a

GAO

United States Government Accountability Office

Report to Congressional Requesters

April 2006 CREDIT CARDS

Customized Minimum 

Payment Disclosures 

Would Provide More 

Information to 

Consumers, but 

Impact Could Vary

GAO-06-434
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

April 2006

CREDIT CARDS

Customized Minimum Payment 

Disclosures Would Provide More 

Information to Consumers, but Impact 

Could Vary 

Highlights of GAO-06-434, a report to 

congressional requesters 

The Bankruptcy Abuse Prevention

and Consumer Protection Act of 

2005 requires that credit card 

issuers (issuers) include in all 

cardholder billing statements a

generic warning, or “disclosure,” 

about the potential financial 

consequences of consistently 

making only the minimum payment 

due on a credit card. However, 

some have urged that consumers

should instead receive 

“customized” disclosures in their 

billing statements that use 

cardholders’ actual balances and

the applicable interest rates on 

their accounts to show the

consequences of making only 

minimum payments, such as 

estimates of the time required to

repay balances and the total 

interest amount resulting from 

continual minimum payments. 

In response to a congressional 

request, this report assesses the (1)

feasibility and cost of requiring

issuers to provide cardholders with 

customized minimum payment 

information, (2) usefulness of 

providing customized information 

to cardholders, and (3) options for 

providing cardholders with

customized or other information 

about the financial consequences

of making minimum payments. 

Representatives of credit card issuers and processors that handle billing and 

other operations for issuers said they have the technological capability to 

provide cardholders with customized minimum payment information. The 

calculations that would be included in such disclosures require various 

assumptions, including that no more charges are made on the account, and 

decisions on how to address other issues, such as balances subject to 

multiple interest rates, that would affect the estimates’ precision. Issuers 

and processors estimated that the most significant costs of providing 

customized disclosures would be for additional postage, computer 

programming, and customer service. Although uncertain about exactly what

calculations would be required, the estimates that issuers provided for total 

implementation costs ranged from $9 million to $57 million. 

In GAO’s interviews with 112 cardholders, most who typically carry credit 

card balances (revolvers) found customized disclosures very useful and 

would prefer to receive them in their billing statements. These consumers 

liked that customized disclosures would be specific to their accounts, would 

change based on their transactions, and would provide more information 

than generic disclosures. However, cardholders who pay their balances in 

full each month were generally satisfied with receiving generic disclosures 

or none at all. Consumer groups, financial educators, and others indicated 

that customized disclosures could reduce cardholders’ tendency to make 

minimum payments; conversely, issuers foresaw limited impact because few 

cardholders make minimum payments and not all can afford to pay more. 

Alternatives for providing customized disclosures include providing them 

only to revolvers, providing them less frequently, or in a location other than 

the first page of billing statements. While such alternatives could lower 

issuer costs, they could also decrease the customized disclosures’ potential 

impact. 

Views of Credit Card Revolvers that GAO Interviewed on Customized Minimum Payment 

Disclosure 

Customized

disclosure

No

disclosure

Generic disclosures

Type of disclosure preferred Utility of customized disclosure

Source: GAO.

14%

57% 30%

Slightly/not

useful

Moderately

useful

Extremely/

very useful

68%

23%

9%

Note: Percentages may not total to 100 percent due to rounding. 

www.gao.gov/cgi-bin/getrpt?GAO-06-434.

To view the full product, including the scope 

and methodology, click on the link above. To 

view selected results of the cardholder 

interviews, go to http://www.gao.gov/cgibin/getrpt?GAO-06-611sp. 

For more information, contact David G. Wood 

at (202) 512-8678 or woodd@gao.gov. 
Page i GAO-06-434 Credit Cards

Contents

Letter 1

Background 3

Results in Brief 8

Providing Cardholders with Customized Information Seen as 

Feasible but Doing So Would Increase Costs for Issuers 11

Customized Disclosure Was Seen as Useful, but Its Impact on 

Cardholders May Vary 24

Various Options Exist for Providing Information on Consequences 

of Minimum Payments 32

Observations 36

Agency Comments and Our Evaluation 37

Appendixes

Appendix I: Objectives, Scope, and Methodology 40

Appendix II: Comments from the National Credit Union Administration 45

Appendix III: GAO Contact and Staff Acknowledgments 47

Tables Table 1: Comparison of Disclosures Required under the 

Bankruptcy Act and a Potential Customized Disclosure 7

Table 2: Demographic Characteristics of Cardholders 

Interviewed 42

Figures Figure 1: Extent to Which 74 Credit Card Revolvers Preferred and 

Found Useful a Customized Minimum Payment 

Disclosure 25

Figure 2: Extent to Which 38 Credit Card Convenience Users 

Preferred and Found Useful a Customized Minimum 

Payment Disclosure 26
Contents

Page ii GAO-06-434 Credit Cards

Abbreviations

FACT Fair and Accurate Credit Transaction Act

TILA Truth in Lending Act

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Page 1 GAO-06-434 Credit Cards

United States Government Accountability Office

Washington, D.C. 20548

A

April 21, 2006 Letr

The Honorable Paul S. Sarbanes

Ranking Minority Member

Committee on Banking, Housing and Urban Affairs

United States Senate

The Honorable Daniel K. Akaka

United States Senate

Making only the minimum payment due on a credit card can greatly 

increase the time required to pay off the entire balance and increase the 

total amount of interest paid by a consumer. With more than 292 million 

credit cards in use in the United States and a growth in personal 

bankruptcies, many financial educators see an increasing need for 

consumers to become more educated about the cost of using credit cards. 

As one way of achieving this, Section 1301 of the Bankruptcy Abuse 

Prevention and Consumer Protection Act of 2005 (Bankruptcy Act), passed 

in April 2005, amends the Truth in Lending Act (TILA) to require that a 

generic warning, or “disclosure,” be printed on all cardholders’ billing 

statements about the potential financial consequences of making only the 

minimum payment due.

1

 

The provision also requires that cardholders’ billing statements provide a 

toll-free telephone number for obtaining individualized information about 

how making minimum payments would affect their accounts. However, 

some lawmakers and others believe that these requirements are not 

extensive enough to educate consumers about the effects of making only 

minimum payments on credit cards. They argue that the generic 

disclosures required by the law will not adequately inform cardholders of 

their situation in today’s credit environment, in which interest rates on 

credit card debt can exceed 30 percent. Instead, they believe that a 

“customized disclosure”—that is, one that uses cardholders’ actual 

balances and the applicable interest rates on their accounts to calculate 

how long a given balance would take to pay off if only minimum payments 

are made—would allow cardholders to make more informed credit 

decisions.

1

Pub. L. No. 109-8, 119 Stat. 23, 204-14 (2005) and Pub. L. No. 90-321, title I, 82 Stat. 146-157 

(1968) (codified at 15 U.S.C. §§ 1601 et seq.).
Page 2 GAO-06-434 Credit Cards

This report responds to your April 25, 2005, request that we study the 

feasibility of requiring credit card issuers (issuers) to provide customized 

information to cardholders about the consequences of making minimum 

payments, as well as the usefulness of this information to cardholders. 

Specifically, our objectives were to (1) determine the feasibility and cost of 

requiring issuers to provide cardholders with customized minimum 

payment information, (2) assess the usefulness of providing customized 

information to cardholders, and (3) identify options for providing 

cardholders with customized or other information about the financial 

consequences of making minimum payments.

To determine the feasibility and cost of requiring issuers to provide 

customized information to cardholders on billing statements, we met with 

staff members of six major credit card issuers and one mid-size issuer. We 

determined that these issuers account for about 67 percent of actively used 

credit card accounts as of year-end 2005.

2 We asked each of the issuers 

about how they could implement the requirement and their estimates of the 

costs they would incur in doing so. We also obtained cost estimates for 

three other large issuers from court documents that were associated with a 

California lawsuit challenging a state statute that required issuers to 

include minimum payment disclosures on billing statements sent to 

California cardholders. In addition, we discussed the feasibility and cost of 

additional requirements with the staff of two external credit card 

processors (processors) that produce billing statements for thousands of 

large and small issuers, and a representation of industry, legal, academic, 

government, and consumer entities. To assess the usefulness of customized 

disclosures, we interviewed 112 cardholders in Boston, Chicago, and San 

Francisco to gather data on their preferences for and opinions on the utility 

of statements about making minimum payments. This sample of 

cardholders was not designed to be statistically representative of all 

cardholders, and thus our results cannot be generalized to the population 

of all U.S. cardholders. Our efforts to identify options for increasing 

consumer awareness of minimum payment issues involved interviews with 

representatives of credit card issuers and processors, consumer interest 

groups, a credit counseling agency, as well as federal financial regulators

and the Director of the federal Financial Literacy and Education 

2

Based on data from Cardweb.com, Inc., an online publisher of information pertaining to the 

payment card industry, and self-reported data from two issuers, we determined that the 

seven issuers with whom we spoke represent approximately 231 million active credit card 

accounts as of year-end 2005. 
Page 3 GAO-06-434 Credit Cards

Commission.3 We also reviewed comment letters provided to the Board of 

Governors of the Federal Reserve System (Federal Reserve) in connection 

with the Federal Reserve’s recent advance notices of proposed rulemaking 

regarding its open-end (revolving) credit rules of Regulation Z, which 

implements TILA.4

 A more detailed description of our methodology is 

presented in appendix I. Additionally, a copy of the survey instrument we 

used to interview cardholders, along with summarized results, can be 

found in GAO-06-611sp. We conducted our study between June 2005 and 

April 2006 in Boston, Chicago, San Francisco, and Washington, D.C., in 

accordance with generally accepted government auditing standards.

Background The credit card industry is composed of issuers, processors, and card 

networks. Typically banks, thrifts, and credit unions are the organizations 

that issue credit cards and underwrite the credit that is provided to 

consumers. The issuance of credit cards is highly concentrated, with the 

eight largest issuers representing 88 percent of all outstanding consumer 

credit card balances reported by CardWeb.com, Inc., as of year-end 2005. 

Processors provide a wide range of services for thousands of issuers, 

including card production, transaction processing, and production and 

mailing of billing statements. The level of services provided by processors 

can differ depending on a specific issuer’s needs. For example, some 

issuers handle all billing calculations and maintain all related data within 

the organization and rely on processors solely for printing and mailing 

billing statements. Other issuers, including many of the smaller issuers, use 

processors to perform all necessary services related to their credit cards. 

Finally, credit card networks facilitate payment transactions between 

cardholders and merchants by transferring information and funds between 

a merchant and a cardholder.

3

Fair and Accurate Credit Transaction (FACT) Act of 2003 § 513, 20 U.S.C. § 9702. Title V of 

the FACT Act, referred to as the Federal Literacy and Education Improvement Act, 

established the Financial Literacy and Education Commission with the purpose of 

improving financial literacy and education of persons in the United States.

4

In addition to being charged with implementing TILA, the Federal Reserve is the agency 

responsible for overseeing state member banks for compliance with TILA. Compliance with 

TILA by other depository institutions is overseen by the appropriate federal bank 

supervisor: Federal Deposit Insurance Corporation, the National Credit Union 

Administration, the Office of the Comptroller of the Currency, or the Office of Thrift 

Supervision. Any nonbank card issuers are overseen by the Federal Trade Commission for 

compliance with TILA.
Page 4 GAO-06-434 Credit Cards

Credit card users can be characterized into two groups—those who use 

their cards for purchases but consistently pay their outstanding balance in 

full every month (convenience users) and those who carry a balance on 

their cards (revolvers). Different data sources report that in 2004 revolvers 

represented between approximately 46 and 55 percent of cardholders. 

Various data sources indicate that the proportion of cardholders that pay 

only the minimum payment or slightly more than the minimum payment at 

any given time ranged from about 7 and 40 percent between 1999 and 2005, 

while issuers indicated that a small percentage of their cardholders (from 

less than 1 percent and up to 10 percent) make multiple consecutive 

minimum payments. According to a survey conducted by the Federal 

Reserve in 2004, the median balance for U.S. families that carried balances 

on bank-type credit cards was $2,200, and the average balance was $5,100.5

Each issuer determines the minimum payments that cardholders must pay 

each billing cycle to keep an account in good standing. Issuers calculate 

minimum payment amounts in a variety of ways, including as a set 

percentage of a cardholder's outstanding balance, or the sum of all interest 

and fees to be paid as well as some portion of the principal balance, among 

other ways. For example, some issuers calculate minimum payments as 1 

percent of the outstanding balance plus any finance charges and fees (such 

as late fees or over-the-limit fees) incurred for that billing period. 

Historically, required minimum payments generally averaged about 5 

percent of the outstanding balance, but these amounts declined to about 2 

percent in the last decade. The decrease in minimum payment rates 

lowered a cardholder’s monthly payment obligation, but also further 

delayed a cardholder’s repayment of principal. In some cases, the amount 

required for the minimum payment was not sufficient to cover all incurred 

interest or other transaction charges, which increased the outstanding 

balance. Concerns about such increases—known as negative 

amortization—as well as other practices compelled four federal banking 

regulators to issue guidance in January 2003 that stated that issuers should 

require minimum repayment amounts so that cardholders’ current

5

The Federal Reserve’s Survey of Consumer Finances is a triennial survey of the balance 

sheet, pension, income, and other demographic characteristics of U.S. families. The 2004 

survey was released in February 2006. 
Page 5 GAO-06-434 Credit Cards

balances would be paid off—amortize—over a reasonable period of time.6

The guidance was designed to discourage minimum payment formulas that 

result in prolonged negative amortization of accounts, a practice viewed by 

regulators as raising safety and soundness concerns. However, it is possible 

that a bank could satisfy a regulator’s expectations by requiring minimum 

payment amounts that represent less than the 5 percent of outstanding 

principal that previously was customary in the industry. According to a 

representative of the Office of the Comptroller of the Currency, by year-end 

2005, nearly all the issuers that it oversees (which includes the largest 

issuers in the United States) had controls in place to address concerns 

regarding negative amortization of credit card accounts.

As part of the Bankruptcy Act, issuers will be required to provide 

cardholders with information about the consequences of making minimum 

payments on outstanding credit card balances. More specifically, the act 

requires creditors to print on the billing statements of revolving credit 

products (of which credit cards are a form) a generic disclosure that 

“making only the minimum payment will increase the interest you pay and 

the time it takes to repay your balance.”7

 In addition to the generic 

disclosure, the law requires creditors to choose from two options for 

providing additional information to cardholders: (1) providing a toll-free 

telephone number that cardholders could use to obtain the actual number 

of months that it would take to repay their outstanding balance if they 

made only minimum payments or (2) providing an example of the length of 

time required to pay off a sample balance at an interest rate of 17 percent 

and a toll-free telephone number cardholders could call to get an estimate 

of the time required to repay their balances.8

 These requirements are 

intended to increase consumer awareness of the consequences of these 

types of payments. The Federal Reserve is currently establishing 

regulations to implement the new law, which it expects to complete in 

6

Credit Card Lending: Account Management and Loss Allowance Guidance (January 

2003), joint guidance issued under the auspices of the Federal Financial Institutions 

Examination Council by the Office of the Comptroller of the Currency (OCC Bulletin 2003-

1), Federal Reserve (Supervisory Letter SR-03-1), Federal Deposit Insurance Corporation 

(Financial Institution Letter, FIL-2-2003), and Office of Thrift Supervision (OTS Release 03-

01).

7

Bankruptcy Act § 1301, 15 U.S.C. §1637(b).

8

The specified balance is either $300 or $1,000, depending upon the size of the minimum 

payment required by the creditor (see also table 1). A creditor may elect to use an interest 

rate greater than 17 percent for purposes of the sample calculation.
Page 6 GAO-06-434 Credit Cards

2007.9 The minimum payment disclosure requirements will take effect 12 

months after the final regulations are published.10

While the Bankruptcy Act mandated that generic disclosures be made to 

consumers on their billing statements, some lawmakers had sought to 

require additional and more customized disclosures that would have 

provided each cardholder with customized information about the costs and 

time involved in paying off credit card balances resulting from habitually 

making only minimum payments. Amendments that would have mandated 

these customized disclosures failed to pass prior to the passage of the 

Bankruptcy Act. While the details vary, five bills were pending in Congress 

as of March 2006 that would mandate that issuers provide customized 

disclosures to consumers.11

Table 1 illustrates the differences between the disclosure options that 

issuers will be required to implement as a result of the Bankruptcy Act and 

an example of the type of customized disclosures that have been 

envisioned as part of various legislative proposals. 

9

According to Federal Reserve staff, the agency is conducting the rulemaking process for 

minimum payment disclosures in combination with its wholesale review of its open-end 

credit rules of Regulation Z, resulting in a longer time frame to issue the final regulations on 

minimum payment disclosures.

10Section 1301(b) of the Bankruptcy Act provides that the minimum payment disclosure 

requirements will take effect the later of October 20, 2006, or 12 months after the 

publication of final rules implementing the requirements by the Federal Reserve. However, 

as noted above, the Federal Reserve does not anticipate publishing final rules until after 

October 20, 2006.

11S. 393, 109th Cong. (2005), S. 499, 109th Cong. (2005), S. 1040, 109th Cong. (2005), H.R. 3492, 

109th Cong. (2005) and H.R. 3852, 109th Cong. (2005).
Page 7 GAO-06-434 Credit Cards

Table 1: Comparison of Disclosures Required under the Bankruptcy Act and a Potential Customized Disclosure

Sources: Bankruptcy Act and GAO.

a

The Bankruptcy Act allows issuers to provide one of the two options in cardholder statements.

b

The statutory sample calculations for the repayment period and the principal balance will vary 

depending on whether issuers (1) require a minimum payment of 4 percent or less, (2) require a 

minimum payment of more than 4 percent, or, (3) are regulated by the Federal Trade Commission with 

respect to compliance with TILA.

c

XX would contain a cardholder’s actual balance, number of months required to pay balance in full, and 

the total cost in principal and interest if only minimum payments were made. This customized 

disclosure would also include the monthly payment amount needed to repay balance in full in 3 years. 

These figures would be calculated using a cardholder’s actual balance, applicable interest rate(s), and 

other variables.

Information required to appear on cardholder billing 

statements under the Bankruptcy Acta

Information that could appear on 

cardholder billing statements with a 

customized disclosure

Generic disclosures Customized disclosure

Elements of 

disclosure

Minimum Payment 

Warning Statement 

Option

Minimum Payment Warning With 

An Example Option

Minimum payment 

warning

“Making only the minimum 

payment will increase the 

interest you pay and the 

time it takes to repay your 

balance.”

“Minimum Payment Warning: Making 

only the minimum payment will 

increase the interest you pay and the 

time it takes to repay your balance.”

“Minimum Payment Warning: Making only 

the minimum payment will increase the 

amount of interest paid and the length of 

time to repay the outstanding balance.”

Length of

repayment

“For more information, call 

this toll-free number: 

____________.”

The information required 

to be provided is the actual 

number of months that it 

will take the cardholder to 

repay his/or her 

outstanding balance.

“For example, making only the typical 

2% minimum monthly payment on a 

balance of $1,000 at an interest rate 

of 17% would take 88 months to repay 

the balance in full.”

“For an estimate of the time it would 

take to repay your balance, making 

only the minimum payments, call this 

toll-free number: _______________.b

“For example, your balance of [XX]c will take 

[XX] months to pay off...”

Total cost in principal 

and interest N/A N/A

“...at a total cost of [XX] in principal and 

[XX] in interest if only the minimum monthly 

payments were made.”

Monthly payment 

amount to pay off 

balance over a 

prescribed period

N/A N/A

“To pay off your balance in 3 years, you 

would need to pay [XX] monthly.”
Page 8 GAO-06-434 Credit Cards

An attempt to mandate customized disclosures on the consequences of 

making minimum payments also was made at the state level. In 2001, 

California enacted a law that required issuers to provide the state’s 

cardholders with more detailed information about making minimum 

payments.12 Issuers were required to provide one of two disclosure options. 

Both options required the issuer to provide a minimum payment warning. 

In addition to the minimum payment warning, one option required issuers 

to print an example of the length of time required to pay off a sample 

balance amount using a sample interest rate. Further, issuers were required 

to provide cardholders, via a toll-free telephone number, with information 

about both the length of time required and total cost of paying an 

outstanding balance if only minimum payments were made. The second 

option, which was mandated if a cardholder did not pay more than the 

minimum payment for 6 consecutive months, required issuers to print on 

the billing statement individualized information indicating an estimate of 

the number of years and months and the approximate total cost to pay off 

the total balance due, based on the terms of the credit agreement, if the 

holder were to make only the minimum payment. The disclosure also 

included a toll-free telephone number to a credit counseling referral 

service. In December 2002, the U.S. District Court for the Eastern District 

of California held that the state statute was preempted by federal law and 

determined that the law was inapplicable to all federally chartered banks, 

savings associations and credit unions.13 According to a staff attorney for 

the California Attorney General’s office involved in the case, the judge 

effectively invalidated the law for all issuers because federally chartered 

issuers held more than 95 percent of credit card debt in the state at the 

time, thereby compelling the state for fairness reasons to relieve all issuers 

from compliance with the law.

Results in Brief Credit card issuers and data processors appear capable of providing 

cardholders with customized information on the consequences of making 

only minimum payments, but adding such disclosures to cardholders’ 

statements would increase issuers’ costs. Representatives of credit card 

issuers and processors said they have the technological capability and data 

12California Assembly Bill No. 865 was approved by the Governor on October 10, 2001, with 

instructions to become effective July 1, 2002. The law was codified at California Civ. Code 

§1748.13.

13See American Bankers Assoc. et al. v. Lockyer, 239 F. Supp. 2d 1000 (E.D. Cal. 2002). 
Page 9 GAO-06-434 Credit Cards

in their information systems to calculate estimates of the time that would 

be needed to repay balances and other information that would use 

cardholders’ actual balances and interest rates. These estimates would 

incorporate various assumptions, including that no additional transactions 

would occur on a cardholder’s account. Calculations necessary for 

customized disclosures could also require choices about how to account 

for other variables that can affect the precision of the estimates produced, 

such as how to address cardholder balances that are subject to multiple 

interest rates. Because the calculations would involve these various 

assumptions and decisions, issuers said that any requirement to provide 

such disclosures should include legal protections against potential lawsuits 

about the “precision” of the calculations. The issuers and processors from 

which we obtained data were not able to provide precise estimates of costs 

for various reasons, including uncertainty about how the calculations 

would be required to be made and how the disclosures would be formatted. 

However, issuers and processors estimated that the three most significant 

costs for producing customized minimum payment disclosures would be 

the additional postage for mailing longer billing statements, computer 

programming necessary for the calculations, and handling of the increased 

number of cardholder telephone calls about such disclosures. Postage 

appears to be the largest cost. Estimates of the total first-year costs to 

implement customized disclosures varied widely across issuers, with one 

large issuer expecting to incur at least $9 million but another issuer 

expecting as much as $57 million. Because issuers already are obligated to 

bear some of these costs as part of implementing the minimum payment 

disclosures required by the Bankruptcy Act, the incremental costs of 

providing customized disclosures likely would be less than these estimates. 

Further, an industry analyst saw these costs as being very small in terms of 

the income and expenses of the largest issuers.

Cardholders and others generally found customized disclosures on the 

consequences of making minimum payments useful; however, opinions on 

the extent to which the disclosures would influence cardholders’ payment 

behavior varied. Among the 112 cardholders we interviewed, when offered 

a choice of receiving either a customized disclosure, the generic 

disclosures of the Bankruptcy Act, or no disclosure at all, 57 percent of the 

revolver cardholders—who typically carry balances on their cards and thus 

would be most likely to find information on minimum payment 

consequences useful—preferred to receive customized disclosures. While 

several convenience users—who pay their balances in full each month—

also preferred the customized disclosure, the majority (60 percent) said 

they would be satisfied with receiving either generic disclosures or none at 
Page 10 GAO-06-434 Credit Cards

all. Among the reasons that cardholders who preferred customized 

disclosures found them useful were that the information would be specific 

to their accounts, change based on their transactions, and provide more 

information than a generic disclosure. The cardholders who did not prefer 

customized disclosures told us that they did not need such information, for 

example, because they already understood the consequences of making 

minimum payments or because they paid their credit card balances in full 

each month. Although generally seen as useful by many of the cardholders, 

the impact of customized disclosures on cardholder payment behavior 

could vary. Consumer groups, financial educators, and many of the 

cardholders with whom we spoke indicated that customized disclosures 

would influence cardholders to make larger payments or change how they 

use their credit cards because such disclosures would be more noticeable 

than generic ones. However, customized disclosures might not affect the 

behavior of cardholders who make minimum payments because they may 

be financially unable to do otherwise. In addition, issuers’ representatives 

stated that providing customized disclosures to all cardholders would have 

limited impact for various reasons; for example, they saw only a small 

impact because the number of cardholders that routinely made only 

minimum payments on their accounts is small.

Issuers, consumer groups, and others suggested various alternatives to 

providing all cardholders with information on the consequences of making 

only minimum payments on each monthly billing statement. Alternatives 

included providing customized disclosures only to cardholders who 

revolve balances or make minimum or slightly higher payments; in a 

location other than the first page of the billing statement; or less frequently 

(such as quarterly or annually). Each of the alternatives presents various 

advantages and disadvantages for issuers and cardholders. For example, 

providing customized disclosures only to cardholders who revolve 

balances or make minimum or slightly higher payments could more 

effectively target persons who are more likely to need the information and 

reduce issuers’ postage costs. In addition, providing customized 

disclosures in a location other than the first page of the billing statement or 

providing such disclosures less frequently could lower programming and 

other implementation costs. However, these alternatives also could 

decrease the extent to which such disclosures affect cardholders’ behavior, 

because fewer cardholders would receive the information or could fail to 

notice it if the disclosure were removed from the first page of the billing 

statement. Other options included not providing customized disclosures 

but rather making greater use of generic examples or increasing financial 

education efforts. For example, issuers could provide generic examples (of 
Page 11 GAO-06-434 Credit Cards

the time required to pay off a balance and other information) for a range of 

balance amounts and present cardholders with the example that most 

accurately reflected their account. A final suggestion was to improve 

consumer awareness of the consequences of making minimum payments 

through greater financial education; for example, by including general 

information about the consequences of only making minimum payments in 

solicitation letters or the introductory package cardholders receive with 

credit cards. 

We provided a draft of this report to the Federal Deposit Insurance 

Corporation, the Federal Reserve, the Federal Trade Commission, the 

National Credit Union Administration, the Office of the Comptroller of the 

Currency, and the Office of Thrift Supervision for comment. The Federal 

Reserve, the Federal Trade Commission, and the Office of the Comptroller 

of the Currency provided technical comments that we incorporated where 

appropriate. The National Credit Union Administration provided written 

comments that agreed with our findings. This regulator also noted that 

costs of implementing customized disclosures could be significant for 

some small institutions and that considering options in how to implement 

such disclosures would be important.

Providing Cardholders 

with Customized 

Information Seen as 

Feasible but Doing So 

Would Increase Costs 

for Issuers

According to credit card issuers and others we interviewed, providing 

customized estimates to cardholders would be feasible. However, the 

precision of these estimates would depend upon the assumptions 

incorporated in the calculations needed to produce this information, which 

can vary based on decisions about how various factors are included. 

Issuers also said providing such information could expose them to legal 

liability and suggested a variety of regulatory actions to address these 

concerns. Although uncertainty about format and content prevented 

issuers and processors from providing precise cost estimates, they told us 

the largest individual cost components for large and small issuers appeared 

to be ongoing postage and call center operations, as well as one-time 

programming costs. Total projected costs to implement customized 

disclosures varied widely. However, issuers already are going to bear some 

of these costs to implement Bankruptcy Act disclosures; and, according to 

an industry analyst, the costs appear very small when compared with large 

issuers’ net income.
Page 12 GAO-06-434 Credit Cards

Issuers and Others Stated 

That Providing Customized 

Estimates Is Feasible but 

Could Increase Issuers’ 

Legal Liability

Issuers and others familiar with the proposed minimum payment 

disclosure indicated to us that providing cardholders with estimates of 

various consequences of making minimum payments would be possible. 

Representatives for all six large credit card issuers whom we interviewed 

acknowledged that their computer systems could be programmed to use 

individual cardholder account information to calculate estimates of the 

information envisioned to be disclosed. These calculations would include 

the amount of time required to pay off a cardholder’s specific balance if 

only the minimum payment were made, the total amount of interest 

incurred over that time, and the amount a cardholder would be required to 

pay each billing cycle to pay off an outstanding balance over a given period. 

Some credit card issuers and processors already had successfully 

developed the capability to produce tailored estimates for their 

cardholders as a result of customized minimum payment disclosures that 

had been required in California in 2002. One of these issuers developed this 

capability internally, while another used a third-party processor that 

developed this functionality for all its issuer clients to use.

Besides noting that they could produce customized disclosures, some 

issuers said they would prefer to provide customized rather than generic 

information to cardholders. For example, representatives for one large 

issuer told us they would prefer the Bankruptcy Act option that would 

require them to produce actual repayment times for cardholders, 

obtainable by calling a toll-free telephone number provided in billing 

statements. In a comment letter responding to the Federal Reserve’s 

advance notice of proposed rulemaking, a representative for another large 

issuer said that existing disclosure provisions should be implemented in 

such a way as to encourage issuers to provide customized information to 

cardholders. These two large issuers said they supported providing 

customized information to their cardholders because they believe 

cardholders would find it more relevant than generic information. A 

representative for one of these issuers also said the issuer would benefit 

because providing customized information over the telephone would 

require the shortest statement to be printed on a billing statement of the 

two options under the Bankruptcy Act and could be printed anywhere on a 

billing statement, which could be easier to implement.

Although generally having fewer resources than larger issuers, small banks 

that issue credit cards also could likely implement customized disclosures, 

but such a requirement could represent a larger burden for those that do 

not use third-party processors. A representative of a trade association 

representing community banks told us customized estimates would be 
Page 13 GAO-06-434 Credit Cards

feasible for small institutions because the work to implement such a 

requirement would be done largely by the third-party processors already 

used to manage cardholder data and process billing statements.

14 

According to staff of the National Credit Union Administration and the 

Federal Deposit Insurance Corporation who were familiar with the 

operations of smaller financial institutions offering credit cards, most small 

issuers use third-party processors to assist with card operations because 

the small issuers lack the resources to provide such a product themselves. 

For example, small issuers typically assign only one or two people to 

manage their credit card programs that, according to representatives of a 

third-party processor, would not be adequate for managing the technical, 

legal, and compliance issues that would be required to provide the 

proposed customized disclosure. However, small institutions benefit from 

economies of scale by working through third-party processors. For 

example, a representative for a third-party processor with thousands of 

small-bank clients told us that the processor requires all small institutions 

to use the same billing statement format or template. Therefore, changes 

made by the third-party processor to the billing statement template would 

apply to all clients using that template. In this case, the processor’s costs to 

modify the template would be spread across its client base. A 

representative from a federal banking regulator told us that if issuers 

discontinue a credit card program upon the implementation of new 

disclosure requirements, it would likely be because the program had been 

marginally profitable or unprofitable even before the requirements took 

effect.

Assumptions and Calculation 

Methods Can Affect the 

Precision of Customized 

Estimates

Issuers and others told us the calculations needed to produce customized 

information require the incorporation of certain assumptions, and their 

precision can vary depending on various choices that can be made as part 

of these calculations. The calculations needed to produce customized 

information require assumptions about future cardholder behavior or 

changes in account terms. For example, an estimate of the time required to 

pay off a cardholder’s current balance would assume that the cardholder 

does not make more purchases with the card. Any subsequent increase to a 

cardholder’s outstanding balance would lengthen the repayment period and 

also likely increase the total amount of interest to be paid for a cardholder 

making minimum payments. Additionally, the estimates produced would 

assume that a consumer continuously paid exactly the minimum payment 

14Community banks are independent, locally owned and operated institutions with assets 

ranging from less than $10 million to multibillion dollar institutions.
Page 14 GAO-06-434 Credit Cards

and that payments would be made by the due date. Other assumptions 

would address potential changes in account terms. For example, 

calculations would assume that the interest rate applied to the cardholder’s 

balance remained constant. However, changes in future interest rates are 

likely, and such changes could affect the time required to fully repay a 

given balance. Similarly, the estimates produced would assume that the 

formulas issuers use to allocate payments to the various balances subject 

to different interest rates, among other things, also would stay the same. 

In addition to these assumptions, the choices that lawmakers, regulators or 

issuers make about calculation methods also affect the precision of the 

customized estimates.15 These choices include how issuers compute 

minimum payment amounts or finance charges, among other things. For 

example: 

• Minimum payment formulas vary among issuers and each issuer could 

have as many as six different methods for determining the minimum 

payment on a single account. Some card issuers calculate minimum 

payment amounts as a set percentage of a cardholder’s outstanding 

balance, while others include all interest and fees to be paid as well as 

some amount of the principal balance. Further, issuers differ in their 

absolute minimum payment amounts (e.g., $10, $15, $20). Estimates 

based on each firm’s actual formula for calculating minimum payments 

therefore would differ from estimates calculated using a standard 

formula for all issuers.

• Many issuers have credit cards that charge different rates for different 

types of transactions, such as purchases, cash advances, or balance 

transfers from other credit cards. Estimates that require issuers to 

incorporate the various interest rates that apply to their cardholders’ 

outstanding balances would differ from those based on formulas that 

assume a single interest rate, including ones using a composite rate.

As a result, if lawmakers or regulators mandated use of a standardized 

calculation to prepare customized minimum payment estimates, 

15The regulatory approach as to how to produce customized information has yet to be 

determined. As of April 2006, the Federal Reserve was in the process of determining how 

issuers should implement provisions of the Bankruptcy Act requiring them to provide 

consumers with information over the telephone that would be customized to their accounts 

about the length of time required to repay an outstanding balance if only minimum 

payments were made.
Page 15 GAO-06-434 Credit Cards

cardholders could receive less precise estimates. In contrast, requiring 

issuers to calculate estimates using actual interest rates—including cases 

in which multiple interest rates apply to different portions of a total 

balance—and include other information that specifically reflects each 

issuer’s own terms and practices likely would lead to more precise 

estimates. 

Because some issuers saw the assumptions that must be incorporated into 

the calculations for customized minimum payment disclosures as 

unrealistic, they and others questioned whether such disclosures provided 

useful information. For example, some issuer representatives noted that 

the customized disclosures presented estimates that would be accurate 

only as long as cardholders did not make further purchases and the interest 

rate on the card remained constant. However, issuers said that such 

situations were not representative of most cardholders’ behavior or today’s 

credit environment. Some issuers mentioned that, for these reasons, the 

Bankruptcy Act disclosure options were a good compromise between 

Congress and the industry. As a result, issuers and others stated that these 

disclosures deserve a chance to work before further, more detailed 

disclosures are required. 

Issuers See Shelter from Legal 

Liability as Important for 

Providing Customized 

Disclosures

According to some issuers and a third-party processor, providing 

customized estimates to cardholders could expose card issuers to 

increased legal risk. Because of the imprecise nature of customized 

minimum payment estimates, some issuers expressed concerns about 

facing lawsuits. For example, some issuer representatives told us that 

issuers were concerned about being held responsible for adverse 

consequences experienced by cardholders who misinterpreted the 

estimates, which incorporate certain assumptions and calculation choices 

that affect their precision. Issuers and others said litigation (e.g., class 

action lawsuits) could arise out of such misinterpretations and subject 

issuers to significant legal costs, even if they took reasonable actions under 

the guidance to provide cardholders with customized information. A 

representative of a trade association for community banks told us the 

threat of legal liability would be more onerous for small issuers.

The extent to which requiring customized disclosures would increase 

issuers’ legal risk is not certain because cardholders’ ability to sue can vary. 

For example, under TILA provisions, class action lawsuits are not available 

to cardholders with grievances under the minimum payment disclosure
Page 16 GAO-06-434 Credit Cards

requirement added by the Bankruptcy Act.16 However, TILA provides 

cardholders with a private right of action against issuers, which could 

make issuers that failed to comply with the minimum payment disclosure 

requirements liable for actual losses incurred by cardholders.17 In addition, 

an Office of the Comptroller of the Currency official told us that the 

possibility exists that a cardholder may have a private right of action 

against an issuer for erroneous disclosures under a state’s consumer 

protection law.

Although various “safe harbor” provisions in TILA already protect issuers 

from unintentional errors resulting from good-faith efforts to comply with 

rules and regulations, organizations we interviewed suggested a variety of 

additional legal protections if disclosure requirements were to change. For 

example, a representative for an issuer suggested that issuers could use 

calculation methods previously deemed acceptable to the Federal Reserve. 

Issuers that performed calculations according to the approved methods 

would be considered in compliance with the disclosure requirements. Also, 

issuer representatives and a representative of a consumer interest group 

said that the estimates that issuers calculate could be subject to a tolerance 

test, which would give issuers a margin of error (e.g., a few months) within 

which the estimates could be deemed accurate. Another legal protection 

could involve determining whether issuers followed required steps—

according to defined assumptions and calculation methodologies—to 

calculate the customized information. For example, regulation could 

establish parameters for the calculations, such as how to treat accounts 

with multiple interest rates. However, a representative of a consumer 

interest group and credit card processor cautioned that while a higher level 

of standardization of the calculations could help protect issuers from 

lawsuits because expectations would be clearer, standardized calculations 

might not be sufficient to reflect variation in the terms and conditions of 

various credit card products. 

16See 15 U.S.C. 1640(a).

17See TILA §130, 15 U.S.C. 1640.
Page 17 GAO-06-434 Credit Cards

Issuers Identified Three 

Significant Costs to 

Implement Customized 

Disclosures, but Estimates 

of Total Costs Varied Widely

Although not certain about the form and content of a customized minimum 

payment disclosure, issuer and processor representatives were able to 

identify the implementation components that likely would be the most 

costly, including postage, computer programming, and call center 

operations. However, the estimates of the total implementation costs 

varied widely. Further, issuers already would incur some portion of the 

costs to provide customized disclosures in providing the Bankruptcy Act 

disclosures; thus, not all of the cost estimates we obtained represent the 

cost of customized disclosures exclusively.

Credit card issuers and processors—the entities with the best data about 

the cost to implement customized disclosures—were unable to provide 

precise cost estimates for a variety of reasons. First, factors affecting 

actual paper and postage costs cannot be determined until a law requiring a 

customized disclosure is enacted and implementing regulations issued. 

Such factors could include how customized disclosures would be 

formatted (e.g., font size, spacing) and where such disclosures would be 

required to be placed in the billing statement (e.g., front page, leaflet). 

Second, decisions about calculation methods and the treatment of 

variables could affect estimates for programming computers. For example, 

representatives for two large issuers told us that if issuers had to make 

complex calculations, actual programming costs could be as much as four 

to five times higher than if simpler calculations were required. Third, some 

issuers were uncertain of the costs that would be incurred outside their 

own organizations, for example, by third-party processors. Accordingly, 

some issuers generated estimates based on previous experiences (such as 

implementing similar requirements) or by making assumptions about 

implementation requirements, such as the required location and length of a 

disclosure.

Increased Postage Represents 

One of the Largest Cost 

Components

Two large issuers and two third-party processors provided us with 

estimates of postage costs, which they said would be potentially the 

highest cost item to implement a customized disclosure. Postage cost 

increases could occur if adding the disclosure also added an additional 

page to the monthly statement. This added weight could move the 

statement into a higher postage category. Adding a page to billing 

statements could increase postage costs because, as one large issuer 

explained, issuers generally manage the amount of information they 

include in their mailings to meet a 1-ounce limit, which according to a 

representative of a third-party processor costs on average $0.30 per 

statement to mail. The incremental cost of moving from a 1-ounce bulk 
Page 18 GAO-06-434 Credit Cards

postage rate to a 2-ounce rate would be on average about $0.23, or almost 

an 80 percent increase, according to representatives for two third-party 

processors. However, requiring that additional information be included in a 

billing statement would not necessarily push all billing statements into a 

higher postage category because issuers add and remove information (such 

as advertising) from statements to meet weight limits, according to 

representatives for some issuers. According to representatives of a thirdparty processor, postage rates for small issuers that mail statements 

through third-party processors would be relatively the same as for large 

issuers. A representative of another third-party processor told us small 

issuers get the same bulk postage rates as large issuers because their 

mailings are combined. Postage rates decline as more statements make up 

a mailing. However, postage costs for small issuers that mail statements at 

retail rates would be higher. We were unable to determine the proportion of 

small issuers that use retail postage rates.

According to issuers and processors, additional postage arising from 

implementing customized minimum payment disclosures for a large issuer 

could be as high as about $14 million annually. We obtained postage cost 

estimates from representatives for two large issuers that mail up to 50 

million statements each month.

• According to one of these issuers, annual postage costs could increase 

up to about $5 million if all cardholders were required to receive the 

customized information envisioned in a proposed disclosure on the first 

page of every billing statement. We estimated this to be an increase of 

about 5 percent to annual postage costs for mailing billing statements.18

• Representatives for the other issuer told us their postage costs could 

increase by as much as about $14 million annually to implement 

customized disclosures on the first page of billing statements. We 

estimated this to represent about an 8 percent increase to the issuer’s 

annual postage costs to mail billing statements. The representatives 

estimated these disclosures to be twice the length of a generic 

18To calculate percentage changes, we first estimated the issuer’s current mailing costs by 

multiplying the number of statements the issuer mailed each month by 12 to determine the 

total number of statements mailed each year, and then multiplied this number by the 

average postage rate of $0.30 for a 1-ounce mailing. We divided the issuer’s estimated 

increase in postage cost by the total annual postage cost that we calculated to arrive at the 

percentage increase that could occur to implement a customized disclosure.
Page 19 GAO-06-434 Credit Cards

disclosure, thereby forcing more than 20 percent of statements to 

require an additional page.

Differences in these estimates are attributable to the number of billing 

statements that the issuers estimated would require additional postage, 

which differs across issuers depending on the format of their statements 

and the assumptions they made about formatting for the proposed 

disclosure. 

Although estimated postage cost increases appear to constitute the largest 

component of projected implementation costs, issuers usually incur much 

higher postage costs for other purposes. For example, a credit card 

industry analyst told us postage costs for mailing statements are 

insignificant when compared with the expense per issuer of mailing about 

4-5 billion solicitations each year, a typical amount for the largest card 

issuers. In contrast—based on our analysis of CardWeb.com, Inc., data—

we estimate that even the largest issuers mail less than 1 billion statements 

per year. Also, postage costs could decline as the number of cardholders 

receiving billing statements in electronic formats increases. 

Representatives for some issuers told us that the proportion of cardholders 

receiving statements in an electronic format is small, but growing. 

According to representatives of one large issuer, between 2002 and 2004, 

electronic statement use among their cardholders increased about 85 

percent, and 6 to 12 percent received statements electronically. 

Representatives for a smaller issuer told us that about 10 percent of its 

cardholders used the issuer’s Web site to get information about their card 

accounts.

Programming Modifications Are 

Also Likely to Be a Major 

Implementation Cost 

Component

According to issuers and others, expenses related to programming 

computer systems to develop tailored estimates would be another major 

cost of implementing customized disclosures. Programming costs are onetime costs for designing, testing, and implementing computer code. Once in 

place, the new or revised programs would use cardholder account data to 

provide estimates of the repayment period, total interest costs, and 

monthly payment amount to pay off a balance if only minimum payments 

were to be made. Issuers’ programming costs would arise from the time 

their own information technology staff spend making systems 

modifications or from the increased expenses from the use of third-party 

processors, which maintain information systems that store issuers’ 

cardholder account data as well as develop, print, and mail billing 

statements.
Page 20 GAO-06-434 Credit Cards

Estimates for programming generally were $1 million or less and depended 

on the complexity of the required calculations and issuers’ information 

systems. For example, representatives of a large issuer and a card 

processor representing over one thousand large and small issuers told us 

the up-front costs to develop and program computer code for a customized 

disclosure would cost about $500,000 but could cost as much as $1 million 

for more complex calculations. In providing us with estimates, we asked 

issuers and third-party processors to assume that calculations would 

reflect issuers’ actual account terms and practices at the time the 

information was produced, including interest rates, account balances, and 

methods for calculating finance charges and minimum payments. However, 

representatives for the same large issuer told us programming costs could 

be as much as $5 million for the most complex calculations—for example, 

a calculation that would require issuers to factor in such situations as 

temporary zero percent promotional interest rates. We obtained estimates 

from others for programming under the Bankruptcy Act provisions, which 

only require one calculation to estimate a cardholder’s repayment period. 

These estimates were generally less than $500,000. For example, one lender 

stated in a comment letter to the Federal Reserve that such programming 

would cost about $412,500.

Estimated programming costs for smaller issuers that use third-party 

processors were lower than for large issuers. We obtained estimates for 

programming the customized provisions under the Bankruptcy Act from a 

processor and a medium-sized issuer. A representative of the processor 

estimated it would cost about $300,000 to modify information systems to 

accommodate the Bankruptcy Act disclosure option requiring issuers to 

provide an estimate of the repayment time. According to the 

representative, this cost would be spread across the processor’s small- and 

medium-size issuer client base of about 5,000 issuers. In addition, 

representatives for a medium-sized issuer told us it would cost the issuer 

$5,000 to $10,000 to have its third-party processor modify its information 

systems to accommodate customized provisions contained in the 

Bankruptcy Act. They further noted that it would cost about $150 per hour 

to hire a processor to program the other two messages that are envisioned 

to be included in customized disclosures.

Costs for programming would vary depending on the level of precision that 

would be required and the complexity of an issuer’s account practices. 

Some issuers have more complex pricing schemes that could increase the 

programming required to develop estimates that more closely reflect a 

cardholder’s situation. For example, as noted above, many large issuers 
Page 21 GAO-06-434 Credit Cards

engage in transaction-based pricing, in which different rates of interest 

apply to balances originating from different transactions (such as 

purchases, cash advances, or balance transfers). Programming a 

calculation that accounts for a variety of balances at different interest 

rates, while more precise, is more complex than a calculation that uses one 

balance and one interest rate. Adding further to the complexity, with 

multiple balances and interest rates, decisions would need to be made 

about the order in which to allocate cardholder payments to the 

outstanding balances. 

A smaller portion of the programming estimates we received was for 

reformatting billing statements to accommodate the text of the disclosure. 

Issuers use various formats or templates to present cardholders with 

information about their accounts, including transactions, payment due 

dates, and rewards program information. Issuers may also use different 

templates for different card programs, such as cards with rewards (e.g., 

cash-back or travel benefits) or private-label cards associated with major 

retailers. The issuers use an average of three statement templates, with the 

smallest issuers using just one and the largest issuers using as many as 100 

templates, according to representatives of third-party processors serving 

large and small issuers. One representative estimated one-time costs of 

about $13,500 per issuer, assuming three templates required revision. 

Programming costs for small issuers would generally be the same on a perunit (statement template) basis. However, a representative of another thirdparty processor told us reformatting costs would be substantially lower for 

small issuers because the processor requires all small issuers to use the 

same statement template, thereby spreading reformatting costs across the 

thousands of institutions using that statement.

Need for Expanded Customer 

Service Resources Would Also 

Increase Issuer Costs

Issuers estimated that call-center costs would increase following the 

implementation of customized disclosures because the centers would 

receive more and longer telephone calls from customers. One large issuer 

told us its costs could increase by about $3 million in the first few months 

following implementation of customized disclosures. However, this issuer 

said these calls likely would taper off after cardholders became familiar 

with the customized information. In addition, an issuer in a comment letter 

to the Federal Reserve noted that the Bankruptcy Act requirements would 

increase call volume and duration, which could increase its expense for 

servicing customer calls by about $900,000 monthly. As part of preparing 

to implement the California disclosure requirements, six large issuers 

estimated incurring expenses averaging about $680,000 monthly to operate 
Page 22 GAO-06-434 Credit Cards

a telephone bank upon implementing minimum payment disclosures in 

California. 

Estimates of Total 

Implementation Cost Varied 

Widely

Perhaps reflecting the uncertainties and range of assumptions noted above, 

the estimates that we obtained of total first-year costs ranged from $9 

million to $57 million for large issuers. For example, representatives of one 

issuer estimated that postage, programming, and customer service costs 

could total approximately $9 million, but also noted that the issuer could 

incur additional costs, such as training staff and retaining legal services to 

keep abreast of regulatory changes and court decisions that could affect 

compliance. 

Not all issuers from whom we obtained data were able to provide total 

estimates based on individual implementation cost components. Instead, 

these issuers provided us with only aggregated estimates based on their 

experiences in implementing California’s minimum payment disclosure 

requirements; and these estimates generally were higher than those 

provided by another issuer and two processors that estimated individual 

component costs. For example, representatives of one large issuer 

estimated the company would have spent a total of $57 million in the first 

year following implementation had it implemented the California 

requirements, which roughly resembled portions of the customized 

disclosure we studied. The issuer separated this estimate into two 

categories of one-time, start-up costs and ongoing costs. The one-time 

costs would be about $30 million, which would include programming 

computer systems and modifications to customer service systems, among 

other things. Ongoing costs would be about $27 million annually, including 

postage and handling a higher number of calls from cardholders, among 

other things. In documents filed with a federal district court, three large 

issuers estimated it would cost them about $41 million each in the first year 

to implement California’s customized disclosure requirements.

19 Of this 

amount, about $18 million would pay for one-time, start-up costs with the 

remaining $23 million for ongoing costs.

Issuers Already Slated to Incur 

Some of These Costs, Which Are 

Small Relative to Net Income

As noted above, impending minimum payment disclosure requirements 

under the Bankruptcy Act could soon require issuers to make programming 

and billing statement changes that could consequently reduce estimated 

19Although court documents contained cost estimates for six large issuers, we relied on the 

court documents to represent cost data for just three issuers because we obtained more 

recent cost estimates for the other three issuers mentioned in the documents.
Page 23 GAO-06-434 Credit Cards

costs to implement any additional customized disclosures. For example, 

one Bankruptcy Act option would require issuers to produce actual 

information about a cardholder’s repayment period if only minimum 

payments were made and make this information available to cardholders 

over the telephone. Programming expenses made up front to meet that 

requirement could reduce the programming costs for implementing 

customized disclosures. Also, estimated increases to postage costs 

associated with a new customized disclosure requirement may be 

overstated in that they do not account for increased postage costs issuers 

will already have incurred for implementing the Bankruptcy Act 

requirements.

Because the cost estimates we obtained were not comprehensive, it is not 

possible to ascertain how additional customized minimum payment 

disclosure requirements would affect issuers’ overall profitability. 

However, the costs of implementing customized disclosures do not appear 

to be significant in terms of large issuers’ net income. According to a credit 

card industry analyst, estimates for implementing the customized minimum 

payment disclosures are insignificant to issuers and easily would be 

absorbed. The analyst noted that estimates for start-up and ongoing costs 

in the first year would be so small that they would be the equivalent of a 

rounding error in terms of net income. 

Comparing these estimated implementation costs with issuers’ operating 

expenses also indicated that such costs might not significantly increase 

their operating expenses. To determine how estimates of the costs to 

implement customized disclosures—which ranged from $9 million to $57 

million—would affect the operating expense of the issuers that provided us 

with these estimates, we identified operating expenses and amounts in 

outstanding credit card loans from financial reports and data the issuers 

provided to us.20 By adding the estimates of total implementation costs to 

the amount each issuer reported in operating expenses, we found that the 

ratio of their operating expenses to their outstanding credit card loans—a 

metric commonly used by industry analysts—would stay the same or 

increase slightly.

21 For example, we found that the issuer that provided us 

20We obtained financial data from 10-K statements filed with the U.S. Securities and 

Exchange Commission for calendar year 2004, as well as from the Federal Deposit 

Insurance Corporation’s Call Report database.

21Operating expenses include items such as credit processing, call center servicing, billing, 

collections, fraud management, and card issuance.
Page 24 GAO-06-434 Credit Cards

with a $9 million estimate for total implementation costs for the first year 

would experience no change to its operating expense ratio. The issuer that 

provided us with a $57 million estimate would experience an increase in 

current ratio from approximately 3.3 percent to about 3.5 percent. 

According to CardWeb.com, Inc., monthly operating expense ratios for the 

150 issuers that it monitors generally averaged between 4.2 and 

approximately 6.0 percent from January 2001 to December 2005.22

Customized Disclosure 

Was Seen as Useful, 

but Its Impact on 

Cardholders May Vary

Most of the revolver cardholders—those that carry a balance on their credit 

cards—who we interviewed preferred to receive a customized disclosure 

on minimum payment consequences. Although some convenience users 

also preferred a customized disclosure, most saw generic disclosures or no 

disclosure at all as sufficient for their needs. Those preferring the 

customized disclosure did so because it would be cardholder-specific, 

change each month based on account transactions, and provide more 

information than the two Bankruptcy Act options. However, opinions as to 

how the customized disclosure would influence cardholder behavior 

varied, with some believing that such a disclosure would have a great 

impact and others believing that it would have little impact.

Revolvers Preferred 

Customized Disclosures

To assess the usefulness of providing a customized disclosure to 

cardholders, we interviewed 112 adult cardholders and asked for their 

preferences for three disclosure statements—the two generic disclosure 

options from the Bankruptcy Act and an example of a proposed customized 

disclosure—or no disclosure at all. We categorized the cardholders into 

two groups, of 38 convenience users and 74 revolvers, based on their 

responses to questions about their credit card payment behaviors.23 The 

cardholders recruited for the interviews did not form a random, 

statistically representative sample of the U.S. population. As described in 

table 1 (in the background section), the two generic disclosure options 

shown to cardholders include one that contains a minimum payment 

22CardWeb.com, Inc., data for operating expense ratios are derived from a database of 

approximately 150 active issuers representing 97 percent of total credit card loans held by 

issuers.

23Revolvers represented 66 percent of the cardholders we interviewed and convenience 

users represented 34 percent. This distribution does not represent, nor was it intended to 

reflect, the overall U.S. population of cardholders.
Page 25 GAO-06-434 Credit Cards

warning statement only, and another that contains a minimum payment 

warning statement and an example of the amount of time needed to pay off 

a sample balance. Table 1 also includes an example of a customized 

disclosure, similar to the one that cardholders were shown.

Revolvers generally preferred to receive a customized disclosure about the 

consequences of making minimum payments. Specifically, more than half 

of the revolvers (42 out of 74) choose to receive the customized disclosure 

over the two Bankruptcy Act disclosure options or no disclosure at all (see 

fig. 1). 

Figure 1: Extent to Which 74 Credit Card Revolvers Preferred and Found Useful a Customized Minimum Payment Disclosure

Note: Percentages may not total to 100 percent due to rounding.

As figure 1 shows, the revolvers—including some for whom the customized 

disclosure was not the preferred option—also generally found the 

information contained in the customized disclosure to be useful. Sixtyeight percent (50 out of 74) of the revolvers found the customized 

disclosure either extremely or very useful, while 23 percent (17 out of 74) 

found the customized disclosure slightly useful or not useful at all.

Customized

disclosure

Generic - Minimum 

payment warning 

with an example

Generic - Minimum

payment warning 

statement

No

disclosure

Generic disclosures

Type of disclosure preferred Utility of customized disclosure

Source: GAO.

14%

11%

19%

57% 30%

Slightly/not

useful

Moderately

useful

Extremely/

very useful

68%

23%

9%
Page 26 GAO-06-434 Credit Cards

Although Several 

Convenience Users Also 

Preferred a Customized 

Disclosure, Most Did Not 

Believe They Needed to 

Receive Such Information

Although more convenience users preferred the customized disclosure to 

either of the generic ones, the majority (60 percent) were satisfied with 

receiving a generic disclosure or no disclosure at all. The number of 

convenience users preferring the customized disclosure (15 out of 38) was 

equal to the total number who preferred the generic disclosures. 

Figure 2: Extent to Which 38 Credit Card Convenience Users Preferred and Found Useful a Customized Minimum Payment 

Disclosure

Note: Percentages may not total to 100 percent due to rounding. The individual percentages for the 

two generic disclosures also do not total to the combined percentage due to rounding.

As shown in figure 2, while 37 percent (14 out of 38) of convenience users 

found the customized disclosures extremely or very useful, 55 percent (21 

out of 38) found it slightly useful or not useful at all.

Customized

disclosure

Generic - Minimum 

payment warning 

with an example 

Generic - Minimum 

payment warning 

statement

No

disclosure

Generic

disclosures

Type of disclosure preferred Utility of customized disclosure

Source: GAO.

16%

21%

39%

39%

Slightly/not

useful

Moderately

useful

Extremely/

very useful

55%

8%

37%

24%
Page 27 GAO-06-434 Credit Cards

Revolvers and Convenience 

Users Cited Similar Reasons 

for Preferring the 

Customized Disclosure, but 

Not All Cardholders Wanted 

This Information

The reasons given by both revolvers and convenience users for preferring 

the customized disclosure generally were similar. Many of the cardholders 

who preferred the customized disclosure or thought that it was more useful 

than a generic disclosure said they did so because the information provided 

would be specific to their account and change each month, based on their 

transactions. For example, if issuers were providing a customized 

disclosure, the information on the monthly billing statements would take 

into account any changes in customers’ accounts that occurred since the 

previous billing cycle, including new purchases, payments received, 

changes in interest rates, and any fees that might have been assessed. The 

customized disclosure, therefore, would provide cardholders with a new 

“snapshot” of their account each month, as of the date the bill was 

calculated. Many of the cardholders noted that, even if the information was 

outdated by the time they received it (e.g., if they had made additional 

purchases), just having an idea of the payments needed to pay off their 

balances would be helpful. One respondent noted that she found the 

customized disclosure more useful than the generic example in the 

Bankruptcy Act disclosure because, even though her issuer cannot 

anticipate future purchases or changes in her interest rate, the customized 

disclosure still would be closer to reality. Some respondents also found the 

dynamic nature of the disclosure helped them understand the 

consequences of making minimum payments more than the generic 

examples because they would be better able to see how purchases or 

payments made on their account affected their repayment estimates. 

Additionally, some respondents noted that because the customized 

disclosure would be updated each month they could track their account 

and use the information for budgeting or financial planning purposes. 

Although issuers and others stated that the information would not be 

practical for cardholders because the estimates would assume no activity 

on the account, we did not find that the cardholders we interviewed 

believed this limited the usefulness of the customized information. In fact, 

after we explained to cardholders that the customized disclosure would 

represent only a point-in-time estimate and that the information would 

change if there were additional activity on their account, 79 percent (89 of 

112 cardholders) found the customized disclosure more useful than the 

generic example in one of the Bankruptcy Act options.

Customized Disclosures Provide 

Cardholders with Additional 

Information

Cardholders also preferred a customized disclosure because such a 

disclosure provided them with new and additional information. We found 

that the majority of cardholders already demonstrated a basic 
Page 28 GAO-06-434 Credit Cards

understanding of the consequences of making only minimum payments. 

For example, 68 percent of the cardholders could explain that both the 

length of time and amount of interest they would pay would increase if they 

made only minimum payments. An additional 29 percent of respondents 

could name at least one of these two consequences. Because many 

cardholders already understood that making only minimum payments 

could be harmful to their financial condition, the information provided by 

either of the Bankruptcy Act disclosures would not be new to the 

cardholder. One cardholder told us that he preferred the customized 

disclosure because he already understood the concept addressed in both 

Bankruptcy Act disclosure options; however, the customized disclosure 

provided him with personalized details that he found helpful. Another 

cardholder mentioned that the customized disclosure gave him a “plan,” 

whereas the other two options were “merely warnings” and would not tell 

him anything he did not already know.

In addition to providing cardholder-specific information on the length of 

repayment, a customized disclosure also could include information on the 

total amount of interest a cardholder would pay if only minimum payments 

were made, and the monthly payment amount needed to repay the balance 

over some time period (e.g., 3 years). During our interviews, several 

cardholders told us that seeing such information would be useful to them. 

For example, some cardholders told us they found the information on the 

monthly amounts needed to repay the balance over a time period to be the 

most useful part of the disclosure because it provided them with a plan for 

how to pay off their balances. 

The majority of cardholders we interviewed (57 percent) indicated that 

they were unlikely to take the initiative to call the toll-free telephone 

numbers required by the Bankruptcy Act, and many indicated that they had 

not calculated the information on their own to obtain individualized 

information. Therefore, if the customized disclosure were not provided 

directly on their billing statement, they would be unlikely to receive any 

individualized information at all. In fact, many cardholders mentioned that 

they liked the customized disclosure because it eliminated the need for 

them to calculate the information on their own or call a toll-free telephone 

number. Additionally, most of the cardholders were not aware of or using 

existing tools such as amortization calculators that are available on the 

Internet. Only 41 percent of cardholders were aware of these calculators, 

and only 33 percent of those who were aware of the tools had used them. 

Also, according to financial educators, it is important to provide 
Page 29 GAO-06-434 Credit Cards

customized disclosures because most cardholders are not able to calculate 

amortization periods and total interest payments correctly.

Some Cardholders Saw Limited 

Need to Receive Customized 

Disclosures

Not all of the cardholders chose to receive the customized disclosure or 

found the information that it contained useful. As shown in figures 1 and 2, 

30 percent (22 of 74) of the revolvers and 39 percent (15 of 38) of the 

convenience users preferred to receive one of the two Bankruptcy Act 

options. Some of these cardholders explained that they thought the generic 

disclosures mandated by this act were simpler and easier to understand. 

Others indicated that the example provided in one of the Bankruptcy Act 

options gave them a good understanding of the consequences of making 

minimum payments, without having to see specific estimated numbers 

based on personal account information. Other cardholders specifically 

stated that they found the customized disclosure confusing, and some 

noted that having the option to call the toll-free number if they wanted 

additional information was sufficient. 

Finally, some cardholders preferred not to receive any disclosure on the 

consequences of making minimum payments, primarily because they 

already understood the consequences of making minimum payments. Some 

cardholders were concerned that issuers would pass on to them the costs 

associated with providing customized disclosures. Other cardholders told 

us they probably would not pay attention to the disclosure or that they 

would not read it because they did not read their credit card statements. 

This report does not contain all the results from the interviews. The 

interview guide and a more complete tabulation of the results can be 

viewed at GAO-06-611sp.

Customized Disclosures’ 

Impact on Cardholders May 

Vary

Opinions varied on how effective customized disclosures would be in 

influencing cardholder behavior. Consumer groups, financial educators, 

and many of the cardholders we interviewed indicated that considerable 

benefits might result from providing cardholders with customized 

disclosures. Such benefits could include cardholders making larger 

payments or otherwise changing how they use their credit cards. 

Customized disclosures might have greater impact because they would be 

more noticeable than other disclosures. For example, a consumer group 

representative and financial educator told us that cardholders generally are 

more likely to notice a customized disclosure over a generic one. They 

compared providing the generic Bankruptcy Act disclosures on 
Page 30 GAO-06-434 Credit Cards

cardholders’ billing statements to providing smokers with the Surgeon 

General’s Warning on a cigarette pack, and noted that once cardholders 

become familiar with a generic minimum payment disclosure, they are 

likely to ignore it and not be influenced by the information that it contains. 

The risk of a repeated and identical disclosure being ignored appears real, 

as some of the cardholders we interviewed said that after seeing the 

generic Bankruptcy Act disclosures a few times they probably would stop 

reading them. In contrast, cardholders told us that that they would be more 

likely to notice customized information each month. Representatives from 

some consumer groups and other organizations told us that, because the 

example contained in one of the generic Bankruptcy Act disclosures 

contains a sample balance and interest rate that is not reflective of most 

cardholders’ accounts, cardholders likely would dismiss it entirely because 

they would assume it did not apply to them. 

Customized disclosures also were seen as having a potentially significant 

impact on cardholder behavior because they would provide information

that changes as the cardholder’s situation changes. For example, one 

representative of a third-party credit card processor told us that she 

believes that if cardholders were shown information that changed each 

month according to the actions they took, they then would be more likely 

to change their behavior. Many of the cardholders also indicated that a 

customized disclosure would be more influential than a generic disclosure 

in causing them to consider increasing monthly payments. For example, 

one respondent said that during the months when she might not pay her full 

balance, seeing the customized disclosure would make her want to “scrape 

together more money from savings” to make a larger payment. Additionally, 

another respondent noted that the customized disclosure would influence 

him to take disposable income and put it toward his credit card balance. 

Another said that seeing the amount of interest he was paying would make 

him want to pay off the balance sooner. Additionally, two of the 

cardholders we interviewed told us that seeing new information every 

month would help them make decisions for the future and might change 

the way in which they used their credit cards. 

However, others, including issuer representatives and industry researchers, 

indicated that customized disclosures might not be effective in changing 

consumer behavior. They noted that not all cardholders need the 

information provided in the customized disclosure. For example, while 

customized disclosures could provide convenience users with illustrative 

information, the cardholders—by paying their balances in full each 

month—already are modeling behavior that customized information was 
Page 31 GAO-06-434 Credit Cards

designed to promote. As a result, these cardholders would appear not to 

need this additional disclosure. Many of the convenience users we 

interviewed—who preferred not to receive a customized disclosure—

explained that they paid their balance in full each month, already 

understood the consequences of making only minimum payments, and 

therefore did not need the additional reminder. Instead, most of the 

convenience users told us that they would rather receive information on 

the first page of their billing statement that would be more useful to them, 

such as information on a credit card reward program. Additionally, because 

a customized disclosure would assume that only the exact minimum 

amount would be paid, representatives of some issuers told us that such 

disclosures would be of limited use to the large number of cardholders 

who, although not fully paying the balance each month, do pay more than 

the minimum amount due. 

Some organizations also said that customized disclosures might have a 

limited impact on cardholder behavior overall because the number of 

cardholders that make consecutive minimum payments appears to be 

small. According to issuers, minimum payment disclosures, whether 

customized or generic, are useful only to the cardholder population that 

revolves balances—specifically, the smaller subset of that population that 

habitually makes minimum payments. According to six of the issuers we 

contacted, the percentage of their customers who make minimum 

payments is small.24 As a result, most issuers questioned the value of 

implementing customized disclosures that would benefit such a small 

percentage of their customers. Additionally, representatives of one large 

issuer told us that their firm had implemented the minimum payment 

disclosures required under the California law for 3 months and, while 

acknowledging that these disclosures were in place for a brief period, 

indicated that they did not notice a difference in the number of cardholders 

making minimum payments. As a result of this experience, the 

representatives said that they did not expect the proposed customized 

disclosure to have much of an impact either. 

Customized disclosures also might have little impact on cardholder 

behavior because some cardholders are not able to make larger than 

minimum payments. Many of the cardholders we interviewed who made 

minimum payments told us that they did so because they could not afford 

24The other issuer does not track data on the proportion of its cardholders who consistently 

pay the minimum amount due.
Page 32 GAO-06-434 Credit Cards

to pay more. Competing expenses and a lack of additional disposable 

income were the primary reasons these cardholders gave for making at 

least one minimum payment within the last year. A representative from a 

large issuer also told us that cardholders who make minimum payments 

lack the ability to regularly pay more. 

Various Options Exist 

for Providing 

Information on 

Consequences of 

Minimum Payments

Issuers, consumer groups, and others that we interviewed suggested 

alternatives for providing cardholders with customized information on the 

consequences of making minimum payments. Among the alternatives 

mentioned were targeting customized disclosures to only certain 

cardholders or not requiring the disclosure to appear on the first page of 

cardholders’ billing statements. While these alternatives might make it 

easier and less costly for issuers to implement customized disclosures, they 

also may reduce the desired impact of the disclosure because fewer 

cardholders would receive the information or notice the disclosure. Rather 

than providing customized disclosures, some suggested that government 

agencies, issuers, financial educators, and consumer groups expand 

general financial education efforts on the consequences of making 

minimum payments.

Suggested Alternatives 

Included Fewer Recipients, 

Flexible Formatting, and 

Online Delivery 

Consumer groups, issuers, and others suggested that the population of 

cardholders that would receive customized disclosures could be narrowed. 

For example, a consumer group representative suggested the information 

could be targeted only to cardholders most likely to need it, such as 

revolvers. A representative of another consumer group told us that such 

information ought to be provided to any cardholders that paid the 

minimum amount or close to the minimum amount in any given month. 

Some issuer representatives asserted that the population receiving 

customized disclosures ought to be even narrower, such as cardholders 

who have made minimum payments for several consecutive months. 

Limiting the number of cardholders who receive customized disclosures 

offers some advantages to issuers and some disadvantages to cardholders. 

For example, providing customized information to a more limited number 

of cardholders would lower issuer costs, such as paper and postage, by 

reducing the number of billing statements that might require an additional 

page. However, limiting customized disclosures to cardholders who pay 

only the minimum could preclude other cardholders from benefiting from 

such information. For example, many of the cardholders we interviewed 
Page 33 GAO-06-434 Credit Cards

identified themselves as paying “a lot more than the minimum payment,” 

“almost their entire balance,” or their “entire balance” each month, yet 

found the customized disclosure to be either extremely or very useful. 

Some of these cardholders noted that even though they do not typically 

make minimum payments or close to the minimum payment, the disclosure 

still provided them with useful information in case they ever experienced a 

time when they would need to make minimum payments. Some of the 

convenience users who found the customized disclosure useful explained 

that the information served as a good reminder on the consequences of 

making minimum payments. 

A second alternative that issuers and others identified would be to place 

the disclosure in a location other than the first page of the billing 

statement. For example, issuers could be allowed to print the customized 

disclosure on either the back side of a statement page or on a subsequent 

page. One regulatory official noted that issuers could provide text on the 

first page that informs cardholders that customized information is available 

elsewhere in the statement. Issuers and a card processor told us that space 

on the first page of the billing statement is at a premium because it typically 

contains a lot of important information, such as messages on the status of 

an account (e.g., over-the-limit notices).

Providing the customized minimum payment disclosures to cardholders in 

a location other than the first page of the billing statement would offer 

issuers some cost advantages, but a disadvantage of such a change could 

include less impact on cardholder behavior. Not being required to place the 

disclosure on the first page of billing statements could make implementing 

the disclosure easier and less costly for issuers because they might not 

need to reformat their statement templates. However, according to 

consumer groups and others, not placing the information on the first page 

of the statement would reduce its prominence and likely its influence on 

cardholder behavior. For example, one representative told us that 

cardholders might be less likely to notice the disclosure if it was not 

prominently positioned on their billing statement. An industry expert 

confirmed that the primary tool issuers use to communicate with their 

cardholders is the monthly billing statement. Therefore, removing the 

customized minimum payment disclosure from the billing statement 

entirely could decrease the number of cardholders who read it at all. 

A third suggestion that could reduce the cost of customized disclosures 

would involve providing the information electronically or online. 

According to an issuer and a consumer group we contacted, customized 
Page 34 GAO-06-434 Credit Cards

information could be provided to cardholders in electronic statements sent 

by issuers. Cardholders also could access such information directly on 

issuers’ Web sites. For example, issuers could provide online calculators in 

which cardholders could enter their balances, applicable interest rates, and 

payment amounts to obtain repayment and other estimates specific to their 

accounts. At a credit card industry symposium held in June 2005, 

participants advocated increasing the reliance on technology for delivering 

more useful consumer disclosures.25 One issuer that we interviewed 

already has implemented an online calculator to provide its customers with 

customized information, while another issuer told us they were currently 

developing one. 

Making customized disclosures available online, rather than in monthly 

statements, could prevent cardholders from receiving outdated 

information and allow cardholders to access the information when they 

need it, rather than limit them to a monthly statement. Online availability 

also presents cardholders with the ability to receive only the information 

they prefer. Online disclosures also could give cardholders the flexibility to 

obtain the information they deemed most useful to them. For example, 

some cardholders found customized disclosures only slightly useful, 

because they made more than the minimum payment every month. 

Additionally, one cardholder said that he would rather see the calculation 

that showed the monthly payment amount that would be required to pay 

his balance off in 1 year, rather than some longer period. 

However, an exclusively online presentation could also reduce the impact 

of the disclosure. Removing the disclosure from the billing statements 

could greatly decrease the number of cardholders that see such 

information, because not all cardholders have easy access to the Internet. 

Some cardholders we interviewed mentioned that although they were 

aware of online calculators to help them estimate credit card payoff times, 

they had not used them because they did not have easy access to the 

Internet. In addition, even cardholders with the ability to obtain such 

information online might not utilize it. For example, only two of the 43 

cardholders with whom we spoke that identified themselves as typically 

paying “the minimum amount” or “more than the minimum amount, but not 

much more than the minimum,” had used an online credit card calculator. 

Some of these cardholders were not comfortable with using the Internet for 

25On June 10, 2005, the Payment Cards Center of the Federal Reserve Bank of Philadelphia 

hosted “Federal Consumer Protection Regulation: Disclosures and Beyond.”
Page 35 GAO-06-434 Credit Cards

personal finance. In addition, the consumers we interviewed generally 

greatly preferred receiving minimum payment disclosures in their billing 

statements. Of the 112 cardholders we interviewed, 73 percent preferred to 

receive such information on their monthly billing statement, while about 11 

percent preferred receiving the information via the Internet. 

A fourth alternative for providing customized information on minimum 

payment consequences to cardholders would be to do so less often than 

monthly. For example, issuers could provide the information to 

cardholders quarterly or annually. Several of the cardholders we 

interviewed (about 24 percent) were amenable to receiving the disclosure 

less frequently than monthly. This alternative could reduce both postage 

and paper costs for issuers because additional pages to print the disclosure 

would be needed less frequently. 

However, if cardholders received the information less frequently, they 

would not be reminded of the consequences of making minimum payments 

in the months they did not receive the disclosure. For example, one 

cardholder we interviewed who typically made only slightly more than 

minimum payments said that she “just doesn’t really think about it when 

she makes the payment,” but with a customized disclosure “in front of her, 

she would think about it more.” Another noted, “Having it [the customized 

disclosure] in front of you with your specific information makes it easier to 

keep in the back of your mind that you should be quick to pay your balance 

off sooner.”

Options Besides 

Customized Disclosures 

Were also Identified 

Consumer groups, federal regulators, and others identified options for 

improving the information cardholders receive on the consequences of 

making minimum payments that would not entail providing customized 

information. For example, one issuer representative advocated expanding 

the generic example in one of the Bankruptcy Act options by developing a 

wider range of balance amounts and interest rates. With several different 

examples available, issuers could provide cardholders with a disclosure 

that contained a sample balance and interest rate that would be closer to 

those in the cardholder’s actual account, without having to incur the 

expense of producing disclosures using the exact amounts. While this 

approach would not provide cardholders with estimates as specific to their 

situation as a customized disclosure, it likely would provide better 

information to cardholders whose balances and interest rates were not 

similar to those currently used in the example contained in the Bankruptcy 

Act disclosure. 
Page 36 GAO-06-434 Credit Cards

Finally, instead of providing customized disclosures, federal regulators, 

educators, and consumer groups mentioned that consumer awareness 

could be improved by requiring issuers and others to increase financial 

education efforts tailored to minimum payment messages. Issuers could do 

this by including information about the consequences of making only 

minimum payments in solicitation letters or the introductory packages 

consumers receive when they obtain a new credit card. Government 

agencies and financial education providers could make additional use of 

advertisements in various media to underline messages about the 

consequences of making minimum payments.

Observations Our work indicates that credit card issuers and processors have the 

necessary data and systems capabilities to provide customized minimum 

payment disclosures—that is, to include customized information in billing 

statements that would show the length of time required to pay off each 

cardholder’s actual balance and the additional interest that would be 

incurred if only the minimum payment is made each month, as well as the 

monthly payment required to pay off an outstanding balance in a given time 

period. However, such disclosures are only point-in-time estimates that 

would fluctuate as cardholders make additional purchases or increase their 

payment amount. Credit card issuers and processors would incur initial 

costs, estimated to be from less than $1 million to up to several million 

dollars, to revise their systems to make these calculations. They would also 

likely incur additional costs resulting from higher postal charges—if 

including such disclosures increases the size of cardholder statements—

and from increased customer service expenses, as they respond to account 

holder questions about these disclosures. While these additional costs 

could increase the ongoing expenses of producing and mailing billing 

statements, card issuers are already obligated to bear some portion of 

these costs as they implement the minimum payment disclosures mandated 

by the Bankruptcy Act. While we cannot estimate the incremental costs of 

providing customized disclosures, the known estimated costs appear to be 

small relative to the income of the largest issuers, which account for the 

vast majority of cardholder accounts. Further, the costs to the thousands of 

small card issuers would be minimal because of their use of third-party 

processors. 

While most of the revolver cardholders whom we spoke with found 

customized disclosures very useful, the impact that they might have on 

cardholder payment behavior could vary. Many of the consumers that we 

interviewed told us that customized disclosures provided more useful 
Page 37 GAO-06-434 Credit Cards

information than the generic disclosures mandated by the Bankruptcy Act, 

with the majority of revolvers preferring to receive customized disclosures. 

However, the majority of convenience users, while finding some value in 

the information contained in customized disclosures, were satisfied with 

receiving either the generic disclosures or no additional disclosure at all. 

While cardholders told us that such disclosures could strongly influence 

their decisions about making minimum payments, not all cardholders’ 

financial circumstances would allow them to increase their payment 

amounts. Therefore, the ultimate impact of providing additional 

disclosures could vary.

While providing cardholders with additional disclosures about the 

consequences of making only minimum payments on their credit cards 

would appear to provide them with useful information, such disclosures 

would raise issuer costs and whether the impact on consumer behavior 

would be large or small is not known. However, various options, which 

have both advantages and disadvantages, for providing such information 

exist. For example, providing customized information only to those 

cardholders who revolve credit card balances or by providing it to all 

cardholders but on a less frequent basis or in another location besides the 

first page of the monthly billing statement could make it easier and less 

costly for issuers to implement customized disclosures. These options, 

however, could lessen the potential impact of the customized disclosure 

because fewer cardholders would receive, or be likely to notice, the 

information.

Agency Comments and 

Our Evaluation

We provided a draft of this report to the Federal Deposit Insurance 

Corporation, the Federal Reserve, the Federal Trade Commission, the 

National Credit Union Administration, the Office of the Comptroller of the 

Currency, and the Office of Thrift Supervision for their review and 

comment. In a letter from the National Credit Union Administration, the 

Chairman notes that the Administration agrees with the findings of our 

report, including that customized disclosures for consumers could feasibly 

be required of card issuers at a potentially significant but relatively 

reasonable cost and such disclosures could be useful and desirable for 

some consumers despite the uncertainty of their impact. The Chairman 

also notes that, collectively, the potential impact on credit unions of 

requiring card issuers to provide customized disclosures to consumers 

should be minimal, particularly since many use third-party processors. 

However, the Chairman’s letter also notes that the financial impact of 

customized disclosure requirements could still be significant for these 
Page 38 GAO-06-434 Credit Cards

small issuers and even more significant for moderate sized financial 

institutions servicing their own credit card portfolios, particularly in 

institutions where credit card interest margins are already low. The letter 

also notes that considering the incremental costs of customized disclosures 

is important because such costs will ultimately be passed on to consumers 

through increased fees or higher interest rates, which could result in a 

negative impact on the same consumers whom the disclosures are meant to 

help. As a result, the Chairman indicates that some of the alternatives to 

providing customized disclosures that are mentioned in our report could be 

more economically efficient than implementing customized disclosures to 

increase consumer awareness of the consequences of making minimum 

payments. 

We also received technical comments from the Federal Reserve, the 

Federal Trade Commission, and the Office of the Comptroller of the 

Currency, which we incorporated as appropriate. The Federal Deposit 

Insurance Corporation and the Office of Thrift Supervision did not provide 

any comments. 

As agreed with your offices, unless you publicly announce its contents 

earlier, we plan no further distribution of this report until 30 days after the 

date of this report. At that time, we will send copies of this report to the 

Chairman, Federal Deposit Insurance Corporation; the Chairman, Federal 

Reserve; the Chairman, Federal Trade Commission; the Chairman, National 

Credit Union Administration; the Comptroller of the Currency; and the 

Director, Office of Thrift Supervision and to interested congressional 

committees. We will also make copies available to others upon request. The 

report will be available at no charge on the GAO Web site at 

http://www.gao.gov. The results of the interviews will also be available on 

the GAO Web site at GAO-06-611sp.
Page 39 GAO-06-434 Credit Cards

If you or your staff have any questions regarding this report, please contact 

me at (202) 512-8678 or woodd@gao.gov. Contact points for our Offices of 

Congressional Relations and Public Affairs may be found on the last page 

of this report. Key contributors to this report are listed in appendix III.

David G. Wood

Director, Financial Markets and Community Investment
Page 40 GAO-06-434 Credit Cards

Appendix I

Objectives, Scope, and Methodology AAppenednxidexiIs

Our objectives were to (1) determine the feasibility and cost of requiring 

credit card issuers (issuers) to provide cardholders with customized 

minimum payment information, (2) assess the usefulness of providing 

customized information to cardholders, and (3) identify options for 

providing cardholders with customized or other information about the 

financial consequences of making minimum payments.

To determine the feasibility and cost of providing cardholders with 

customized minimum payment information, we reviewed current and 

proposed disclosure requirements, including Title XIII of the Bankruptcy 

Abuse Prevention and Consumer Protection Act of 2005 (Bankruptcy Act), 

which amended the Truth in Lending Act (TILA) to require issuers to make 

disclosures regarding the consequences of making only the minimum 

payment. We also reviewed the advance notices of proposed rulemaking 

that the Board of Governor’s of the Federal Reserve System (Federal 

Reserve) issued. The proposed rulemaking is associated with the Federal 

Reserve’s self-initiated comprehensive review of the open-end (revolving) 

credit rules in Regulation Z, which implements TILA, as well as the 

implementation of the minimum payment disclosure requirements of the 

Bankruptcy Act. We also reviewed California’s Civil Code, section 1748.13, 

which had also mandated that consumers receive disclosures regarding 

minimum payment consequences. We discussed the feasibility and cost of 

providing customized information to cardholders with the staff of six major 

issuers and one mid-size issuer. We determined that these issuers account 

for about 67 percent of actively used credit card accounts as of year-end 

2005. We provided issuers with a list of 16 cost items to facilitate 

discussions of the costs to implement customized minimum payment 

disclosures.

We also met with the staff of two third-party credit card processors 

(processors) that manage card account data and produce billing statements 

for thousands of large and small issuers, who provided us with cost 

estimates and technical information about implementing customized 

disclosures. In addition, we obtained cost estimates for another three large 

issuers from court documents associated with a constitutional challenge of 

a California statute that required issuers to include minimum payment 

disclosures on billing statements sent to California cardholders. We 

supplemented our interview data with a review of 17 comment letters that 

issuers, processors, and trade associations submitted to the Federal 

Reserve that addressed the implementation of minimum payment 

disclosure provisions contained in the Bankruptcy Act. We reviewed two 

studies about costs of regulatory reforms and used them to shape our 
Appendix I

Objectives, Scope, and Methodology

Page 41 GAO-06-434 Credit Cards

approach with issuers and processors to study the costs to implement 

customized minimum payment disclosures.

1

To better understand how producing customized disclosures could affect 

issuer costs, we also discussed issuer operations and profitability with two 

broker-dealer research analysts that monitor credit card issuing banks and 

industry developments. We also met with representatives of federal 

banking regulators—the Federal Reserve, Office of the Comptroller of the 

Currency, Federal Deposit Insurance Corporation, Office of Thrift 

Supervision, and National Credit Union Administration—that oversee 

financial institutions offering credit cards, and met with representatives of 

the Federal Trade Commission, which oversees nonbank credit card 

issuing entities. We also attended a roundtable hosted by the McDonough 

School of Business at Georgetown University where representatives of 

credit card issuers, industry trade associations, law firms, federal 

regulatory agencies, and a consumer interest group addressed 

implementation issues relating to the provision of customized minimum 

payment disclosures. 

To assess the usefulness of providing customized disclosures to 

cardholders, we conducted in-depth interviews with a total of 112 adult 

cardholders in three locations: Boston, Chicago, and San Francisco, in 

December 2005. We contracted with OneWorld Communications, Inc., to 

recruit a sample of cardholders that generally resembled the demographic 

makeup of the U.S. population in terms of age, education levels, and 

income. However, the cardholders recruited for the interviews did not form 

a random, statistically representative sample of the U.S. population. 

Cardholders had to speak English and meet certain other conditions: 

having owned at least one general-purpose credit card for at least the last 

12 months prior to the interview, and not have participated in more than 

one focus group or similar in-person study in the 12 months prior to the 

interview. We selected proportionally more people who typically carried 

balances on their credit card (revolvers) rather than those who regularly 

paid off their balances (convenience users)—compared with their actual 

proportions in the U.S. population—because we judged revolvers as likely 

more in need of the information provided in the customized disclosure. See 

1

Gregory Elliehausen, “The Cost of Bank Regulation: A Review of the Evidence,” Staff Study 

171 (Washington, D.C.: Board of Governors of the Federal Reserve System, April 1998) and 

Gregory Elliehausen and Barbara R. Lowrey, “The Costs of Implementing Regulatory 

Changes: The Truth in Savings Act,” Journal of Financial Services Research 17, no. 2 

(2000): 165-179.
Appendix I

Objectives, Scope, and Methodology

Page 42 GAO-06-434 Credit Cards

table 2 for the demographic information on the cardholders we 

interviewed.

Table 2: Demographic Characteristics of Cardholders Interviewed

Source: GAO.

Note: Percentages may not total to 100 percent due to rounding.

a

One interviewee did not report age, so the total represented for this category is 111 cardholders.

During these consumer interviews, we obtained cardholders’ opinions to 

assess the usefulness of the customized disclosure by asking them a 

number of open- and closed-ended questions, and asking them more 

tailored follow-up questions as necessary to more fully understand their 

answers. All cardholders were asked questions to determine their typical 

Category

Number of 

cardholders Percent of total

Agea

 18-24 12 10.8

 25-34 19 17.1

 35-44 27 24.3

 45-54 23 20.7

 55-64 13 11.7

 65 and older 17 15.3

Household income 

 Less than $25,000 16 14.3

 $25,000 - $44,999 25 22.3

 $45,000 - $64,999 24 21.4

 $65,000 - $100,000 24 21.4

 Over $100,000 23 20.5

Education level

 Some high school 15 13.4

 High school graduate 32 28.6

 Some college 18 16.1

 College graduate 27 24.1

 Graduate school 15 13.4

 Other 5 4.5

Type of cardholder

 Convenience user 38 33.9

 Revolver 74 66.1
Appendix I

Objectives, Scope, and Methodology

Page 43 GAO-06-434 Credit Cards

credit card payment behavior and elicit what they already knew about the 

consequences of making only minimum payments. To determine their 

preferences for various disclosures, we showed each participant three 

sample disclosure statements. Two of these sample disclosure statements 

contained the language and generic example mandated by the Bankruptcy 

Act minimum payment disclosure provisions. The other disclosure 

presented an example of language incorporating the components of the 

proposed customized disclosure we studied. The sample disclosure 

statements we showed to cardholders can be found in GAO-06-611sp. 

Each of the cardholders we interviewed was asked a series of questions 

about each of the three disclosure statements, including how 

“understandable,” “influential,” “useful,” and “helpful” each disclosure was 

to their understanding of the consequences of making minimum payments. 

After seeing the three statements, cardholders also were asked to compare 

the statements and choose the statement they would prefer to receive. 

Additionally, cardholders were asked how they would prefer to receive 

such information, and how frequently they would like to receive it. 

Narrative answers to open-ended questions were categorized into various 

themes based on the cardholders’ responses. The reliability of the coding 

scheme was assessed by comparing the answers of a second, independent 

coder with a number of the answers. The interview instrument that was 

used to interview cardholders, as well as the results to the closed-ended 

questions can be found in GAO-06-611sp.

The data collected through our in-depth cardholder interviews are subject 

to certain limitations. For example, the data cannot be generalized to the 

entire U.S. population of credit cardholders. In addition, our sample 

distribution between convenience users and revolvers was not reflective of 

the estimates of the proportion of such cardholders in the overall U.S. 

cardholding population because we purposely oversampled revolvers. 

Additionally, the self-reported data we obtained from cardholders are 

based on their opinions and memories, which may be subject to error and 

may not predict their future behavior. 

We gathered additional information on the usefulness of providing 

customized disclosures to cardholders by reviewing existing academic 

research on consumer protection disclosures and applicable public 

comment letters on the Federal Reserve’s advance notices of proposed 

rulemaking. We also interviewed credit card issuers and processors, and a 

variety of industry, academic, government, consumer interest, and financial 
Appendix I

Objectives, Scope, and Methodology

Page 44 GAO-06-434 Credit Cards

education organizations for their opinions on the usefulness of customized 

disclosures.

To identify other ways of providing cardholders with customized or other 

information about the financial consequences of making minimum 

payments, during our interviews we asked issuers and processors, as well 

as a variety of academic, government, consumer interest, and financial 

education organizations for suggestions and alternative options to 

providing customized disclosures. We discussed some suggestions with 

issuers and processors to determine their feasibility. We also asked the 112 

cardholders for their opinions on other ways to communicate the financial 

consequences of minimum payments. 

We conducted our study between June 2005 and April 2006 in Boston, 

Chicago, San Francisco, and Washington, D.C., in accordance with 

generally accepted government auditing standards. 
Page 45 GAO-06-434 Credit Cards

Appendix II

Comments from the National Credit Union 

Administration ApendxiI
Appendix II

Comments from the National Credit Union 

Administration

Page 46 GAO-06-434 Credit Cards
Page 47 GAO-06-434 Credit Cards

Appendix III

GAO Contact and Staff Acknowledgments ApendxiI

GAO Contact Dave Wood (202) 512-6878

Staff 

Acknowledgments

In addition to those named above, Cody Goebel, Assistant Director; 

Christine Houle; John C. Martin; Marc Molino; Carl Ramirez; Omyra 

Ramsingh; Barbara Roesmann; and Kathryn Supinski made key 

contributions to this report.

(250252)
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