Credit card companies have powers unique in the world of retail lending. After a consumer has agreed to the terms of a credit card account and used the card to make purchases or obtain cash advances, the card issuer may lawfully rewrite the agreement or demand a higher rate of interest, even on funds previously advanced. In a one-year period between 2007 and 2008, issuers used these powers to raise interest rates on nearly one quarter of cardholder accounts. These added charges are not reflected in the advertised annual interest rate, which is the key price point consumers use when choosing credit cards. By rewriting agreements, and by giving themselves broad contractual rights to impose fees and rate increases automatically—practices that the Federal Reserve and other regulators have called “unfair and deceptive”—credit card issuers have rapidly expanded their businesses and billed cardholders tens of billions of dollars more per year.
In 2007, The Pew Charitable Trusts launched an effort, in partnership with the Sandler Foundation, to address growing concerns about abuses in the credit card industry. The project team, led by a former credit card company chief executive officer, researched consumer use of credit cards, conducted economic analyses of credit card practices and revenues, and closely reviewed hundreds of credit card products. In addition to this research and analysis, our team spent more than a year in discussions with over 20 credit card providers and consumer groups, with the goal of identifying balanced approaches to improving the safety of credit cards used by millions of Americans. As part of our research, we looked at all general purpose consumer credit cards offered online by the largest 12 issuers, which control more than 88 percent of outstanding credit card debt in America. As of December, 2008, this assessment covered more than 400 credit cards.
Pew is no longer active in this line of work, but for more information visit the Safe Credit Cards Project on PewHealth.org.