companies plan to treat us before deciding where to spend our money.

Please leave your own comments on the credit card debate below.