KERRY CAMPAIGN UNVEILS PROPOSALS TO STOP CREDITOR ABUSE OF CONSUMERS
September 10, 2004
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Editor’s note: This is not a political ad for the Kerry campaign. This is a proposal by one of the Presidential candidates to help consumers with important issues facing them regarding credit, overlimit fees, insurance, and other issues. I urge all candidates to back this proposal, or make their own proposals, to help the American consumer.
JOHN KERRY AND JOHN EDWARDS’ PLAN TO HELP FAMILIES GET AHEAD
1. Crack Down on Credit Card Rip-Offs: Kerry and Edwards believe that credit cards are a critical source of loans for American families, and they recognize that interest rates can and should reflect risk. They are committed to ensuring that responsible consumers continue to gain access to credit. At the same time, they believe that companies also must be responsible and must play fair. They will:
Bar Massive Rate Hikes on Perfect Customers. Today, even consumers with years of perfect payment records on a credit card can see their rates skyrocket to a “penalty rate,” which is now often 29.99 percent and can reach as high as 48 percent, just because of a missed payment on an electric bill, a contested payment to a different company, or applications elsewhere for additional credit cards. A customer who put a $1,000 washer-dryer on a credit card at 12 percent is suddenly paying 29 percent on that $1,000, in spite of having made every payment on time, because of one missed payment to a different company. Kerry and Edwards will support regulations to bar these rate increases on the outstanding debt of perfect customers.
Require Full Disclosure About the Cost of Carrying a Balance: Four in ten Americans with credit card debt make only minimum payments, exposing them to huge interest costs. A typical American with the typical debt of $9,000 making only minimum payments at a 15 percent rate would need 39 years and $23,000 to pay off his debt. Many consumers are not aware of this because credit card companies, unlike other lenders, are not required to disclose all the terms of the loan to the borrower. John Kerry and John Edwards will require credit card statements to disclose the time and money required to repay a loan by making only the minimum payment each month, as well as the size of a monthly payment needed to repay the debt over three years. California passed a similar requirement, but the industry, assisted by the federal banking regulators, got the provision overturned because it was preempted by federal law.
Require Full Disclosure of Over-the-Limit Charges. Today, when customers go over their limit, companies will regularly approve the transaction and charge a fee of $35 or higher. Many customers would use a different card if they had the opportunity. Kerry and Edwards will require companies to obtain approval before charging over-the-limit fees for approved transactions. Companies could ask consumers to sign up on their bill for a service in which they will be allowed to go over the limit and be charged a fee. Or consumers could be given the opportunity to approve fees at the time of the transaction.
Require Truth-in-Advertising: Introductory rates and banner headlines regularly mislead consumers. In a “bait and switch,” reasonable consumers do not realize that they were denied the advertised rate and received a much more costly card because the difference is hidden in fine print. Kerry and Edwards will require clear, big-print disclosures of major terms. They will also require companies to notify customers before raising interest rates.
Enforce Consumer Laws: At a time when one in nine Americans has been victimized by fraud, consumer protection efforts are limited. At the Office of the Comptroller of the Currency, only 100 of 1,700 field agents focus on consumer protection. Kerry will increase enforcement of consumer protection laws.
2. Pass a Strong National Law Against Predatory Lending: John Kerry and John Edwards oppose recent steps by the Office of the Comptroller of the Currency pre-empting strong state laws and replacing them with weak federal rules. They support strong national legislation that will, among other steps:
Limit Penalties for Early Loan Repayment: On subprime mortgages, prepayment penalties of 5 percent of the loan are common. These penalties prevent families from refinancing out of high-cost loans and make it difficult for borrowers to compare the costs of two potential loans. Kerry will limit penalties to a reasonable size and period in the life of the loan.
Limit Financing of Fees: Excessive points and fees strip homeowners of their home equity. They also encourage lenders to profit at the expense of homeowners by repeatedly refinancing loans or lending more than the borrower can repay. Kerry will limit the financing of fees and points in subprime loans. Making the loans through higher rates instead of fees makes the cost of the loan more transparent, and allows borrowers to refinance more easily when their credit improves.
Limit Balloon Payments:With balloon payments, homeowners pay interest on their mortgage but little or no principal until the end of the loan, when payment is due in full. Some borrowers refinance their homes into balloon payment plans but do not realize they are heading to an exorbitant final payment they cannot meet. Borrowers are then forced into expensive refinancing, and some lose their homes. Kerry will prohibit most balloon payments loans.
Ban Single-Premium Mortgage Insurance:Some lenders require homeowners to purchase insurance to protect lenders against default. When they require borrowers to pay one up-front premium instead of monthly premiums, borrowers end up paying excessive rates and paying for 30 years of insurance even if the person owns the house for only a few years. Kerry will ban single-premium insurance.
Enforce Fair Housing Laws: Kerry will increase HUD’s support for non-profit fair housing groups that help HUD monitor, enforce, and educate the public about the Fair Housing Act. Kerry will also make sure that the Federal Trade Commission and the Legal Services Corporations have the resources they need to help protect consumers from predatory lenders.
3. Protect Military Families:
Stop Payday Lending Abuses Around Military Bases: Kerry and Edwards support rules to ensure that where short-term lenders legally operate, consumers have strong protections against abuses, such as minimum periods for loans linked to their value, a right to repay loans in installments, and real limits on the number of loans provided per year to keep families off a treadmill they can’t escape.
Stop Insurance Company Abuses. Kerry will instruct the Pentagon to issues new rules that stop the misleading marketing of products to U.S. soldiers. If products are marketed, he will require full disclosure that insurance agents are not authorized or endorsed by the government; what the product is, such as whether it is insurance and not a mutual fund; and, in simple terms, what the real value of these products to soldiers will be.
