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38–396 PDF 2007

CREDIT CARDS AND OLDER AMERICANS

FIELD HEARING

BEFORE THE

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS

AND CONSUMER CREDIT

OF THE

COMMITTEE ON FINANCIAL SERVICES

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

AUGUST 7, 2007

Printed for the use of the Committee on Financial Services

Serial No. 110–56

(

(II)

HOUSE COMMITTEE ON FINANCIAL SERVICES 

BARNEY FRANK, Massachusetts, Chairman

PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

JULIA CARSON, Indiana 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

MELISSA L. BEAN, Illinois 

GWEN MOORE, Wisconsin, 

LINCOLN DAVIS, Tennessee 

ALBIO SIRES, New Jersey 

PAUL W. HODES, New Hampshire 

KEITH ELLISON, Minnesota 

RON KLEIN, Florida 

TIM MAHONEY, Florida 

CHARLES A. WILSON, Ohio 

ED PERLMUTTER, Colorado 

CHRISTOPHER S. MURPHY, Connecticut 

JOE DONNELLY, Indiana 

ROBERT WEXLER, Florida 

JIM MARSHALL, Georgia 

DAN BOREN, Oklahoma 

SPENCER BACHUS, Alabama 

RICHARD H. BAKER, Louisiana 

DEBORAH PRYCE, Ohio 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

PAUL E. GILLMOR, Ohio 

STEVEN C. LATOURETTE, Ohio 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

JUDY BIGGERT, Illinois 

CHRISTOPHER SHAYS, Connecticut 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

TOM FEENEY, Florida 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

GINNY BROWN-WAITE, Florida 

J. GRESHAM BARRETT, South Carolina 

JIM GERLACH, Pennsylvania 

STEVAN PEARCE, New Mexico 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

GEOFF DAVIS, Kentucky 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

ADAM PUTNAM, Florida 

MICHELE BACHMANN, Minnesota 

PETER J. ROSKAM, Illinois 

KENNY MARCHANT, Texas 

THADDEUS G. McCOTTER, Michigan

JEANNE M. ROSLANOWICK, Staff Director and Chief Counsel 

(III)

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS AND CONSUMER CREDIT

CAROLYN B. MALONEY, New York, Chairwoman

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

BRAD SHERMAN, California 

LUIS V. GUTIERREZ, Illinois 

DENNIS MOORE, Kansas 

4PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

JULIA CARSON, Indiana 

RUBE ́ N HINOJOSA, Texas 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

AL GREEN, Texas 

WM. LACY CLAY, Missouri 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

EMANUEL CLEAVER, Missouri 

MELISSA L. BEAN, Illinois 

LINCOLN DAVIS, Tennessee 

PAUL W. HODES, New Hampshire 

KEITH ELLISON, Minnesota 

RON KLEIN, Florida 

TIM MAHONEY, Florida 

CHARLES A. WILSON, Ohio 

ED PERLMUTTER, Colorado 

PAUL E. GILLMOR, Ohio 

TOM PRICE, Georgia 

RICHARD H. BAKER, Louisiana 

DEBORAH PRYCE, Ohio 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

STEVEN C. LATOURETTE, Ohio 

WALTER B. JONES, JR., North Carolina 

JUDY BIGGERT, Illinois 

SHELLEY MOORE CAPITO, West Virginia 

TOM FEENEY, Florida 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

GINNY BROWN-WAITE, Florida 

J. GRESHAM BARRETT, South Carolina 

JIM GERLACH, Pennsylvania 

STEVAN PEARCE, New Mexico 

RANDY NEUGEBAUER, Texas 

GEOFF DAVIS, Kentucky 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

(V)

C O N T E N T S 

Page 

Hearing held on: 

August 7, 2007 .................................................................................................. 1

Appendix: 

August 7, 2007 .................................................................................................. 31

WITNESSES 

TUESDAY, AUGUST 7, 2007

Billet, David, Director of Legislation and Government Affairs, New York 

State Banking Department ................................................................................. 12

DeCelle, John T., Executive Vice President, State Employees Federal Credit 

Union ..................................................................................................................... 16

O’Connell, Robert, Executive Council Member, AARP-New York ....................... 4

Porter, Katherine, Associate Professor, College of Law, University of Iowa ...... 6

Whipple, Barbara, Barbaruolo Law Firm, PC ....................................................... 9

APPENDIX 

Prepared statements: 

DeCelle, John T. ............................................................................................... 32

O’Connell, Robert .............................................................................................. 40

Porter, Katherine .............................................................................................. 48

Whipple, Barbara ............................................................................................. 62

(1)

CREDIT CARDS AND OLDER AMERICANS 

Tuesday, August 7, 2007

U.S. HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS

AND CONSUMER CREDIT, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The subcommittee met, pursuant to notice, at 1 p.m., in 

Halfmoon Senior Center, 287 Lower New Town Road, Halfmoon, 

New York, Hon. Carolyn Maloney [chairwoman of the subcommittee] presiding. 

Present: Representative Maloney. 

Also present: Representative Gillibrand. 

Mr. EMMETTE. We welcome you to a congressional hearing. We 

have people here who are interested in seeing that senior citizens 

are protected as far as credit is concerned and everything else. It’s 

with great pleasure, not only will you meet Congresswoman 

Gillibrand, but I turn the floor over to Congresswoman Maloney, 

from the east side of Manhattan. 

Chairwoman MALONEY. Thank you very, very much, Robert, for 

welcoming us and I want to thank everyone for coming and participating today, and I particularly want to thank the Halfmoon Senior 

Center for providing us with an area where we could have our 

hearing. I am Congresswoman Carolyn Maloney and this hearing 

will come to order officially. This field hearing of the House Financial Services Committee, Subcommittee on Financial Institutions 

and Consumer Credit, called, ‘‘Credit Cards and Older Americans’’ 

is the third hearing of this subcommittee in the 110th Congress examining credit card issues. 

I want to note that the record will be held open without objection 

for all members’ opening statements to be made a part of the 

record. Congressman McNulty and Congressman Walsh had indicated their interest in coming, as well as Chairman Frank, and all 

members of the committee in Congress who wish to put into the 

official record their comments will be made part of the official 

record. 

This field hearing is being held at the request of Congresswoman 

Kirsten Gillibrand who wrote to me as the chairwoman of the subcommittee requesting this hearing regarding credit cards and their 

impact on older Americans. I am absolutely delighted to be here 

and I would like to thank Congresswoman Gillibrand and her staff, 

and the Halfmoon Senior Center for helping my office to organize 

it, and I should also publicly thank the legislative director of the 

2

subcommittee, Ms. Eleni Constantine, who has come here to be 

with us today from Washington. 

I also would like to thank all of the witnesses for coming to provide their expertise on this important issue. Many of them traveled 

quite a distance, and we are very thankful. This hearing, as I said, 

is part of a series of hearings that this subcommittee is holding to 

examine credit card issues. The first hearing on credit cards was 

held on April 26th and examined facts about the market, the practices that are most criticized, and the enforcement problems that 

confront card holders, as well as State and local authorities. 

The second hearing was held on June 7th and examined the 

changes to credit card disclosures and the Federal Reserve’s proposed Regulation Z. In addition, I convened a roundtable discussion 

with consumer groups and the top six credit card issuers on July 

30th. The discussion focused on the development of principles the 

credit card industry should consider when issuing unsecured credit. 

We took what we had learned at the roundtable and issued the 

principles last week. They focus on the key areas of underwriting, 

disclosure, notice and choice and help for those in trouble, and I 

would say that this hearing focuses on the fourth principle. Often, 

older Americans and college students have reported to our subcommittee various abuses that they have confronted. 

This hearing will focus on issues surrounding credit card issues 

facing older consumers including rising levels of personal debt, especially among fixed-income older Americans. The hearing will also 

focus on options older consumers have when trying to reduce credit 

card debt and the special challenges that they face in this effort. 

As with all consumers, the use and acceptance of credit cards are 

a great convenience for older Americans. Transactions using credit 

cards also add a security to transactions that do not exist with 

other forms of payment. Access to credit has also provided a crucial 

financial safety net in certain emergency situations, particularly 

health care. But problems occur when consumers’ use of credit 

cards creates a cycle of debt that they are unable to escape. 

In September 2004, the consumer organization, Demos, released 

a report that documented increases in credit card debt held by 

older Americans between 1992 and 2001. Among the report’s key 

findings were that average self-reported credit card debt among indebted seniors increased by 89 percent between 1992 and 2001, to 

over $4,000. That’s quite a substantial increase. Seniors between 

the ages of 65 and 69 years old, presumably the newly retired, saw 

the most staggering rise in credit card debt, 217 percent, to an average of well over $5,000. Female-headed senior households experienced a 48 percent increase in credit card debt between 1992 and 

2001, to well over $2,000 average debt. 

Among seniors with incomes under $50,000, which is 70 percent 

of all seniors, about one in five families with credit cards are in 

debt hardship, spending over 40 percent of their income on debt 

payments, including the mortgage debt. Importantly, it is not just 

that older consumers have more credit card debt than before, but 

that many are buried in unaffordable debt. In a 2006 survey, AARP 

found that close to half of U.S. adults age 40 or older see their current level of debt as a problem. About 30 percent of retirees in a 

survey describe their debt as a problem, and only 7 percent of retirVerDate 0ct 09 2002 17:32 Nov 07, 2007 Jkt 038396 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 K:\DOCS\38396.TXT HFIN PsN: TERRIE
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ees said they did not have any debt. I repeat, only 7 percent of retirees say they don’t have any debt. 

During this same time period, the number of older Americans filing for bankruptcy tripled, making them the fastest growing group 

in the bankruptcy court. Conventional wisdom suggests that seniors with a lifetime of financial experience, high homeownership 

rates, and a record of thrift would be immune to the record debt 

increases of the 1990’s among other age groups. Unfortunately, 

what the data suggests is that many older Americans use credit 

cards as a plastic safety net to make essential purchases they cannot otherwise afford, including out-of-pocket medical expenses, energy and utility bills, and rising property taxes. 

At the same time, the most important bulwark seniors have 

against debt, savings and assets, also has diminished. Finally, 

there are concerns about the level of financial literacy among older 

families confronted with rapidly changing financial service products. The growing debt level of this Nation’s older consumers is a 

very real and growing concern. We are here to examine these 

issues in detail and I look forward to hearing from all of the panelists and hearing personal stories from the seniors. And with that, 

I’d like to recognize my colleague, Kirsten Gillibrand, who requested this hearing. 

Ms. GILLIBRAND. Thank you, Chairwoman Maloney. I really appreciate your leadership very much. I appreciate the fact that 

you’ve come to Saratoga County in order to hold this hearing on 

an issue that is very troubling for many seniors in our District. I 

want to thank all of the witnesses for testifying and for providing 

expertise: Mr. Robert O’Connell, executive council member, AARP, 

New York; Ms. Katie Porter, associate professor, College of Law, 

University of Iowa; Ms. Barbara Whipple, from the Barbaruolo Law 

Firm; Mr. David Billet, director of legislation and government affairs for the New York State Banking Department; and John 

DeCelle, executive vice president, State Employees Federal Credit 

Union. Your testimony will be very useful for today’s proceedings. 

In addition, I’m very grateful for the AARP’s help coordinating 

the hearing, and for Eilleen Pettis and Lisa Perry’s assistance for 

the Halfmoon Senior Center, and to our president who gave the 

opening remarks. You’ve all graciously allowed the subcommittee to 

host this hearing here and for all of the seniors here in the room, 

it’s wonderful to see you to represent our community so effectively 

and to lend your very important voice to this discussion. It’s exceedingly meaningful and it’s something that Congress very much 

relies on as we begin to write legislation to address some of our 

concerns. 

I recently expressed my concern to Chairwoman Maloney about 

the growing issue of credit card debt affecting senior citizens. I’m 

grateful that the chairwoman decided to hold a field hearing here 

in upstate New York to investigate this issue that affects such an 

important demographic of our country. Soon the Baby Boom generation will begin to retire and I believe that the prevalence of 

credit card debt among older Americans is an issue that needs to 

be studied further and in depth. A third of all seniors have at least 

one credit card and the Baby Boom generation is especially vulnerable as they approach retirement as evidenced by the fact that senVerDate 0ct 09 2002 17:32 Nov 07, 2007 Jkt 038396 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 K:\DOCS\38396.TXT HFIN PsN: TERRIE
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iors between the ages of 65 and 69 years old who have either recently retired or are preparing to retire have experienced a 217 

percent rise in credit card debt between 1992 and 2001, and have 

an average credit card debt of $5,800. 

Credit cards play an important role in the lives of many Americans by offering convenience and financial security in unforeseeable 

situations. However, I’m concerned that too many seniors, after 

decades of hard work and service to this country, are drowning in 

unaffordable debt. Older Americans are the fastest growing age 

group to file for bankruptcy and I believe that increased financial 

literacy education is needed. 

It’s important that seniors are not targeted for complex or confusing lending agreements and as a result become economically 

vulnerable. More than one third of the seniors depend on Social Security benefits for over 90 percent of their income and a high-interest rate fee can be devastating for a senior who lives on a fixed income. We are living in an era where pensions are no longer guaranteed and health care, energy, and housing costs are sky rocketing. It’s important that seniors do not fall into the trap of relying 

on credit cards to survive. Credit card marketing needs to be accurate and honest and changing credit card term agreements are also 

causes of concern for the American seniors. It is critical that seniors clearly understand the contractual agreements that they enter 

into. Additionally, I’m very concerned about the effects that credit 

card issues have on women as they are more likely to experience 

financial insecurity, live longer, and rely on Social Security. 

I look forward to hearing from our witnesses on the causes of the 

increase in credit card debt amongst older Americans, any possible 

steps that Congress can take to protect our older Americans, and 

what seniors can do if they find themselves in unmanageable debt. 

Thank you again, Madam Chairwoman, for holding this hearing 

today. I’m very grateful. 

Chairwoman MALONEY. Thank you. We have fine panelists and 

we’re going to have 5 minutes of opening statements from each 

panelist, and then I’m just going to move the table in front of you 

and have everybody respond to questions jointly. 

So first up, Mr. Robert O’Connell, executive counsel, AARP. And 

thank you very much for really working with us on this hearing 

and giving us much needed information. Thank you. 

STATEMENT OF ROBERT O’CONNELL, EXECUTIVE COUNCIL 

MEMBER, AARP–NEW YORK 

Mr. O’CONNELL. Thank you very much. By the way, I’m a local 

resident of Clifton Park, so I’m in your territory, Representative 

Gillibrand. 

Chairwoman Maloney, Representative Gillibrand, and members 

of the subcommittee, on behalf of AARP’s 39 million members, I 

want to thank you for the opportunity to testify on credit card practices. An estimated 3 out of every 4 Americans age 65 and older 

have credit cards, and for many of these older Americans, the credit card is a great convenience. They can afford to pay their balance 

in full each month and generally enjoy lower annual percentage 

rates. These are the so-called ‘‘convenience users’’ who collect airline miles, reward points, and even can get cash back on their purVerDate 0ct 09 2002 17:32 Nov 07, 2007 Jkt 038396 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 K:\DOCS\38396.TXT HFIN PsN: TERRIE
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chases. However, a growing number of older Americans find themselves deep in credit card debt or even filing for bankruptcy. Although older households long have been considered among the most 

frugal and resistant to consumer debt, changing economic conditions—particularly declining pension and investment income and 

rising costs for basics such as prescription drugs, health care, and 

utilities—have made credit card debt a more serious financial issue 

for older Americans. 

What is of greatest concern to AARP is not just that older consumers carry more credit card debt than ever before, but that more 

seniors are being buried in what may be considered unaffordable 

debt. You’ve already referenced the survey that AARP did about 

the number of people who, over the age of 40, find themselves with 

debt as a problem, and I won’t go into those statistics any further. 

For those who are unable to make more than the required minimum monthly payments on their cards, industry practices—including sky high penalty interest rates, high accumulating fees, and interest on fees—often push them into unmanageable credit card 

debt. 

Permit me to give just one example to illustrate this point: Ruth 

Owens was in her 50’s, and on Social Security disability, when she 

found herself with a $1,963 balance on her Discover Card. At that 

point, Ms. Owens stopped using her credit card. She made no further purchases, did not take any cash advances, and resolved to 

pay off the debt. Over the course of 6 years, Ms. Owens made payments of $3,492 to Discover. From 1997 to May of 2003, when Discover sued Ms. Owens in court, not one penny of her payments 

went to reduce the principle. Instead, all of her payments went to 

pay penalties and interest, and her balance grew even larger. She 

incurred $1,518 in over-the-limit fees; $1,160 in late fees; $369.62 

in credit insurance; and $6,008.66 in interest and other fees for a 

total of $9,056.28. In a handwritten note to the judge, Ms. Owens 

noted that she had no money to pay them and that she was very 

sorry. Luckily, the judge in this case barred Discover from collecting any more money from Ms. Owens. As this example illustrates, it is the customer who sometimes misses a payment, or 

sends a payment late, or simply pays the minimum due each 

month who generates the real profits for credit card companies. According to one estimate, interest in penalty fee revenues in 2005 

added up to a staggering $79 billion. Nearly $8 out of every $10 

of revenue for the credit card companies comes from customers who 

cannot pay off their bills in full every month. 

While credit card companies have every right to earn a profit, 

AARP is concerned that the consumers in the marketplace be treated fairly and that credit card companies not reap huge financial rewards from the very practices that sink customers into deeper and 

deeper debt. 

AARP’s key concerns are as follows: (1) the incomprehensible, 

and in some instances meaningless, disclosure procedures; (2) allowing certain practices such as going over the limit and then assessing penalty fees for engaging in such behavior; (3) penalty interest rates that average more than 27 percent and can be as high 

as 32 percent even for relatively minor infractions such as being 

hours or just days late on a payment; (4) multiple and variable inVerDate 0ct 09 2002 17:32 Nov 07, 2007 Jkt 038396 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 K:\DOCS\38396.TXT HFIN PsN: TERRIE
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terest rates that make it difficult for consumers to know what interest rate they are paying for any particular purchase or cash advance; (5) universal default in which a card holder is penalized 

based on behavior with another creditor even if he or she has no 

blemishes on the credit card in question; and (6) mandatory arbitration for credit card disputes. 

Deregulation of the credit card marketplace has drastically 

changed the way issuers market and price credit cards to consumers of all ages. It is clear that in recent years, credit card companies have become far more aggressive in imposing questionable 

fees and practices. The result is that penalty interest rates, high 

and accumulating fees, and interest on fees can push consumers 

over the financial edge. 

AARP commends you for taking a serious look at these issues 

and endorses the following reforms: Improve the disclosure and 

conditions for credit cards; prohibit universal default (which I 

would note, Chairwoman Maloney has included in her principles 

that were published at the end of last week); limit penalty fees and 

interest rate hikes; and prohibit mandatory binding arbitration. 

I want to conclude by emphasizing that the growing debt level 

of this Nation’s older consumers is a very real and serious concern. 

AARP urges Congress to prohibit the abuse of credit card practices 

that contribute to and exacerbate the financial concerns of this Nation’s older population. 

Thank you very much. 

[The prepared statement of Mr. O’Connell can be found on page 

40 of the appendix.] 

Chairwoman MALONEY. I want to thank you, Mr. O’Connell, for 

your really excellent testimony. Businesses cannot raise prices 

retroactively without telling their customers, but credit card companies can. Your example of Ms. Owen really was a staggering example. I’m going to carry that back to Washington and maybe she’ll 

be testifying before Washington. Her story shows a lot of what’s 

wrong. So thank you for being here, and sharing your principles 

with me, and we’ll take that into account when we’re writing our 

legislation. 

The next witness is Ms. Katie Porter. She’s an associate professor from the College of Law at the University of Iowa. She traveled a long way to be with us today, and we want to thank her very 

much for being here. Thank you very much for coming. 

STATEMENT OF KATHERINE PORTER, ASSOCIATE 

PROFESSOR, COLLEGE OF LAW, UNIVERSITY OF IOWA 

Ms. PORTER. Chairwoman Maloney, Representative Gillibrand, 

and members of the subcommittee, credit cards are not age neutral 

financial products. Older Americans face particular risks from credit cards that are not addressed by current law. Recent studies have 

documented several troubling trends: About 70 percent of Americans age 65 or older have credit cards; of this group with cards, 3 

in 10 seniors carry a credit card balance. These numbers have remained relatively steady over time. The alarming trend, however, 

is a sizable increase in the amount of credit card debt that older 

Americans carry. In 2004, households headed by people ages 55 to 

64 had the highest credit card balances of any age group with the 

7

average card holding family owing nearly $6,000 in credit card 

debt. Between 2001 and 2004, the credit card balances increased in 

all three cohorts of older Americans, those aged 55 to 64, 65 to 74, 

and over 75. The rising amount of credit card debt carried by older 

Americans was in contrast to the pattern among younger Americans whose credit card balances remained the same or decreased 

in that same period. Older Americans’ credit card debts are on the 

rise. 

Part of the explanation for the upward trend in older Americans’ 

credit card debts may be the failure of seniors to adopt debit cards. 

A 2006 Federal Reserve study found that only about half of Americans have debit cards and that debit card use is much less common 

among older Americans. Several studies have shown that when 

consumers use credit cards to pay, they spend more than if they 

pay with cash, check, or debit card. At an aggregate level, using 

data from several different countries, Professor Ronald Mann has 

established that a societal preference to use credit cards to pay 

even when credit card borrowing is held constant causes total consumer debt to increase. Because seniors prefer credit cards over 

debit cards, spending among seniors may be racheted up by their 

credit card use. This important credit card effect may cause seniors 

to exceed their budgets and leave them with fewer leftover dollars 

for savings. 

Eliminating the preferential consumer protections for credit 

cards and ensuring that debit card overdraft protections are fair 

would help encourage debit card use by older Americans. These 

changes would help seniors live within their means and use credit 

cards responsibly. 

Debit card use may have another advantage for older Americans 

which is to help them avoid the punitive charges imposed for many 

credit card practices. A recent Massachusetts Institute of Technology economics paper analyzed how consumers’ financial decisions vary with age. The researchers found that older consumers 

are more likely than middle-aged consumers to pay credit card late 

fees, to pay fees for exceeding the limit on their credit card, and 

to pay cash advance fees on credit cards. The economists term 

these behaviors ‘‘credit card mistakes’’ because they are very, very 

costly and consumers would usually avoid the transaction if they 

understood the full cost of the charges. 

The researchers also found that older Americans were more likely to make sub-optimal and expensive decisions after transferring 

credit card balances such as making new charges at the very high 

rates on the new cards and apparently not understanding that 

credit card issuers first apply any payments to the low interest 

transferred balances. 

The research findings indicate that older Americans may be less 

adept at deciphering the extremely complicated pricing and penalty 

schemes used by credit card issuers. This means that older Americans disproportionately boost card issuers’ profits. Quite simply, 

credit cards are more expensive financial products in the hands of 

older Americans. 

Disclosures made right at the point of sale, at the moment when 

customers can choose to use a different form of payment, could be 

very effective at deterring and preventing costly credit card misVerDate 0ct 09 2002 17:32 Nov 07, 2007 Jkt 038396 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 K:\DOCS\38396.TXT HFIN PsN: TERRIE
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takes and in curbing credit card spending. These point-of-sale disclosures would be similar to the receipts and information available 

at ATM terminals. For example, consumers could be alerted that 

a transaction would exceed their limit and warned of the amount 

of the over-the-limit fee. Consumers should also be given the current balance on their card after each and every transaction. These 

simple, but frequent disclosures could help consumers better manage their credit card use. 

The difficulties of older Americans in managing credit cards are 

also evidenced in the bankruptcy system. As has already been 

noted, older Americans are the fastest growing age group of bankruptcy filers. The bankruptcy rate of households headed by individuals 65 or older increased 213 percent between 1991 and 2001 even 

after adjusting for changes in population size. The data also show 

a gradual, but troubling increase in the average age of bankruptcy 

debtors. As the Baby Boom generation ages into the next decade, 

the number of older Americans who file bankruptcy is poised to 

climb dramatically. Bankruptcy increasingly may become an older 

American phenomenon, rather than the middle age experience that 

it has been historically. 

Very high credit card debt is the single defining characteristic of 

bankruptcies by older Americans. Two studies using data from the 

U.S. Trustees Office found that older Americans who filed bankruptcy have extraordinary credit card debts even when compared 

with other families in bankruptcy. The average senior aged 70 and 

older in bankruptcy owed over $38,000 in bank credit card debt 

and approximately $3,800 in additional store retail credit card 

debt. Yet, at the time of their bankruptcy, the average senior had 

a net monthly income of only $1,500. Credit card debts had utterly 

overwhelmed these older families by the time they filed bankruptcy. Put in the most concrete terms, the average older American 

would have had to find a way to live absolutely free, incur no more 

debt, and magically halt all accruing interest and fees, and they 

still would have had to devote every penny of their income for more 

than 2 years just to pay off their credit card debt. Bankruptcy was 

a last option for these seniors and many expressed feelings of 

shame and depression that after decades of hard work, and good 

or perfect credit, high credit card debts led to their financial collapse in bankruptcy. 

Many older Americans are very troubled by the marketing practices of credit card companies. In interviews with Consumer Bankruptcy Project researchers, many seniors were shocked and angered 

that even after having to resort to bankruptcy to deal with unmanageable credit card debt, the card companies continued to send 

them dozens and dozens of solicitations. These older Americans described credit card offers ‘‘coming out of the woodwork’’ less than 

1 year after filing bankruptcy, and expressed shock at being ‘‘preapproved more times than you can count.’’ One woman told us that 

she ‘‘felt like Donald Trump’’ based on the way lenders would send 

her credit cards, and many consumers simply said they wanted the 

solicitations to stop. One man recounted his difficulty in getting the 

credit card issuers to halt the solicitations to his 81-year-old father 

even after he told them that his father had filed bankruptcy, had 

9

been diagnosed with dementia, and had enacted a power of attorney. 

Consumers are woefully unaware of the Fair Credit Reporting 

Act law that allows them to opt-out of receiving pre-screened credit 

card solicitations. Only 20 percent of all Americans have even 

heard of the law and only 6 percent have chosen to opt out. Consumers are deterred from opting out by fears of identity theft because the current system requires them to disclose their Social Security number to opt out. An opt-in system, in which consumers 

who wanted to get credit card offers could elect to do so, would 

eliminate this problem, and overcome the cognitive and behavioral 

barriers inherent in an opt-out system. 

Credit card debt is a serious financial risk for many older Americans. Seniors are more likely to suffer many types of credit card 

harms: Carrying higher card balances; having to pay late fees; over 

limit fees, and other penalty charges; and having such high credit 

card debts that they need bankruptcy relief. Compared to other age 

groups, older Americans are more likely to fall prey to the complex 

schemes that hide the real cost of credit card use, and they lack 

knowledge about financial alternatives to credit cards and consumer laws that can help them avoid credit card debt. 

Older Americans are particularly vulnerable to credit cards and 

the trends suggest that this problem will only worsen in the upcoming years unless Congress enacts laws to reform credit card 

practices. 

Thank you for inviting me to testify. 

[The prepared statement of Ms. Porter can be found on page 48 

of the appendix.] 

Chairwoman MALONEY. Thank you, and we are working on legislation to curb these abuses. 

Our next panelist is Ms. Barbara Whipple of the Law Firm 

Barbaruolo and you are from this area also. It is very nice to see 

you. Thank you for coming. 

STATEMENT OF BARBARA WHIPPLE, BARBARUOLO LAW FIRM 

Ms. WHIPPLE. Chairwoman Maloney, Representative Gillibrand, 

and members of the subcommittee, thank you for this opportunity 

to speak to you today. 

My name is Barbara Whipple and I am an associate attorney at 

the Barbaruolo Law Firm where I practice, primarily in consumer 

debt. Prior to my going into private practice, I also was a law clerk 

to the Honorable Robert E. Littlefield, the United States Bankruptcy Judge for the Northern District of New York, the Albany Division. I’d like to thank you for letting me come and speak to you 

about what I see in practice every day. 

What I can add to the subcommittee’s examination of these 

issues are my experiences day in and day out and those of my colleagues across the country. The simple truth is that older debtors 

comprise a growing proportion of our bankruptcy clients. In fact, 

what has been researched and discussed over the last several years 

has come to bear out. The Consumer Bankruptcy Project found that 

the rate at which older Americans, those 65 years of age or older, 

filed for bankruptcy increased 213 percent between 1991 and 2001. 

10

This trend of rising bankruptcies among older Americans is likely to continue. The steepest increase in Chapter 7 liquidation filings occurred among people older than the age of 55. Although the 

U.S. population as a whole is getting grayer, as the Baby Boomer 

generation ages, the percent of older people seeking bankruptcy 

protection is rising even faster. As a matter of fact, yesterday, I 

had an opportunity to speak to a Chapter 7 trustee. His comment 

to me when I said I was coming here was, ‘‘Barb, I’ve noticed that 

there have become two different categories of bankruptcy debtors, 

the elderly and everyone else.’’ 

The problem of rising debt among older Americans is exacerbated 

when the credit card debt is subject to exorbitant interest rates and 

a multitude of penalties and other fees. During the several years 

that Congress debated bankruptcy reforms, some of your colleagues 

referred to the debtors as ‘‘deadbeats’’ and ‘‘irresponsible.’’ I must 

say I was with Judge Littlefield when the 2005 bankruptcy law 

was passed and my comment was, ‘‘If all of our legislation in this 

country is passed based upon sound bytes and misinformation as 

this Bankruptcy Reform Act, we are in a world of trouble.’’ 

I can tell you the majority of the consumers I see in bankruptcy 

practice are not deadbeats. They do not irresponsibly ring up fees 

and a majority of my clients incur debt with every intention of paying it back. Often my clients file for bankruptcy only after paying 

the principle for years and years and still see no relief on the credit 

card debt. 

In 2004, a bankruptcy court in North Carolina ordered a credit 

card company to itemize the claims it filed in a Chapter 13 bankruptcy case. In the findings, the bankruptcy judge listed claims 

filed in 18 separate cases broken down as between principle, interest, and fees. On average, interest and fees consisted of more than 

half of the total amounts listed in the claims. In one case, the card 

company filed a claim in the amount of $943.58—$199 was principle, and $743.95 was interest and fees. In another case, a claim of $1,100 was filed consisting of $273 

in principle, and $738.64 in fees. A bankruptcy case from Virginia 

tells another story of the impact of credit cards and penalties on 

the ability of consumers to pay back the debt. During a 2-year period before she filed bankruptcy, a consumer made only $218.16 in 

new charges on her Visa. After making $3,000 in payments, all of 

which went to pay finance charges at the rate of 29.99 percent, 

over limit fees, bad check fees, and phone payment fees, the balance on her account increased from $4,888 to $5,357. On her 

Providien Master Card for the same period, she made only $203.06 

in charges, while making over $2,000 in payments. Again, all of her 

payments went to pay finance and other charges and her account 

balance increased from $2,000 to $2,607. 

The scope of the problem here has been well-documented over 

the course of your hearings. Consider the case of the witness who 

testified at the Senate Hearing, the Ohio resident who exceeded his 

credit card’s $3,000 limit by $200 and triggered what ended up 

being $7,500 in penalties and interest. After paying an average of 

$1,000 a year for 6 years, the man still owed $4,400. Two local 

cases that I’ve had recently include residents in this area who ran 

up—both people were retired—over $100,000 in credit card debt in 

11

an attempt to fix and pay them, they took a home equity loan out 

on their house. When they came to see me, their house was valued 

at $80,000. They owed over $125,000, and their disposable income 

at the end of every month was a negative $800. 

Last week, I met with a woman who is 70 years old and simply cannot retire. Her disposal income consists of $1,400 worth of credit card payments per month. I said to her, ‘‘You need to retire.’’ She 

responded, ‘‘I absolutely cannot afford to do that. Barb, I have convinced myself I will be working until I die.’’ 

National studies show that more households headed by retirees 

or those near retirement owe money and the typical debt level is 

increasing. According to the Employee Benefit Retirement Research 

Institute in 2004, 60.6 percent of families headed by someone aged 

55 or older owed money. In 1992, 53 percent of similarly situated 

families owed money, and the average debt level rose from $29,000 

in 1992, to $51,000 in 2004. Debt grew fastest among the poor, and 

among families headed by someone over 75 years old. 

My experience is that credit card debt is one of the top reasons 

seniors seek bankruptcy protection. The older retirees are less accustomed to credit cards and more vulnerable to falling into a cycle 

of credit card debt led by raising interest rates, late fees, and other 

penalties. Other consumers who turn to me are embarrassed, 

ashamed, and often do not talk to their children about their financial problems. The biggest complaint I hear is, ‘‘I pay every month 

and the debt doesn’t go down, even when I don’t make a purchase.’’ 

It eventually becomes evident that they may never pay off their 

debt due to the interest rate, penalties, and fees. 

Finally, in conclusion, I would just like to say that every time I 

have met with an elderly debtor, I have had the experience where 

they’re absolutely heartbroken and mortified. My sermon to them 

in an attempt to make them feel better is, if you have worked your 

entire life, you are 70 years old, you are set to retire, and you cannot because of credit card debt, you have not failed; the system has 

failed you. And I would like for that to be noted because there’s no 

way that these people who should be enjoying all they’ve done, and 

reaping the rewards of all they’ve done their entire lives, should 

have to be sitting across from me in an office. 

Thank you. 

[The prepared statement of Ms. Whipple can be found on page 

62 of the appendix.] 

Chairwoman MALONEY. I want to thank you for your very gripping testimony and this is very much of a bipartisan effort on credit card reform. At our last hearing, Spencer Bachus, the ranking 

member of the Financial Services Committee—he is a Republican; 

I happen to be a Democrat—said, and I’m quoting for you, on the 

credit card hearing, this is what he said: ‘‘What did we do with the 

bankruptcy bill? We created more bankruptcies.’’ And I think your 

final statement that it is a system that has failed the public that 

creates these high fees that are churning and churning and they 

can never seem to get out of. 

Thank you for your work and for your testimony. 

Ms. WHIPPLE. Thank you. 

Chairwoman MALONEY. Mr. David Billet, the director of legislation and governmental affairs for the New York State Banking DeVerDate 0ct 09 2002 17:32 Nov 07, 2007 Jkt 038396 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 K:\DOCS\38396.TXT HFIN PsN: TERRIE
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partment. Thank you so much for being here. And how is our superintendent? 

Mr. BILLET. He’s fine. He is enjoying some vacation time in Cape 

Cod with his family. That’s one reason he couldn’t attend. 

Chairwoman MALONEY. Thank you. 

STATEMENT OF DAVID BILLET, DIRECTOR OF LEGISLATION 

AND GOVERNMENT AFFAIRS, NEW YORK STATE BANKING 

DEPARTMENT 

Mr. BILLET. Good afternoon, Chairwoman Maloney, Representative Gillibrand, and members of the public. I am David Billet, director of legislation and governmental affairs for the New York 

State Banking Department. I’m pleased to be here today to make 

the following comments on behalf of the Department and Superintendent Richard Neiman. I will not repeat the testimony that the 

superintendent presented to the subcommittee at its hearing on 

June 7th, but there are certain points, however, that should be 

stated again. 

First, consumer Impact. Credit cards are a major source of complaints for State and Federal law enforcement authorities and regulators. The major problem that arises for consumers having a 

credit card account is burdensome fees. You’ve heard that over and 

over, particularly for those consumers who do not and cannot pay 

their credit card bills in full each month. The amount charged in 

fees has skyrocketed and can cause consumers to fall deeper into 

debt. Early and minor mistakes in securing and using credit can 

lead to spiraling debt burdens, punitive fees, and possible longterm destruction of the borrower’s financial well-being. 

The following are card issuer practices the Department considers 

misleading or abusive and of greatest concern: 

One, universal default. This practice permits credit card issuers 

to increase a consumer’s interest rate, often to 30 percent or higher, for conduct that has no relationship to the consumer’s payment 

history with the card issuer. 

Two, penalty rates and late fees. Consumers are often penalized 

for minor failures. A credit card payment that is only nominally 

late can trigger huge interest rate increases and/or over-limit fees 

that are often applied retroactively to existing balances. 

Three, billing cycle and similar practices. Many credit card 

issuers charge interest even for the amount of credit card debt paid 

on time. 

Four, unilateral changes in terms. Many credit card agreements 

are one-sided and allow the creditor to change the terms for ‘‘any 

reason,’’ with as little as 15 days’ notice to consumers. 

Five, deceptive promotion of subprime credit cards. These cards 

target consumers in economic distress or who have troubled credit 

histories with deceptive solicitations and misrepresentations of the 

terms of credit, and impose excessive fees, especially initial fees, 

that push consumers quickly into debt. 

Six, lack of clear information abut credit card terms. The problem is not simply a proliferation of onerous credit card terms and 

fees. The contracts have excessive, dense, and incomprehensible 

text. 

13

Seven, regulation of the credit card industry. The industry is 

dominated by national credit card bank issuers and subject to the 

realities of Federal preemption. The 10 largest credit card issues 

hold 90 percent of the outstanding balance of credit card debt nationwide. Only two of these issuers are State-chartered institutions. 

All of these issuers are headquartered in States that have favorable interest rate and usury law provisions and those laws govern 

what banks may charge. 

Based on various Federal statutes and court decisions, banks 

headquartered in one State may export their interest rates to consumers resident in another State. Further, Federal law has also expanded what comprises such ‘‘interest.’’ It includes, among other 

things, numerical periodic rates, late fees, insufficient fund fees, 

over-the-limit fees, annual fees, cash advance fees, and membership fees. To the best of the Department’s knowledge, the assets of 

self-issuers in New York State represent one percent or less of the 

total domestic banking assets for institutions headquartered in this 

State. This provides some sense of the extent to which cardholders 

in New York would be affected by New York State regulation of 

credit card interest rates and practices. 

States have essentially no authority to apply their consumer protection laws to the activities of the Nation’s largest credit card 

issuers. In short, State regulation of credit card practices is presently not a viable option. The only option is for the Federal Government to adopt national standards to address credit card problems 

on a nationwide basis which then would protect all citizens in all 

States. 

Eight, problems of the elderly using credit cards. The Department has no particular expertise with respect to identifying and 

quantifying the problems associated with elderly use of credit card 

accounts. However, we believe that such problems are not significantly different from those that confront other consumers. The following, however, may be key factors for elderly consumers: 

Understanding the terms and conditions of credit card accounts. 

Presumably, a large majority of consumers acquire a credit card or 

open a credit card account as a result of a mail solicitation. These 

solicitations usually do not provide a full statement of all the terms 

and conditions that apply. Further, as noted, the contracts are voluminous and not easily understood. The Department doubts that 

the majority of consumers, not just the elderly, who have credit 

card accounts have fully ever read these statements. 

The Federal Reserve Board has undertaken a revision of Regulation Z, which implements the Truth in Lending Law, governing 

credit card practices. This may result in requirements making 

statements of the terms and conditions of credit card accounts 

clearer and more understandable, and provide a better basis to 

compare credit card offers. The Board’s initiative, however, will 

likely only be limited to enhancing disclosure of such terms. The 

proposed revisions will not cap or prohibit certain fees. They will 

not limit the amount of interest that may be charged. They will not 

outlaw default rates. And finally, the implementation of these requirements will not happen shortly. 

The Department offers these suggestions. If consumers have a 

banking relationship, they should explore with the bank or credit 

14

union what credit card accounts may be available through the institution. This will at least give a consumer an individual with 

which to discus the terms and conditions, and it also gives the consumer a local contact if problems arise. Understand, however, that 

the credit card likely is issued by a subsidiary of the bank and not 

the bank itself, so the consumer may be referred to another contact 

that can be contacted only by telephone. Further, if the account is 

arranged through the local banking relationships, the consumer 

should consider establishing an automatic electronic monthly payment arrangement directly from his or her checking or savings account to cover at least a portion of any monthly balance. This will 

avoid the charging of penalty fees due to any oversight to make the 

payment in a timely fashion. 

Given the triggers for the application of these fees, and that 

terms of the agreement may be changed unilaterally by the issuer, 

it is a basic necessity that any consumer understand first and foremost what he or she will be obligated when using the credit card. 

How will the credit card be used? And this goes particularly to 

some of the points that Ms. Porter was making. Many consumers 

acquire credit cards to make it easier to purchase goods and services. Using a credit card avoids having to write a check or carry 

sufficient cash to make a purchase. Using a card also permits consumers to purchase large ticket items, such as a refrigerator or a 

TV over time when there is insufficient, periodic income to pay at 

the time of purchase. A credit card, however, should not be used 

to bridge short-falls in disposable income except in the case of purchasing necessary but costly large ticket items. A credit card 

should not be used to make necessary and daily expenditures, except as a convenience. When necessary and daily items are purchased, monthly disposable income should be sufficient to pay for 

those items, either at the time of purchase or in full when the 

monthly credit card statement is received. In short, use of a credit 

card is not intended to make up for lack of disposable income; its 

use is a convenience. 

If elderly consumers have other sources of equity, such as a fully 

paid for home, or even close to a fully paid home, it is better that 

this equity be used to pay for large ticket items or even to provide 

sufficient disposable income for necessary and daily expenditures. 

A home equity loan or a reverse mortgage will access this equity. 

If the equity is not needed for daily expenditures, the mortgage 

loan should be a line of credit rather than one that provides regular monthly distributions of equity to the consumer. These loans 

likely will not have as high an interest rate charge or the various 

fees that accompany a credit card account. Such alternatives to 

credit cards again make the point that the credit card should only 

be used as a convenience. 

Improvements in Federal regulation of the credit card industry. 

Congress should consider setting a national affordability standard 

that requires documentation of sufficient disposable income for all 

forms of consumer credit. The superintendent made reference in 

his testimony to the affordability standard contained in section 6–

L of the New York State Banking Law, which applies to high cost 

home loan mortgages. The consumer must have 50 percent of his 

or her disposable monthly income remaining after all other debt obVerDate 0ct 09 2002 17:32 Nov 07, 2007 Jkt 038396 PO 00000 Frm 00020 Fmt 6633 Sfmt 6633 K:\DOCS\38396.TXT HFIN PsN: TERRIE
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ligations are deducted, including the required payment for principal and interest and escrow of the mortgage. What is crucial with 

respect to a credit card account, which is an open line of credit, is 

that an affordability standard should apply to the total available 

credit line. As is the case with the current subprime mortgage 

problems, much of this debacle is due to creditors extending credit 

without regard to the consumer’s ability to pay total debt, fully amortized. 

As Congress tracks the Federal Reserve Board’s rulemaking revisions of Regulation Z, it should consider going beyond any final 

standards that it considers inadequate. Many times initial proposals by Federal bank regulators or regulatory agencies, related 

to consumer interests, are narrowed or reduced under industry 

pressure. Limited as the Board’s efforts are to expanded disclosure, 

nonetheless, it is likely that its initial proposals are well thought 

out and justified. 

The State Regulatory Role. When considering legislative options 

to reform credit card lending practices and disclosures, States can 

play an important role in gathering information and monitoring 

compliance. The Banking Department is an intake for many consumer complaints that involve federally regulated financial institutions. The Department forwards and tracks these complaints to the 

Federal regulator. Further, the Department has enhanced this activity by entering into a Memorandum of Understanding (MOU) 

with the OCC that provides for complaint referrals between the 

Banking Department and the OCC and reflects a commitment on 

behalf of both agencies to share information concerning the status 

and resolution of complaints. 

States are also in a position to provide valuable public information about credit card practices and the cost of credit. The New 

York State Banking Department publishes a quarterly survey of 

credit card interest rates that is available online and in hard copy 

upon request. The survey provides comparative information about 

rates, over the limit and late fees, and the existence of universal 

default and penalty provisions for each credit card. The Department also engages in extensive consumer outreach to organizations 

to promote financial literacy, especially in regard to the use of credit. 

In conclusion, as the superintendent stated, credit cards are a 

convenient method of payment for millions of Americans, and the 

availability of credit to Americans across income lines have undeniable benefits to individuals, households, and the economy. Lending 

practices that have the effect of destroying credit ratings and borrower’s financial futures, however, destabilize the economy and ultimately fly in the face of our goal, which is to make the widest 

possible range of safe and sound banking services available to consumers at all levels of our society. Thank you. 

Chairwoman MALONEY. Thank you so much. I am going to add 

a link on my Web site to your comparative survey on interest rates. 

That’s very, very helpful for consumers and I wanted to note that 

the New York State Banking Association has a very privileged situation now. Richard Neiman, our superintendent, has been elected 

to be the leader of all the superintendents of banks in our Nation, 

16

so their voice has a very important voice now when it comes to consumer issues and reform. 

In regard to your statement on the difficulty of understanding 

your balance, understanding your credit card receipts and billing 

questions, one of the most astonishing times that I’ve had on the 

Financial Services Committee was when the head of Freddie Mac, 

one of our largest GSEs, testified that he and his wife sat down 

and spent down well over an hour trying to understand their credit 

card statement and they could not understand it. We had one of 

the heads of a major financial institution saying that he could not 

understand it, so you can understand why older Americans, and all 

citizens, are having trouble with this and why we welcome and intend to legislate Regulation Z that the Fed has come out with to 

make it easier to understand. 

I have a number of questions, but we want to get through our 

panelists and ask questions all together. Thank you so much for 

coming and all of your recommendations are very, very helpful. 

Our last panelist is John DeCelle, the executive vice president of 

the State Employees Federal Credit Union. Thank you. 

STATEMENT OF JOHN T. DeCELLE, EXECUTIVE VICE 

PRESIDENT, STATE EMPLOYEES FEDERAL CREDIT UNION 

Mr. DECELLE. Hi, there. I am also from the area. 

Chairwoman MALONEY. So many wonderful participants from 

Saratoga. 

Mr. DECELLE. Great place to live, great place to work. 

Chairwoman MALONEY. I want to come back on vacation. 

Mr. DECELLE. I’m thrilled to be the last person here talking. But 

seriously, good afternoon. As you said, my name is John DeCelle, 

and I am an executive vice president for SEFCU, a credit union 

based in Albany, New York, formerly known as the State Employees Credit Union. I’m pleased to be testifying on behalf of New 

York’s credit unions and the New York State Credit Union League 

and their affiliates. 

Since 1934, SEFCU has been meeting the financial services 

needs of consumers and commercial members in upstate, central, 

southern tier, and western New York. Today, we have over 150,000 

members, 21 offices, and over $1.4 billion in assets. Since 1917, the 

New York State Credit Union League has been the principal trade 

association of New York State and Federal credit unions. Today, 

NYSCUL represents over 500 credit unions and their 4.1 million 

members. 

Chairwoman Maloney, Congresswoman Gillibrand, and members 

of the House Financial Services Subcommittee on Financial Institutions and Consumer Credit, I thank you for the opportunity to provide comment from the credit union movement regarding credit 

cards and older Americans. I think you’ll find our side of the story 

is very different than some of the examples you’ve heard earlier 

from some of the big, bad monoline banks that are out there. 

Throughout our existence, New York’s not-for-profit credit unions 

have remained true to their origin and continue to focus on their 

mission to promote thrift and financial stability. We commend the 

subcommittee for calling this hearing to examine credit cards and 

older Americans, and I look forward to telling you about how credit 

17

unions typically operate their credit card programs and how they 

do so with the best interests of their members in mind. 

Like other credit unions in New York State, SEFCU serves the 

financial needs of its members, some of whom would not be able 

to secure financial services from other financial institutions. We’re 

building branches where other banks are pulling out, as an example with the Albany Housing Authority Branch we’re putting in 

next month. That will meet the needs of consumers in lower-income 

neighborhoods. When we design products and services, we incorporate strategies that help us serve these households so that we 

may live up to our mission of improving the quality of our members’ lives. 

New York’s more than 500 credit unions, member owned and 

not-for-profit cooperatives, strive to help their 4.1 million members 

create a better economic future for themselves and their families. 

We are also concerned about the growing problems associated with 

credit card abuse and older Americans. 

Increasingly, older Americans, those 55 or older, are caught in a 

financial crunch that is forcing them to rely on credit cards for survival. This really does correlate to the national savings crisis that 

we’re currently in. Recent studies indicate that older consumers 

use their cards more often and with less care than adults aged 18 

to 34. Reduced retirement savings due to the stock market, rising 

medical costs, and fixed incomes often leave seniors no choice but 

to rely on credit cards to survive on day-to-day expenses. Many are 

raising their grandchildren and have needs similar to young parents. Credit unions recognize this group and the needs that they 

have and we do so by offering reasonably priced financial products 

so that they learn to manage a successful retirement on a limited 

income. 

As you know, a September 2006 study conducted by the United 

States Government Accountability Office, GAO, found that some 

issuers of credit cards charge excessive fees and rates of interest. 

The study also found widespread use of weak disclosure practices 

by the largest credit card issuers. Many credit card agreements 

contain questionable terms and conditions, including universal default clauses that allow issuers to raise a borrower’s interest rate 

based on indebtedness or late payments to other creditors that previous panel members have mentioned. 

What’s interesting about credit unions is we’re not for profit, cooperatively owned, financial institutions that return our profits to 

our members, either through a dividend payment or through a 

lower cost for services in terms of branching and other services. To 

participate in any activity that would take advantage of our members, who are also our owners, would be counterproductive to our 

structure and our philosophy. Our philosophy is supported by our 

volunteer board of directors, a board that is elected by the membership and has the responsibility to serve the membership and is not 

focused on making profits for stockholders. 

Credit unions seek to offer the most fair and affordable credit 

card programs and have taken positive steps through their voluntary efforts to educate all members, including seniors, on how to 

manage credit card debt. At SEFCU, we’re committed to educating 

our members on how to manage their financial lives responsibly, 

18

and will continue to do so in an effort to reduce the instances we 

see each day, of members committing to credit terms and conditions that are predatory in nature. 

We work with our members fully to explain credit card rates and 

fees that they are currently paying and to show them the true cost 

for items purchased. In all of the examples given earlier, and from 

what some of the comments were that we had, financial literacy 

really is necessary to help improve the situation. At SEFCU, we actually offer a program called, ‘‘It’s Gonna Cost You’’ that will touch 

on why you shouldn’t be using a credit card for certain types of 

purchases or why rent-a-centers are not always the best thing. We 

encourage our consumers to establish solid saving habits for purchases and the proverbial rainy day. If you were to ask an individual what the interest rate is on one of their credit cards, you 

will find that more than 80 percent of the time they cannot answer 

that question. But if you ask them how many miles they earned 

last month for their airline card, they could probably tell you that. 

According to research conducted by the Credit Union National 

Association, the average fixed-interest rate on credit union credit 

cards is three percentage points lower than the rate on cards 

issued by banks. The difference translates into an annual savings 

of $240 on the average American household credit card with an 

outstanding balance of $8,000. Additionally, according to 

Bankrate.com, credit unions average more than one percentage 

point less on interest for a variable-rate credit card compared to 

that of banks. 

According to the latest Credit Union vs. Bank Datatrac Ratedex, 

in comparing credit card rates, it shows that credit unions charge 

an average credit card rate of 12.25 percent, compared to the average rate of 15.04 percent. The GAO report found that credit card 

issuers typically apply multiple interest rates to the same card, depending on the circumstances. For example, the credit card industry typically uses one interest rate for cash advances, another for 

regular purchases, a third for balance transfers and account 

checks, etc. That gets very, very confusing. When a consumer pays 

off a portion, or even the majority of a monthly balance, the credit 

card industry charges interest on the entire amount previously 

owed, including the portion that was paid before the due date. In 

the best interest of its members, credit unions don’t follow this type 

of practice which results in a much higher—those practices result 

in a higher cost to card holders. 

At SEFCU, we offer card programs that provide low interest 

rates, no hidden fees, and other benefits that meet the needs of our 

members. Like other credit union credit card programs, we have 

designed ours to be understandable, and to add value to membership. This differs from the industry norm as it relates to grace period policies. 

Although many consumers think that all credit cards provide 

them with a grace period before the interest is charged, the fact is 

that most credit card issuers do not provide a grace period to cardholders unless they pay their credit card balances each month in 

full. If a consumer has any balance owing on a card from the prior 

month, there is no grace period on new purchases. Every purchase 

racks up the interest from day one. Nine out of ten credit unions 

19

nationally offer their members a grace period on purchases with 23 

days being the average, even if there is an outstanding balance on 

the members’ card, very different from the industry norm. 

Credit unions also recognize that fees associated with credit card 

programs are a major component of the credit card problem among 

Americans. Credit union card programs typically allow a member 

an average of 14 days to pay after the due date without penalty, 

and if the credit union charges a late fee, it’s usually around $19, 

much lower than the industry average. 

Credit union card programs do not include fees such as balance 

transfers, new account, or telephone payment fees, again, setting 

them apart from the for-profit card issuers. In addition to structuring a card program’s financial parameters with the best interest 

of members in mind, credit unions also provide a high quality 

member service for their members who carry a credit union credit 

card. 

As we heard earlier, a lot of times with larger credit card companies, you’re forced to have a P.O. Box or a toll-free number to deal 

with a representative. At a credit union, you simply walk into a 

branch and you can talk to any representative and they can help 

you. It’s that one-to-one service that makes a difference. 

Credit unions are also well aware of the problems that senior 

citizens face as credit card offers continue to be dangled in front 

of them at a time in their lives when many have very limited income. Many credit unions continue to work with these members, 

educating them not only about what they need to get their current 

finances in order, but also providing them with the tools necessary 

to make good life-long financial decisions. 

At SEFCU, we offer our members the ability to work with certified debt counselors, and they’re available to assist people in understanding how to manage their debt and household budgets in a 

better way. Credit unions believe working one-on-one with adult 

members is an effective way to teach them the skills necessary to 

improve their financial position. Credit unions in New York agree 

that to truly change the level of financial literacy of their memberships they had to take education to a new level. The New York 

Credit Union Foundation also works with the National Endowment 

for Financial Education to bring education materials to credit 

unions and community centers for uses of financial literacy. At 

SEFCU, our Member Education Department logs hundreds of 

hours each year, working with over 2,000 individuals annually, 

helping them through education efforts to make better and more 

well-informed financial decisions. We offer these programs to our 

members, at community outreach centers for their clients. We work 

with local schools and we also work with the local Department of 

Social Services, striving to help people go from welfare to workfare. 

Many have proposed that additional oversight is necessary to address abuse within the credit card industry. As you gather information and deliberate such an approach, we ask that you consider the 

following: 

First, the New York Credit Union League and I believe the industry is sufficiently regulated by disclosure requirements. If additional Federal disclosure mandates are enacted, it will cause further confusion at the consumer level. As credit card issuers seek 

20

to comply with various State and Federal laws, the content, the 

length of complexity of disclosures and agreements, it will be counterproductive to the intended goals. Sometimes when you add 

more, it makes it more difficult to understand. 

Also, credit unions are only able to offer credit card programs to 

their membership by contracting with smaller unions—excuse me, 

are only able to offer credit card programs to the membership by 

contracting with outside processors. We ask that you are mindful 

of new laws that would likely increase expenses to these processors, which will translate into adding cost for credit unions to 

run their programs. Currently, credit unions are addressing increases in insurance premiums, insurance coverage limitation, and 

increased security requirements on credit card programs due to the 

increased amount of credit card fraud. Adding to these costs are 

challenges and also adding with the additional disclosure requirements, will definitely move us to the question, ‘‘Can we afford to 

continue to offer a credit program to our members?’’ If we have to 

answer that question with a ‘‘no,’’ that really limits where consumers can go to get a credit card that meets their needs and provides lower rates and fees. 

There has never been a need for credit unions to engage in any 

of the abusive credit card practices discussed here today that could 

prove to be detrimental to their members, their owner’s financial 

well-being. Credit unions, because of their not-for-profit structure, 

have no shareholders to pay at the end of the month. Any profits 

made from credit union credit card portfolios are either returned 

back to its members in the form of lower interest rates or low or 

no fees, or reinvested back into the credit union to allow it to provide better services to card holders. We urge the committee to look 

towards further enforcement of current regulation and financial literacy education as a means of tackling this growing concern, perhaps using the credit union program as a model. 

Members of the House Financial Services Subcommittee on Financial Institutions and Consumer Credit: I, along with the New 

York State credit unions and their credit union league, and their 

4.1 million member-owners, applaud you for your leadership and 

thank you again for calling this hearing. 

[The prepared statement of Mr. DeCelle can be found on page 32 

of the appendix.] 

Chairwoman MALONEY. Thank you, and thank you for your insightful testimony. We’ll certainly be considering it when we draft 

legislation. I would like to note that without objection, all of your 

written testimony will be made part of the record. You may add 

other supportive documents if you so wish. 

I would like to ask the first question. Actually, what I think we 

ought to do is switch. I think that they should come up here and 

we should move there, because they’re going to be passing the 

microphone back and forth and answering jointly. 

[Pause] 

I would like to begin. I don’t know where Kirsten is. She’s coming right back? Okay. 

I would like to begin by asking Mr. O’Connell and Ms. Porter, 

and then anyone else who would like to add to it, what is behind 

this spike in credit card debt? Why is it jumping so much for the 

21

elderly now? We saw the AARP report that showed the tremendous 

spike. To what extent have credit card practices contributed to this 

problem and what, in particular, practices are contributing to this 

spike in credit card debt? 

I would also like a clarification from Ms. Porter. You were saying 

that if you moved to a debit card, it would be better for the seniors, 

but we have received some reports that debit cards are not as safe 

as credit cards in terms of identity theft, that there are a lot of 

identity theft efforts against elder Americans, and that debit cards 

are not as secure. 

Now we have put forward, in our hearings, the concept that at 

the point of sale, you get the information that you’re overdrawing 

your account or what your account is, similar to what we have proposed for the ATMs. We are being told by the industry that they 

do not have the technology to make that happen, and if any of you 

have any information or comments on that, that it’s too costly and 

that the technology is not there for the point-of-sale information to 

anyone, not just the elderly, but anyone, I open it up to all panelists. 

Ms. PORTER. I’d like to start with responding to the point-of-sale 

disclosure. There’s no doubt that the industry doesn’t want to do 

this because they are the people who have conducted the studies 

that show that when you spend with a credit card, you spend more, 

and part of that spending effect goes to the fact that with a debit 

card, people are much more aware that the money is coming out 

today. 

I would suggest that if there are concerns about implementing 

point-of-sale disclosures, there could be simply a 1- to 2-year phasein period. I believe something like 95 percent of credit card transactions are already processed simultaneously online with immediate communication. There could be a waiver for that 5 percent of 

transactions that are still done with the old fashioned paper system, but a phase-in would address that. 

Regarding the debit cards and identity theft, I am not aware that 

debit cards lead to more instances of identity theft than credit 

cards. I do think credit card issuers have been very aggressive in 

promoting among consumers the idea that they will do more to 

help you in the case of identity theft than banks, but I have not 

seen any evidence to show that actually is true. I would suspect 

that the credit union representative here would say that they do 

a lot at the local bank level in any way to help. 

There are some concerns about debit card overdraft practices, 

and I know that the subcommittee has already held a hearing addressing those, so I would encourage you to implement those simultaneously to make sure that consumers get the same protection in 

the case of fraud whether they use a credit card or a debit card to 

pay because the very best academic research that exists today 

shows that when you spend with credit cards—even if you’re a convenience user—you spend more. That is a real problem with seniors trying to adjust to retirement income and live on fixed incomes. 

Chairwoman MALONEY. Any statement on why are we seeing 

such a spike in debt for elder Americans? Everyone is reporting on 

it. Why is it jumping up so much now? 

22

Mr. DECELLE. I think primarily because the cost of living is increasing. Seniors are on fixed incomes and they’re relying on credit 

cards, as I stated earlier, to help supplement their income. Again, 

I think that goes back to the true need for financial literacy because there are other alternatives out there other than simply 

using your credit card to float a 36-, 60-, or 90-day loan and with 

regard to the previous question on debit card use, I think what’s 

happening in terms of most Americans associate their debit card 

with their checking account, so if their identity is lost, they don’t 

want their checking account to be impacted. Again, that goes back 

to the need for financial literacy education and through cooperative 

efforts, SEFCU and the New York State Credit Union League in 

the fall of this year are—will be delivering a whole series on how 

to protect yourself identity theft should that happen. Again, it goes 

back to the more knowledge we can give to consumers, the more 

powerful they’ll be in making their own decisions. 

Chairwoman MALONEY. Mr. O’Connell, since it was your report 

from AARP, I’d love to hear your comments on that. 

Mr. O’CONNELL. I mean, it’s everything we were just hearing 

about, obviously, the cost of living and I think there’s a myth in 

this country that older persons are well off. The Baby Boom generation is about to become aged, but the reality is that more than 

60 percent of older Americans still rely on Social Security as their 

primary income and Social Security income is less than $11,000 a 

year, on average. You combine that limited income, the cost of living increases, and now the availability, the marketing that we’re 

seeing by the credit card companies, and people just would tend to 

look to credit as a solution and then they get caught in that spiraling increasing cost. 

Ms. GILLIBRAND. Thank you, members of the panel. I appreciate 

it. I really want to talk about some of the policies that we, as Members of Congress, can put in place to make a difference. I appreciated, Mr. O’Connell, that you gave four suggestions. You wanted 

to improve disclosure of terms and conditions of credit card, prohibit universal default, a limit on penalty fees and interest rate 

hikes and prohibit mandatory binding arbitration. I would like to 

go through each of those suggestions and get your comments on it, 

specifically about how to implement it. So if we can start with the 

first one, improve disclosure of terms and conditions of the credit 

card. 

How would you like to do this, what recommendations specifically do you want made? 

Mr. O’CONNELL. I’ll turn to my colleagues. I can talk more about 

the kinds of improvements that would be needed in disclosure. 

Ms. PORTER. I think we all would say that the Federal Reserve 

Board has taken an important step in actually consulting with consumers to ask them, why are these disclosures so confusing, and 

so we can look forward to, I hope, improved disclosure at the time 

that you take out a card and in your periodic statement, but I 

would just say that all of the academic research suggests that for 

a variety of reasons, nobody takes out a credit card intending to get 

hit with lots of fees. So we don’t look at the fees, because we don’t 

plan on being hit with exorbitant fees, and so we’re not processing 

those disclosures no matter how big you make the font. If you simVerDate 0ct 09 2002 17:32 Nov 07, 2007 Jkt 038396 PO 00000 Frm 00028 Fmt 6633 Sfmt 6633 K:\DOCS\38396.TXT HFIN PsN: TERRIE
23

ply think they won’t ever apply to you, you don’t read them, and 

that’s why a point-of-sale disclosure, a warning, that you’re about 

to exceed the limit and a notification of what that’s going to cost 

you, a reminder printed on every credit card receipt on when the 

payment will be due for that transaction is important. The pointof-sale technology, if banks can do it, and the banks way, way lag 

the credit card issuers on the technology front, but if the banks can 

implement things like that at point-of-sale disclosure at ATMs and 

debit card users, there’s no reason that credit card issuers, at least 

over a phase-in period of 1 to 2 years, wouldn’t be able to make 

some more point-of-sale disclosures. 

I am all for improving the initial disclosures and the periodic 

statement disclosures, but I don’t think they will have the same effect on consumer behavior. 

Ms. GILLIBRAND. Any other specific suggestions on that one? 

Mr. O’CONNELL. I don’t know specifically, but I certainly know 

that my colleagues in Washington, we can address that and get 

something in writing to you in terms of the specifics. 

Ms. GILLIBRAND. Okay. 

Chairwoman MALONEY. I just want to say that at the panel we 

had last week with the issuers, two of the issuers came out voluntarily saying that they will no longer do universal default, and that 

they would do a 2-year fixed rate, which I think is an extraordinary 

accomplishment even before legislation, that they are willing to set 

that standard, and hopefully others will repeat it. 

I think one of the problems that you hit on, Ms. Porter, is that 

we are accustomed to buying things in a certain way, and when we 

buy a garment, or a car, or whatever, they don’t jack up the prices 

overnight and add all these other fees that you don’t anticipate. 

Yet, the credit card industry does that. They can jack up prices and 

add all these fees and people don’t expect it and they don’t see it 

coming. And I think that’s one of the reasons that it gets run up 

so quickly. 

Ms. GILLIBRAND. The third recommendation was limits on penalty fees and interest rate hikes. What would you specifically like 

to see if you could make a recommendation? 

Mr. BILLET. The key, at least in my opinion, and I think the 

opinion of a lot of my colleagues in the Banking Department, goes 

to the issue, although I’m not sure whether Congress in this day 

and age could successfully address it. It goes to the ability of these 

credit card companies to export their rates. If you, as a banking institution, in order to do business in this State were subject to New 

York State law, and the State could also define what constitutes interest for that purpose, then you would have effective controls in 

this State over what would happen at least to the residents in this 

State. 

But the fundamental problem with the fees issue is, in my mind, 

that under regulatory interpretation which has subsequently been 

upheld and abetted by the Federal judiciary and the Supreme 

Court, is that fees also constitutes interest and that’s why that can 

be sent out as part of the credit card charges. So when you address 

that issue, you have to keep that in mind. It’s the same as the interest rate charge, so when you address that, however you intend 

to do it, somehow you have to address that problem. 

24

Ms. PORTER. I would concur. There is a real unfair advantage 

that is given to the national banks because of, to be frank, very 

weak enforcement activity by the Office of the Comptroller of the 

Currency, which is a Federal agency that very few people, including most of the people in this room, have ever heard of, but it is 

the agency that is supposed to be protecting and monitoring and 

regulating Federal banks. And so I think our State banks and the 

credit unions face a real disadvantage in trying to provide the best 

possible services for their customer when they compete with national banks. And the State banks, when they try to charge a fee, 

they have to deal with Mr. Billet. When the national banks up 

their late fee to $39 or $49, they effectively know they can do so 

with no oversight and no regulatory fear. So I really applaud the 

efforts of the subcommittee in the last year to bring some scrutiny 

to the credit card industry. And I think the reason you’re seeing 

issuers stand up and say we’d be happy to eliminate universal default is because I think they are afraid that the subcommittee is 

actually getting a handle on how serious this problem really is. So 

you just see credit card issuers, I think, are really worried that 

America and its representatives have finally had enough of some 

of these practices. 

Mr. BILLET. I just would add, just to try to make this point as 

clear as possible, that the reason State law applies to these institutions, and it depends on where they’re headquartered, which is 

usually in States that have favorable usury and interest rate laws, 

is because there is no Federal law that regulates interest or these 

fees essentially. So whatever State you’re in, if you’re a New York 

bank and you sell to somebody or give a loan to somebody in Ohio, 

New York law applies with respect to the fees and the interest rate 

charge. 

Ms. GILLIBRAND. The last issue is to prohibit mandatory binding 

arbitration. Why is that affecting the issue and why do you recommend that as a change? 

Mr. O’CONNELL. I can only reference the example we gave of Ms. 

Owens. When she got to a court, the court settled it, as opposed 

to if she was in a situation where she had to go to a mandatory 

arbitration, in an arbitration venue that was set up by the credit 

card industry, and she would obviously be at a great disadvantage. 

Ms. PORTER. I am actually conducting some research about this 

practice because increasingly what we see is not just credit card 

issuers using arbitration to resolve an actual dispute, that is a true 

disagreement about an asserted violation. But instead what we’re 

seeing is widespread use by credit card companies of a few arbitrators in particular to simply collect debts. So rather than using the 

existing court process of filing a small claims judgment, obtaining 

a judgment, and having the judge make sure it’s all fair and correct, they are sending people through an arbitration process as a 

way to shortcut the traditional collection process and the protections that exist at State law. 

Mr. DECELLE. I guess I’d like to just go back to something that 

Mr. O’Connell referenced in his statement and that is, that there 

is not that one-to-one contact that’s taken place with the larger 

card issuers with their card holders as they’re going down that 

very slippery slope of going into debt and I think if you take a look 

25

at what the credit union movement is doing we have debt counselors that work with our members so that they don’t get to that 

point of needing to go to arbitration. Again, I see some people are 

kind of shaking their head. We’re not the end-all, be-all, but what 

we are is a great solution to be able to work with consumers so 

that they are able to make better and well-informed financial decisions. And again, not to sound like a broken record, we need to do 

more in terms of financial literacy and financial education from the 

elementary school right into buildings like this, a senior citizens’ 

center. 

We need to do a better job of getting the message out on why 

taking a zero percent credit card offer for 12 months is not the best 

solution to be able to roll some debt so that you have some alleviation of interest rate. We take a look at the savings rate crisis that 

we’re in. We as a country are not savers, so to think you’re going 

to be able to roll a 12-month debt at a zero rate on a card and have 

it paid off in 12 months, if you’re not already a good saver, that’s 

not going to happen, and that’s where we need to do a better job 

and as credit unions do, working with members, working with community resource groups, working in the schools, and working with 

senior citizens on how to develop good habits in terms of financial 

decisionmaking. 

Ms. GILLIBRAND. What is your opinion about whether this issue 

is going to get better or worse? Is the next generation ready for this 

or is it something that you think is going to increase because of the 

Baby Boomer generation? And related, who is the worst hit by this? 

Is it something that is affecting all retirees or is there a specific 

group who are being affected more? 

Ms. PORTER. I would just say that I anticipate, at least for the 

foreseeable future, that it is going to get worse. The Baby Boom 

generation has an appetite for credit cards that is not really paralleled by other generations. Young people, because they became 

aware of credit cards much earlier, many young people do not use 

credit cards. The credit card rate among young people is actually 

on the decline. But the Baby Boom generation continues to escalate 

their credit card use, exactly at the time that they’ve saved less 

than prior generations and are heading into retirement. 

So I think we’re likely to see, at least for the next 10 to 20 years, 

a worsening of these problems. 

Mr. BILLET. I will tell you from my own personal experience, I 

agree with that assessment by Ms. Porter. My children are recently 

out of college and they had credit cards and started to learn how 

to use a credit card and had some rough roads and they also obtained debit cards at the same time and fundamentally they’re 

using the debit card for their daily expenditure purposes and are 

using the credit cards for what they are intended—to hit that big 

ticket item when you don’t have sufficient income at the time of 

payment. 

Ms. WHIPPLE. I do agree with the panelists. I just have a little 

bit different take on this. I certainly think the elderly are going to 

be extremely hard hit. I think it has to do with not only the fixed 

income, going back to your question, Madam Chairwoman, there 

are a variety of factors that have converged. The lack of medical 

and health insurance is one of the most disturbing and distressing 

26

reasons why people are coming into my office. We’ve gotten to the 

point where I have people literally sitting in front of me saying, ‘‘I 

can’t take my medicine, I can’t afford it.’’ So that’s a huge one I 

think that affects the elderly more just as we grow a generation. 

I also do some credit abuse resistance education for high school 

and colleges and our theory was that you go into high schools and 

colleges to prepare the college students for the day, the first day 

they walk on a campus, and they’re going to have Capital One sitting there, and Capital One is going to say, here’s your free frisbee, 

here’s your great t-shirt, here you go. All you have to do is sign 

here and guess what, it’s free money. By the time these kids get 

out of school, if they’re not educated, and I think a lot has to do 

with education, I think the statistics are that that between 19 and 

24-year-olds, they are increasing in bankruptcy as well as the elderly. I think the Baby Boomers are in a position right now where 

they’re robbing Peter to pay Paul. I don’t think they recognize the 

debt that they find themselves in and I think the elderly are a little bit more wise and will be able, when they finally hit a point 

they say okay, I am in trouble now. They may be a little bit 

quicker. You play the game right, you can use credit cards to move 

money around for years and years. I have seen people do it, and 

at the end of the day, you are still going to end up in my office. 

So I think that even though the Baby Boomers might be moving 

the money around, our older generation and our younger generation are where we should probably be focusing so that we can teach 

the Baby Boomers where they’re going and they can, in fact, teach 

our children. We’re the first generation to have credit cards. My 

parents didn’t have a credit card. So you give somebody a credit 

card, and say, here you go, pay your money, and everything is fine 

and dandy. I don’t think it’s on luxury goods and I certainly don’t 

think that it’s a situation where people are saying, let me go out 

and use a credit card to buy this, that, or the other thing. People 

are using credit cards now to survive and that is where the problem lies. Because if you have to rely on a credit card to survive, 

you will never be able to pay that credit card off. 

Mr. DECELLE. Let’s pass the microphone. I absolutely agree with 

you that people are using credit cards as a means of survival. However, I think what we need to do as an industry is we need to continue to work with our consumers, our members, our customers, 

however you want to refer to the segment and educate them on all 

the other alternatives that are out there other than living day-today on a credit card. I do disagree that I don’t think this is an 

issue that’s relative just to seniors and to the younger generation. 

I actually think the younger generation—I never thought I’d say 

that, the younger generation—I actually think younger Americans 

are more comfortable using a debit card because they’re not fearful 

of that transaction hitting their checking account versus older 

Americans who sometimes feel like they don’t want those transactions just hitting their checking accounts. They’re used to once 

a week sitting down and settling their bills. So I think that’s where 

education plays a key role. 

Again, I think it goes straight across the board and I also think 

some of the difficulties we’re having tie directly back to the fact 

that as a Nation we have the lowest savings rate since the Great 

27

Depression. My parents were savers. They didn’t buy a house, buy 

a car, whatever, unless they had the money where they go and go 

with a cashier’s check and make that payment. We’re not savers 

and that’s part of what the problem is nowadays. We’re not saving 

enough for that proverbial rainy day and when the clouds open up, 

what do you do and who do you go to and who can help you? 

Chairwoman MALONEY. Thank you. I would like to ask the audience a question. I’d like to know how many of you have a credit 

card? Can you raise your hands? Okay. And how many of you use 

a credit card? How many of you have a debit card? Much fewer. 

How many of you use the debit card? So how many of you have a 

credit card or debit card story to tell us that we could hear? Quite 

a few. Okay. 

I want to ask one question that refers to the bill that we’re working on, and then I would like to listen to the audience, asking a 

question. And I’d like to start with Mr. Billet because I know we’re 

running out of time here so I want to get your responses to this 

idea and see whether or not you think this would help solve the 

problem. We’re talking about disclosure. We’re talking about 

choice. What if you had a requirement that you had to disclose to 

consumers exactly what everything was going to be and if you 

change that, if you change that with an increased fee or any increased interest rate you had to notify the consumer, we are increasing your fees. We are increasing your interest rate, it’s going 

to be this much more and then you gave the consumer 45 days to 

make a choice. They could freeze their account and leave it as it 

is at the agreed amount and let them pay it off over a year or they 

could decide to opt-in, yes, I agree to pay that 18 percent interest 

increase. In other words, informing them. As we were talking, 

Kirsten and I, about how many solicitations we get from credit 

cards, they fight very hard to get that customer. I would think that 

if they had that they would be very cautious about raising fees and 

interest rates because they could lose that customer to a competitor 

who is offering a much lower fee. 

Do you think that would curb the challenge that we have now? 

Allowing them to know exactly what’s happening and allowing 

them to freeze their account at that amount so that they could pay 

it off, go to another card, or just—your response? 

Mr. BILLET. I think that would address the issue where the fees 

and the late penalties and what have you essentially constitute so 

much of the debt that you can’t pay off the principle which are the 

stories you heard today. 

That also means that, in effect, the credit card will not be able 

to be used again. So that’s the other side of the story. 

Chairwoman MALONEY. You could go to another credit card that 

has no fee. Competition between the credit cards are immense. 

Mr. BILLET. That’s true, but I would say those kinds of changes 

will have a ripple effect than with respect to the availability of 

credit. So what you see now is uncontrolled solicitation may, in 

fact, dry up or be significantly reduced. Now that may be a good 

outcome in that sense, but that—it’s one of the things you have to 

think about with respect to what is called default rates or penalty 

rates. You have to understand—the thing you have to realize about 

credit cards, it is an open line of credit, so our banker friend from 

28

the credit union will tell you that if that person’s debt increases, 

that person becomes a greater risk. And normally, under all rules 

of banking, that person should pay the higher rate of interest for 

any further use of the debt that they have. So that’s what you’re 

going to hear from the industry. I can guarantee it. 

Ms. PORTER. I think it’s important, I think you might want to 

consider that many consumers already have this option to stop 

using the card when they get notification of a fee hike. Now it may 

well be that the notifications are not clear enough and so consumers don’t take advantage of that option. But I would also suggest that there are real problems with suggesting that if you don’t 

like what card issuer ‘‘A’’ does, keep that balance, and go get card 

‘‘B.’’ It sort of facilitates the growing number of cards which can 

have a detrimental effect on people’s credit scores and sort of shifting among cards is not necessarily the ideal financial practice. 

I also think it’s important that you consider at one point you said 

in describing the proposal that consumers would have to opt-in to 

the higher rate and my guess is that the industry is conceiving of 

this as a very different proposal which would require the consumer 

to affirmatively notify the industry that they want to take the free 

option. So I think it will make a difference of how it’s framed, 

whether the assumption is you don’t want to be charged the higher 

rate and you want to stop or the assumption is that you do. It will 

make a different on how effective it is. 

Chairwoman MALONEY. Ms. Whipple? 

Ms. WHIPPLE. I am a proponent of all and as much disclosure as 

you can possibly give. My one concern would be if there was a way 

for it to be a one paragraph disclosure as clear and concise because 

if you get one of—the daily disclosures we get now which are a 

form this thick that are in a font of .2 inches, then it’s probably 

not going to make a difference not to be a pessimist. I think disclosure is a wonderful thing and I think if it’s clear enough so that 

individuals can take advantage of what you propose to do, I think 

it’s a great idea. 

I also just want to note one other thing to follow up what Ms. 

Porter had said before. Previously, you had said that credit card 

companies say that they are not—they financially can’t do certain 

things. We used to hear that a lot in the court—we can’t do this, 

we can’t do that, and then the judge orders it, and lo and behold, 

they can do it. So I take with a grain of salt anyone telling me well, 

as a credit card industry we can’t do it, because if Congress legislates it, they can do it. It’s just a matter of somebody has to tell 

them to do it. 

Mr. DECELLE. As somebody from a credit union who is responsible for marketing, if you can get a disclosure into one paragraph, 

I would be thrilled. 

[Laughter] 

Because how many people have within the last 6 months to a 

year opened up a new account or done anything with a credit card 

or even just a deposit account? You get a stack of disclosures because of the required mandates that we have from the legislature. 

The only thing I would say with all due respect is through the scenario that you had stated earlier, Madam Chairwoman, that really 

will increase the technological expense that will take place and 

29

what’s going to happen eventually is more and more smaller 

issuers are going to drop out of the market, making less and less 

choices for consumers to be able to go where there is a lower rate, 

lower fees, and all of those things. 

And so that’s the one thing that you should take a look at some 

of the best practices that are out there. Are there some banks that 

all they do are credit cards, taking advantage? Absolutely. However, there are some very good organizations that are out there, 

SEFCU being one of them, that do not take advantage of our members. We work diligently to make sure that our members understand what they’re getting into, how the product works, so that 

they are better off down the road. 

From our point of view, the more success they have financially, 

the better we are because that’s going to make them a happier 

member. Yes, there are certain things courts can mandate, and we 

need to jump through hoops, but what you need to understand is 

the more and more technological and legislative guidelines you put 

on our shoulders, that means we have to make that decision. As 

I said earlier, we have to look at that question and say, can we afford to offer credit cards to our members? And if it becomes too 

costly, then it’s a negative impact on our members, so we have to 

say no, we can’t, and then that reduces where people can go to get 

a product that will truly meet their needs. 

Chairwoman MALONEY. Mr. O’Connell, if you have a comment? 

Mr. O’CONNELL. Apparently now, there must be a 30-day requirement. I got one in the mail yesterday on a change. I don’t think 

45 days necessarily would be the answer. I think it has to get back 

to controlling the actual fees somehow. But they did get it into a 

simple statement here. 

Chairwoman MALONEY. Thank you and I’ll call upon—you can 

take my seat. You had a story you wanted to tell us. Here, take 

my seat. Sit down so you can talk to the mic. 

Mr. OCEANS. My name is Len Oceans and my wife just told me 

that a couple of years ago, she paid a bill in full to one of the credit 

card holders. And we got a letter back saying that we are dropping 

you and we’re canceling your card. Why? Because you paid it in 

full. If you want to take it out again, they’re going to charge us a 

fee of $30. So we said ‘‘Sayonara, we don’t need you. You need us.’’ 

I have a question about identity theft. Is it true that Congress 

passed a law that when you go into a store on a credit card it 

should only be the last four numbers on your receipt? 

Ms. PORTER. Yes. 

Mr. OCEANS. Because my wife always looks at it and she sees the 

whole digit, she crosses it out and only leaves the last four numbers. 

Ms. PORTER. There was a phase-in period for that. The issuers 

said they couldn’t do that technologically. They just didn’t know 

how they’d ever succeed. So they were given a couple of year period, but that period has elapsed, so your wife could actually sue 

for those violations. 

Mr. OCEANS. Oh, and then we’ll be millionaires. 

[Laughter] 

Just one more question. Why are the lobbyists so powerful and 

strong to keep those rates up so high? 

30

Mr. BILLET. It’s not a function of the lobbyists. It’s the function 

of the industry that’s behind the lobbyists, so you know, the banking industry is one of the strongest industries in the United States, 

if not the strongest industry out there as far as putting forward 

their point of view on issues. And you know, I guess it just goes 

to what they’re about. They have the capital. People want the capital. They say you’re not going to get the capital. People respond 

to that. 

Ms. GILLIBRAND. Would any other audience members like to ask 

a question of the panel? We’re just about done anyway. We plan 

to hold this hearing until 3 o’clock. I want to thank you all for coming. I want to thank each of our panelists for being here and for 

testifying on something the Financial Services Committee hopes to 

write legislation on this year. 

I also want to recognize some of our local elected officials. Mindy 

Warmoth, are you still here? Hello, Mindy, how are you? She’s our 

supervisor for this town. And Regina Parker, she’s our councilwoman. Is she here? Thank you, Regina, for being here as well. 

Thank you for being our elected leaders and coming to this forum. 

It’s such an important part of what we do in Congress to take testimony from experts to help us write legislation. And thank you all 

for participating. It’s extremely valuable that you’re here and I just 

want to commend Congresswoman Maloney. If you’d like to say a 

few words, Congresswoman? Thank you for your leadership. Thank 

you for coming to our District and listening to the views of many 

upstate New Yorkers on these very difficult, but important issues. 

Thank you, Congresswoman. 

Chairwoman MALONEY. Thank you for inviting me. I certainly 

learned a great deal and will be back in touch with our panelists, 

and with you, Kirsten, on items that came up today. 

I wanted to note that for 5 days, you will be able to put into the 

record any comments, additional questions, or any other item that 

you would like to be part of the official Federal record. We are moving forward with legislation. All of you have helped clarify where 

we need to go and what we need to do. We know that credit cards 

are a part of our life, a great convenience. They allow us to have 

access to credit immediately, but it needs to be fully disclosed and 

in a fair way. 

I’ve had a wonderful time here today learning more about this 

issue, but also seeing an absolutely beautiful city. I would love to 

come back and have a vacation here some time. You’re very fortunate to live here and it’s wonderful to be here and thank you for 

hosting it, particularly the Halfmoon Senior Center for having us 

and our wonderful panelists. And the meeting is adjourned. 

[Whereupon, at 3:10 p.m., the hearing was concluded.] 

(31)

A P P E N D I X

August 7, 2007

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