Pew Releases Standards for Safe Credit Cards

Washington, DC — The Pew Charitable Trusts' Safe Credit Cards Project today released a set of standards designed to prevent deceptive and dangerous credit card practices and called for legislation to outlaw such practices. Developed in partnership with the Sandler Foundation after more than a year of research and extensive outreach with industry and consumer representatives, the Safe Credit Card Standards seek both to protect consumers and preserve banks' ability to manage risk when extending credit.

Industry reports show that between 2007 and 2008, issuers raised interest rates on nearly one quarter of credit card accounts, using practices which the Federal Reserve has deemed unfair and deceptive.  These actions alone cost consumers more than $10 billion.

“The health and well being of all Americans depend in part on the financial security of our communities and families,” said Shelley A. Hearne, managing director of the Pew Health Group. “The Safe Credit Cards Project is working to increase consumer protection and support policy makers as they consider immediate legislative responses to ongoing deceptive and dangerous industry practices.”

Pew's research identified a number of unsafe and deceptive practices that are widespread and in need of immediate reform. The Safe Credit Card Standards include guidelines to ensure that:

• Cardholders are charged only the interest rates they agreed to pay;
• Fees are imposed responsibly and in a transparent fashion;
• Cardholders have sufficient time to review and pay their bills; and
• Interest is not charged on balances cardholders have already paid.

“With more and more Americans relying on their credit cards to pay for everyday living expenses in this economy, we need to make sure the cards they're using are safe and fair,” said Nick Bourke, manager of Pew's Safe Credit Cards Project. “Our research makes it clear that legislation is needed urgently to help borrowers protect their financial future.”

The Federal Reserve recently acted to ban, as unfair, deceptive and anti-competitive, a number of the same credit card practices addressed in Pew's independent standards. Unfortunately, issuers are not required to adhere to this ban until July 2010. Meanwhile, Pew's research indicates that the overwhelming majority of credit cardholders are vulnerable to these practices, which can add hundreds or thousands of dollars per year to the cost of an account.

Legislation that would provide immediate relief to consumers by enforcing many of the principles outlined in the standards is currently being debated by Congress.  Rep. Carolyn Maloney's Credit Cardholders' Bill of Rights, a bill which passed by a wide margin in the House last year before expiring without Senate action, has been reintroduced. Several bills addressing unsafe practices have also been proposed in the Senate, including the Credit Card Accountability, Responsibility and Disclosure Act, introduced by Banking, Housing and Urban Affairs Committee Chairman Chris Dodd.

“If we learned that a car company designed a car with faulty brakes, we wouldn't let them continue to sell it and put people in danger for nearly a year and a half—we'd make them stop now,” said Bourke. “Congress needs to do the same with credit card companies—fix unsafe policies before more families are hurt.”

Associated Report: Report: Safe Credit Card Standards (PDF)