GAO Finds Credit Card Statements Could Be Customized

By Martin H. Bosworth
ConsumerAffairs.com

April 26, 2006
Credit card bills are infamously and deliberately complex, particularly when you're trying to figure out exactly how much you'll need to pay off your entire balance.

As part of the new bankruptcy laws, creditors are required to provide a generic statement warning consumers of the dangers of only paying the minimum balance, but several lawmakers and consumer groups feel that the industry can go much farther in educating consumers about what their bill really adds up to.

A new report by the Government Accountability Office (GAO) supports that argument. The GAO found that credit card companies do have the technology to provide custom-tailored statements for each cardholder, and that those with high amounts of credit card debt would find them more useful than those who have no balances, or pay them in full each month.

The report was provided in answer to requests from Senators Paul Sarbanes (D-MD) and Daniel Akaka (D-HI), both of whom had inquired about providing customized disclosures to consumers.

The GAO interviewed 112 cardholders and representatives from six major credit card issuers, as well as consumer groups and the director of the Federal Financial Literacy and Education Commission. Among their findings:

• 57 percent of those surveyed who had regular monthly balances would prefer customized statements, and 68 percent of the group in favor of customized disclosures would find them "very useful." The majority of "convenience" users, who pay their bills each month (60 percent) were satisfied with current generic disclosures or none at all.

• Of those who wanted customized disclosures, many respondents said having a monthly "snapshot" of their balance would enable them to set up their budgets more accurately, and put aside more money to pay off the credit card balance.

• One current option under the new bankruptcy legislation provides a toll-free phone number for cardholders to call in order to get the exact calculation of their balance and the amount needed to pay it. Of all the cardholders polled, the majority (57 percent) said that they wouldn't use the phone service, and that the customized disclosure would save them from making the call or attempting to calculate the balance themselves.

Major credit issuers have the capability to implement customized disclosures to each cardholder, according to the GAO's findings, but the costs of implementing new systems would be high.

Card company representatives cited issues such as increased postage and mailing costs, new training for call center operatives, and new programming and software for the company billing systems.

Industry estimates for implementing customized disclosure programs ranged from $9 million to $57 million.

However, one credit card analyst interviewed for the report said those costs were "insignificant" compared to the total revenue credit card companies earn from usage of cards, and that technology already in use could be modified to handle new disclosure programs, such as utilizing Web-based billing statements to automatically calculate the payments needed to clear a card balance.

The average American family carries a credit card balance of $9,000 to $13,000. The Consumer Federation of America calculated that paying the previous monthly minimum of 2 percent on a debt of $9,000 means it would take 42 years to pay off the balance.

The Office of the Comptroller of the Currency (OCC) issued regulations in 2003 that mandated increasing the monthly minimum payments on credit card balances, in order to get them cleared faster. The regulations were phased in and became fully effective in 2005.

Americans currently owe $800 billion in credit card debt, out of a total of $2.1 trillion in consumer debt, as of 2005.