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S. Hrg. 110–289

CREDIT CARD PRACTICES: UNFAIR INTEREST RATE

INCREASES

HEARING

BEFORE THE

PERMANENT SUBCOMMITTEE ON INVESTIGATIONS

OF THE

COMMITTEE ON 

HOMELAND SECURITY AND 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

DECEMBER 4, 2007

Available via http://www.access.gpo.gov/congress/senate

Printed for the use of the 

Committee on Homeland Security and Governmental Affairs

(

(II)

COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS 

JOSEPH I. LIEBERMAN, Connecticut, Chairman 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

THOMAS R. CARPER, Delaware 

MARK PRYOR, Arkansas 

MARY L. LANDRIEU, Louisiana 

BARACK OBAMA, Illinois 

CLAIRE McCASKILL, Missouri 

JON TESTER, Montana 

SUSAN M. COLLINS, Maine 

TED STEVENS, Alaska 

GEORGE V. VOINOVICH, Ohio 

NORM COLEMAN, Minnesota 

TOM COBURN, Oklahoma 

PETE V. DOMENICI, New Mexico 

JOHN WARNER, Virginia 

JOHN E. SUNUNU, New Hampshire

MICHAEL L. ALEXANDER, Staff Director 

BRANDON L. MILHORN, Minority Staff Director and Chief Counsel 

TRINA DRIESSNACK TYRER, Chief Clerk 

PERMANENT SUBCOMMITTEE ON INVESTIGATIONS 

CARL LEVIN, Michigan, Chairman 

THOMAS R. CARPER, Delaware 

MARK L. PRYOR, Arkansas 

BARACK OBAMA, Illinois 

CLAIRE McCASKILL, Missouri 

JON TESTER, Montana 

NORM COLEMAN, Minnesota 

TOM COBURN, Oklahoma 

PETE V. DOMENICI, New Mexico 

JOHN WARNER, Virginia 

JOHN E. SUNUNU, New Hampshire

ELISE J. BEAN, Staff Director and Chief Counsel 

ZACHARY I. SCHRAM, Counsel 

KATE BITTINGER EIKEL, GAO Detailee 

MARK L. GREENBLATT, Staff Director and Chief Counsel to the Minority 

TIMOTHY R. TERRY, Counsel to the Minority 

MARY D. ROBERTSON, Chief Clerk 

(III)

C O N T E N T S 

Opening statements: Page 

Senator Levin .................................................................................................... 1

Senator Coleman .............................................................................................. 11

Senator McCaskill ............................................................................................ 13

Senator Carper ................................................................................................. 27

WITNESSES 

TUESDAY, DECEMBER 4, 2007

Janet Hard, Consumer, Freeland, Michigan ......................................................... 15

Bonnie Rushing, Consumer, Naples, Florida ........................................................ 16

Millard C. Glasshof, Consumer, Milwaukee, Wisconsin ....................................... 18

Roger C. Hochschild, President and Chief Operating Officer, Discover Financial Services, Riverwoods, Illinois ....................................................................... 33

Bruce Hammonds, President, Bank of America Card Services, Bank of America Corporation, Wilmington, Delaware ............................................................. 35

Ryan Schneider, President, Card Services, Capital One Financial Corporation, 

McLean, Virginia .................................................................................................. 37

ALPHABETICAL LIST OF WITNESSES

Glasshof, C. Millard: 

Testimony .......................................................................................................... 18

Prepared statement .......................................................................................... 67

Hammonds, Bruce: 

Testimony .......................................................................................................... 35

Prepared statement .......................................................................................... 78

Hard, Janet: 

Testimony .......................................................................................................... 15

Prepared statement .......................................................................................... 63

Hochschild, Roger C.: 

Testimony .......................................................................................................... 33

Prepared statement .......................................................................................... 69

Rushing, Bonnie: 

Testimony .......................................................................................................... 16

Prepared statement .......................................................................................... 65

Schneider, Ryan: 

Testimony .......................................................................................................... 37

Prepared statement with an attachment ....................................................... 89

APPENDIX 

Questions and responses from Mr. Schneider with attachments ........................ 86

EXHIBITS 

1. Credit Card Case Histories: Eight Examples of Unfair Interest Rate 

Increases, prepared by the Permanent Subcommittee on Investigations .... 120

2. a. Summary of Janet Hard Account (November 2006 to October 2007), 

prepared by the Permanent Subcommittee on Investigations ................. 138

b. Summary of Millard Glasshof Account (November 2006 to October 

2007), prepared by the Permanent Subcommittee on Investigations ..... 139

c. Automated Repricing of Credit Card Interest Rates, prepared by the 

Permanent Subcommittee on Investigations .............................................. 140

Page

IV

3. Disclosures by Credit Card Issuers on Their Right to Change Credit 

Card Terms, prepared the Permanent Subcommittee on Investigations ..... 141

4. Samples of Reasons Provided by Credit Bureaus and Credit Card Issuers 

to Explain Lower Credit Scores, prepared by the Permanent Subcommittee on Investigations ............................................................................ 142

5. Sample adverse action letter provided by Discover Card .............................. 143

6. Correspondence from Chase to Millard C. Glasshof, dated August 14, 

2007, regarding change in his minimum payment ........................................ 144

7. a. Correspondence from Bank of America to Bonnie Rushing, dated May 

9, 2007, informing her that her written rejection to the change in 

terms notification was received after the deadline ................................... 145

b. Correspondence from Bonnie Rushing to Bank of America, dated May 

15, 2007, disputing the legality and fairness of Bank of America’s 

policies .......................................................................................................... 146 

c. Correspondence from Bonnie Rushing to the State of Florida Attorney 

General, dated April 25, 2007, regarding her interest rate increase 

on her Bank of America credit card ............................................................ 147 

d. Correspondence from the Office of the Comptroller of the Currency 

to Bonnie Rushing, dated June 5, 2007, requesting additional information ................................................................................................................ 149 

e. Correspondence from Bank of America to the Office of the Comptroller 

of the Currency, dated June 27, 2007, explaining change in terms 

policy and resolution of Bonnie Rushing’s account .................................... 150

8. a. Correspondence from Bank of America to Gayle Corbett, dated June 

2007, notifying of change in terms ............................................................. 152 

b. Online correspondence between Gayle Corbett and Citi/AT&T, regarding her Citi/AT&T credit card .................................................................... 154

9. a. Sample Chase change in terms notification letter similar to the notice 

sent to Agnes Holmes .................................................................................. 156 

b. Chase credit card check sent to Agnes Holmes in the same month 

her interest rate was increased .................................................................. 158

10. Correspondence from Capital One to Linda Fox, dated November 14, 

2007, regarding her interest rate .................................................................... 159

11. Correspondence from The Commonwealth of Massachusetts Commissioner of Banks to Marjorie S. Hancock, dated October 24, 2007, explaining why they would not investigate her credit card case .............................. 161

12. a. Correspondence from Chase to Donna Bernard, dated January 19, 

2007, regarding her interest rate ............................................................... 162

b. Second correspondence from Chase to Donna Bernard, dated July 19, 

2007, regarding her interest rate ............................................................... 164

13. Statement for the Record of Gayle Corbett, Seattle, Washington ................ 166

14. Statement for the Record of Agnes Holmes, Montgomery, Alabama ........... 168

15. Bank of America Change in Terms Notice for Bonnie Rushing’s account ... 170

16. Discover Card pre-approved credit card offer received by William R. Hard, 

husband of Janet Hard ..................................................................................... 174

17. Janet M. Hard’s Discover Card statement, December 2007 ......................... 179

18. Correspondence from Bonnie Rushing, dated December 13, 2007, to Senator Norm Coleman of the Permanent Subcommittee on Investigations, 

regarding her responses to questions at the Subcommittee’s hearing on 

December 4, 2007 .............................................................................................. 180

19. a. SEALED EXHIBIT: Millard Glasshoff statements and correspondence . *

b. SEALED EXHIBIT: Janet Hard statements and correspondence .......... *

c. SEALED EXHIBIT: Bonnie Rushing statements and correspondence ... *

d. SEALED EXHIBIT: Donna Bernard statements and correspondence .... *

e. SEALED EXHIBIT: Gayle Corbett statements and correspondence ...... *

f. SEALED EXHIBIT: Linda Fox statements and correspondence ............. *

g. SEALED EXHIBIT: Marjorie Hancock statements and correspondence *

h. SEALED EXHIBIT: Agnes Holmes statements and correspondence ...... *

20. Responses to supplemental questions for the record submitted to Ryan 

Schneider, President for Card Services, Capital One Financial Corporation ..................................................................................................................... 193

Page

V

21. Responses to questions for the record submitted to Roger C. Hochschild, 

President and Chief Operating Officer, Discover Financial Services ........... 200

22. Responses to supplemental questions for the record submitted to Bruce 

L. Hammonds, President, Bank of America Card Services, Bank of America Corporation .................................................................................................. 222

[*] Retained in the files of the Subcommittee. 

(1)

CREDIT CARD PRACTICES: UNFAIR INTEREST 

RATE INCREASES 

TUESDAY, DECEMBER 4, 2007

U.S. SENATE,

PERMANENT SUBCOMMITTEE ON INVESTIGATIONS,

OF THE COMMITTEE ON HOMELAND SECURITY

AND GOVERNMENTAL AFFAIRS, 

Washington, DC. 

The Subcommittee met, pursuant to notice, at 9:33 a.m., in Room 

SD–106, Dirksen Senate Office Building, Hon. Carl Levin, Chairman of the Subcommittee, presiding. 

Present: Senators Levin, Carper, Pryor, McCaskill, Tester, Coleman, Coburn, and Warner. 

Staff Present: Elise J. Bean, Staff Director and Chief Counsel; 

Mary D. Robertson, Chief Clerk; Zachary I. Schram, Counsel; Audrey Ellerbee, Congressional Fellow to Senator Levin; Kate 

Bittinger Eikel, Detailee, GAO; Alan Kahn, Law Clerk; Jonathan 

Port, Intern; Mark L. Greenblatt, Staff Director and Chief Counsel 

to the Minority; Timothy R. Terry, Counsel to the Minority; Kristin 

Sharp (Senator Pryor); Jason Rosenberg, (Senator Tester) Derek 

Dorn and Gregory Zagorski (Senator Lieberman); Chuck Jones 

(Senator Carper); Jerryl Christmas (Senator McCaskill); and Scott 

Eckel (Senator Sununu). 

OPENING STATEMENT OF SENATOR LEVIN 

Senator LEVIN. Good morning, everybody. This hearing is the 

second in a series of Subcommittee hearings examining unfair credit card practices. Today’s focus is on credit card issuers who hike 

the interest rates of cardholders who play by the rules, meaning 

folks who pay on time, pay at least the minimum amount due, and 

wake up one day to find their interest rate has gone through the 

roof—again, not because they paid late or exceeded their credit 

limit, but because their credit card issuer decided they should be 

‘‘repriced.’’

To add insult to injury, credit card issuers apply those higher 

rates retroactively to consumers’ existing credit card debts which 

were incurred when lower interest rates were in effect. Let me give 

you a few examples taken from the Subcommittee investigation 

into the interest rate practices at the five major credit card issuers 

who handle 80 percent of U.S. credit cards. These examples are 

2

1See Exhibit 1 which appears in the Appendix on page 120. 

2See Exhibit 2.a. which appears in the Appendix on page 138. 

also summarized in a set of eight case histories in Exhibit 1,1

which will be made part of the hearing record. 

Janet Hard of Freeland, Michigan, is a registered nurse, married 

with two children, whose husband is a steamfitter. She has had a 

Discover credit card for years. In 2006, out of the blue, Discover increased the interest rate on her card from 18 percent to 24 percent. 

Discover took that action because Ms. Hard’s FICO score had 

dropped. 

FICO scores, developed by the Fair Isaac Company, are numbers 

between 300 and 850 that are generated by a complex mathematical model designed to predict the likelihood that a person will 

default on their credit obligations within the next 60 days. FICO 

scores are compiled by credit bureaus who supply them upon request to credit card issuers seeking the scores of their cardholders. 

Discover’s policy is to put more weight on a computer-generated 

FICO score than on the fact that for years Ms. Hard had always 

paid her Discover bills on time, never exceeded her credit limit, 

and had always paid at least the minimum amount due. 

After increasing her rate, Discover even applied the higher interest rate to her existing credit card debt, which, in my book, fits the 

definition of a retroactive rate increase. The 24-percent rate boosted her finance charges and the minimum payment she was required to make each month. It took Ms. Hard some months to realize that, despite making larger payments, her debt was hardly decreasing. When she saw her interest rate had been hiked to 24 percent and complained, Discover lowered it to 21 percent—still above 

where she started. 

The higher interest rates have made it more difficult for Ms. 

Hard to pay off her debt. Under her old rate of 18 percent, when 

she made a $200 payment, about $148 went to pay the finance 

charges and $52 went to pay down her debt. With the 24-percent 

interest rate, out of that same $200 payment, about $176 went to 

finance charges and only about $24—less than half the amount 

previously—went to pay down the principal debt. 

Chart 2(a), which is up there to our right, shows the result.2

Over the last 12 months, Ms. Hard has kept her credit card purchases to less than $100 and has made steady monthly payments 

of $200 to reduce her debt. At the end of the year, her payments 

totaled $2,400—12 months times $200—but due to those high interest rates of 21 to 24 percent, almost all of her money went for 

finance charges. In fact, out of her $2,400, about $1,900 went to finance charges, and she was able to pay down her principal debt by 

only about $350. 

Millard Glasshof of Milwaukee, Wisconsin, is a senior citizen living on a fixed income. For years he faithfully made a $119 monthly 

payment to Chase to pay off a credit card debt that is now about 

$4,800. In December 2006, a year ago, out of the blue, Chase decided to hike his interest rate from 15 percent, where it had been 

for years, to 17 percent, and then in February to 27 percent. 

Why? Chase had decided to conduct an automated review of all 

of its closed credit card accounts where balances were being paid 

3

1See Exhibit 2.b. which appears in the Appendix on page 139. 

off. Because that automated review found that Mr. Glasshof’s FICO 

credit score had dropped, it hiked his interest rate. 

Now, think about that. His account was closed. He made no new 

purchases. All he did for years was send in his payments like clockwork. But his interest rate was automatically hiked from 15 percent to 27 percent. And not only that, to rub salt in the wound, the 

new 27-percent rate was applied retroactively to his existing credit 

card debt, and his finance charges skyrocketed. Under the 27-percent interest rate, out of his $119 monthly pay- ments to Chase, about $114 went to pay the finance charges, and 

only about $5 a month went to pay down his principal debt. And 

even those $5 reductions were wiped out by sky-high fees. For example, Mr. Glasshof was often charged a $39 per month over-thelimit fee—until at our last hearing in March Chase ended its policy 

of charging repeated over-the-limit fees for going over the credit 

card limit once. In addition, in August 2007, Mr. Glasshof got a 

confusing letter from Chase indicating that his minimum payment 

would change. He called Chase, was advised he could pay $111 instead of his usual $119. He paid it, and then he got hit with a $39 

fee for not paying enough. 

The end result, as shown in Chart 2(b) to my right,1 was that 

over the last 12 months Mr. Glasshof made payments totaling 

about $1,300 but was charged about $1,100 in interest and $200 in 

fees. That meant that none of his $1,300 in payments reduced his 

debt at all. 

Then there is Bonnie Rushing of Naples, Florida. She has two 

Bank of America cards, one of which is affiliated with the American Automobile Association, or AAA. For years, she paid both credit card bills on time. For years, both cards carried an interest rate 

of about 8 percent. But in April 2007—again, out of the blue—Bank 

of America increased the interest rate on her AAA card, not by a 

handful of points but by tripling it, from 8 percent to 23 percent. 

Bank of America tripled the rate because Ms. Rushing’s FICO score 

had dropped, and the bank used that FICO score to raise her rate, 

ignoring the fact that for years she had paid her credit card bills 

to Bank of America on time. 

Ms. Rushing, by the way, like Ms. Hard and Mr. Glasshof, does 

not know why her FICO score dropped. She speculates that it may 

have been because in January and March 2007, she opened Macy’s 

and J. Jill credit cards to obtain discounts on purchases—15 percent off some cosmetics, 20 percent off some clothes. She did not 

realize that simply opening those accounts and receiving those 

cards could negatively impact her FICO score, her credit rating, 

and hike her interest rate. 

When Ms. Rushing first saw the higher rate on her April billing 

statement, she called Bank of America, explained that she never 

received notice of a rate increase, and wanted to opt out by closing 

her account and paying off her debt at the old rate. Bank of America personnel responded she had already missed the opt-out deadline and pressed her to accept the higher interest rate. Ms. Rushing resisted. She closed her account. She wrote the Florida Attorney General. She wrote to this Subcommittee. She called AAA. 

4

Bank of America finally agreed to restore the 8-percent rate on her 

closed account and refunded the $600 in extra finance charges it 

had collected in just 2 months. 

Linda Fox of Circleville, Ohio, is a working grandmother. She 

has had a Capital One credit card for more than 10 years. In 2007, 

suddenly Capital One increased her interest rate from 8 percent to 

13 percent. Capital One raised her rate not because her FICO score 

had dropped—Capital One does not use FICO scores to raise 

rates—but because Capital One had decided to pass on so-called 

additional borrowing costs to its cardholders. 

Capital One’s automated system selected accounts whose interest 

rates had not been increased in 3 years and had what the system 

deemed a below-market interest rate. Ms. Fox’s account was one of 

many selected, and the higher rate was applied retroactively to her 

existing credit card debt. She tried, without success, to opt out, to 

get her old rate back. Six months later, in November, after a Subcommittee inquiry, Capital One allowed Ms. Fox to close her account and pay off her debt at the old 8-percent rate. 

We have a lot of additional case histories, but I will stop with 

just one more. 

In 2007, Gayle Corbett of Seattle, Washington, was hit with interest rate hikes on three separate credit cards in three separate 

months. Bank of America increased her rate from 15 percent to 24 

percent; Citi more than doubled her rate from 11 percent to 23 percent; Capital One hiked her rate from 15 percent to 19 percent. 

Bank of America and Citi acted because her FICO score had 

dropped, while Capital One had selected her account as part of its 

practice to unilaterally pass on borrowing costs to its cardholders. 

After many calls, Ms. Corbett was able to convince each of the 

companies to partially or fully retract its rate increase. As a result, 

the interest rates on her three cards have settled for the moment 

at 10 percent, 19 percent, and 15 percent. She told the Subcommittee that contesting these multiple increases, none of which 

were her fault, and all of which threatened her ability to repay her 

debts, had left her exhausted and worried about what happens 

next. 

Well, those case histories cause me a lot of worry, too. December 

is a big shopping month. Stores, advertisers, and sometimes even 

the President are urging shoppers to spend more. But if you shop 

with a credit card, as most Americans do, dangers lurk that few 

consumers realize could damage their financial future. 

Suppose, for example, you spend up to but not over the credit 

limit on your credit card. Most Americans do not realize that if 

they get too close to their credit limit, their FICO score could drop 

and trigger an interest rate increase on their credit cards, even for 

credit cards that they have paid on time for years, even for closed 

cards whose debts they are paying off. And the same lower FICO 

score could trigger interest rate hikes on more than one credit card, 

increasing the debt on each one. At least 50 percent of U.S. credit 

cardholders carry debt from month to month, and the average 

American family has five credit cards. Interest hikes on multiple 

cards at once could spell financial disaster for working families. 

One of the issues the Subcommittee has been investigating is 

who determines an individual’s FICO score. Who decides when a 

5

lower FICO score will trigger a higher credit card interest rate? 

And who actually sets those higher interest rates? What we have 

found is that most interest rate decisions are not made by individual employees of companies but by computer systems programmed to react to credit scores. 

In most of the case histories that we examined, when a credit 

card issuer was asked by a Subcommittee to explain why a particular cardholder’s interest rate was increased, the issuer pointed 

to the person’s lower FICO score. When we asked why the FICO 

score was lower, usually the only information the credit card issuer 

provided was a list of up to four ‘‘reason codes’’ supplied by the 

credit bureau at the time the lower score was transmitted. These 

reason codes provided generic statements on why a score was reduced, using such phrases as ‘‘balance grew too fast compared to 

credit limit’’ or ‘‘total available credit on bank cards is to low,’’ 

without identifying the specific facts that supported or explained 

these statements. 

By law, credit card issuers who rely upon a credit score to increase an interest rate must inform the cardholder of the identity 

of the credit bureau which supplied the score, how to contact that 

bureau, and the cardholder’s right to review their credit report and 

correct any wrong data. Issuers often include that information in 

the same notice that informed a cardholder of an upcoming interest 

rate increase. However, the Subcommittee’s investigation has found 

that few cardholders understand that their interest rate hike was 

caused by a lower credit score. And even for those who do make 

that connection, the investigation has found that it is difficult to 

look at a person’s credit report and identify what factors caused 

their score to drop. 

None of the cardholders contacted by the Subcommittee had 

known that their interest rates had been triggered by a lower FICO 

score. Janet Hard, for example, said she asked Discover why her 

interest rate had been increased, but was never informed that it 

was because her FICO score had dropped, and so she never requested or reviewed her credit report. 

In response to the Subcommittee’s request, Discover provided the 

three reason codes transmitted by a credit bureau to explain Ms. 

Hard’s lower score, which indicated that the ‘‘proportion of balance 

to credit limit was too high on her credit cards,’’ she had too many 

‘‘established accounts,’’ and she had ‘‘accounts with delinquencies.’’ 

But Discover did not know what balances were ‘‘too high,’’ how 

many accounts were ‘‘too many,’’ or what accounts had ‘‘delinquencies.’’ Ms. Hard felt the stated reasons were inaccurate since 

she had always been careful to pay all of her bills and is current 

on all of her accounts. 

When we examined Ms. Hard’s credit report, we were also at a 

loss to explain these references since her accounts are all paid up 

to date. We did notice that just before her 2006 rate increase, the 

credit report showed she was 30 days late paying a J.C. Penney 

credit card bill, but it is unclear if that lowered her score. 

We had the same difficulty in the case of Bonnie Rushing. Bank 

of America was unable to confirm whether her credit score dropped 

because, in early 2007, she opened Macy’s and J. Jill credit cards 

to obtain discounts on purchases. 

6

The bottom line is that the credit-scoring process is at times akin 

to a black box. No one knows exactly how it works or what lowers 

the score, yet it has become the primary driver of interest rate increases for tens of millions of Americans. To me, if a person meets 

their credit card obligations to a credit card issuer and pays their 

bills on time, it is simply unfair for that credit card issuer to raise 

their interest rates based on a credit score that is confusing, and 

does not relate to the relationship or the payment record of that 

credit cardholder to a particular credit card issuer. 

Equally offensive is the practice of credit card issuers applying 

the higher interest rate not just to future debt but retroactively to 

a cardholder’s existing debt. Take the case of Ms. Hard again, a 

woman who faithfully pays her bills on time. For the last year, she 

kept her purchases on her Discover Card to less than $100, and she 

paid $200 every month to reduce her debt. When Discover hiked 

her interest rate from 18 percent to 24 percent, it applied the higher rate to her existing debt. After she complained, Discover lowered 

her rate to 21 percent, but that was still above where she started. 

Over the past 12 months, she has paid Discover a total of $2,400, 

more than a quarter of her $8,300 debt. But 1,900 of those dollars 

did not go to pay down her debt. They were eaten up by sky-high 

interest rates. At the end of 12 months, despite paying $2,300, she 

reduced her debt by only $350. If that is not unfair, I do not know 

what is. 

One last point, which has to do with the appearance of arbitrary 

credit card interest rates. Credit card issuers have attempted to set 

up an automated system that assigns interest rates using ‘‘objective criteria,’’ allegedly based upon cardholders’ credit risks represented by their FICO scores. But look at the case histories that 

we have investigated. 

Over the course of the last year, even though his credit circumstance did not change, Mr. Glasshof’s credit card with Chase 

was assigned interest rates of 15 percent, 17 percent, 27 percent, 

and 6 percent. That 6-percent rate, by the way, came after the Subcommittee inquired about his account. 

Another case history which we have not mentioned so far involves Marjorie Hancock of Massachusetts. She has four Bank of 

America cards, carries similar amounts of debt on each, and presumably presents each with the same credit risk. Yet all four cards 

have different interest rates: 8 percent, 14 percent, 19 percent, and 

27 percent. 

The bottom line for me is this: When a credit card issuer promises to provide a cardholder with a specific interest rate if they 

meet their credit card obligations and the cardholder holds up their 

end of the bargain, the credit card issuer should have to do the 

same. And that is why I have introduced, with Senator McCaskill 

and others, S. 1395 aimed at putting an end to these and other unfair credit card practices and ensuring that cardholders who play 

by the rules are protected from unfair interest rate increases, including rate increases that are retroactively applied to existing 

credit card debt. 

[The opening prepared statement of Senator Levin follows:]

7

OPENING PREPARED STATEMENT OF SENATOR LEVIN 

This hearing is the second in a series of Subcommittee hearings examining unfair 

credit card practices. Today’s focus is on credit card issuers who hike the interest 

rates of cardholders who play by the rules—meaning those folks who pay on time, 

pay at least the minimum amount due, and wake up one day to find their interest 

rate has gone through the roof—again, not because they paid late or exceeded the 

credit limit, but because their credit card issuer decided they should be ‘‘repriced.’’ 

To add insult to injury, credit card issuers apply those higher rates retroactively to 

consumers’ existing credit card debts, which were incurred when lower interest 

rates were in effect. 

Let me give you a few examples taken from the Subcommittee investigation into 

the interest rate practices at the five major credit card issuers who handle 80 percent of U.S. credit cards. These examples are also summarized in a set of eight case 

histories in Exhibit 1, that is a part of the hearing record. 

Janet Hard of Freeland, Michigan is a registered nurse, married with two children, whose husband is a steamfitter. She has had a Discover credit card for years. 

In 2006, out of the blue, Discover increased the interest rate on her card from 18 

percent to 24 percent. 

Discover took that action, because Ms. Hard’s FICO score had dropped. FICO 

scores, developed by the Fair Issac Company, are numbers between 300 and 850 

that are generated by a complex mathematical model designed to predict the likelihood that a person will default on their credit obligations within the next 90 days. 

FICO scores are compiled by credit bureaus who supply them upon request to credit 

card issuers seeking the scores of their cardholders. Discover’s policy is to put more 

weight on a computer-generated FICO score than on the fact that, for years, Ms. 

Hard had always paid her Discover bills on time, never exceeded her credit limit, 

and always paid at least the minimum amount due. 

After increasing her rate, Discover even applied the higher interest rate to her 

existing credit card debt, which in my book fits the definition of a retroactive rate 

increase. The 24 percent rate boosted her finance charges and the minimum payment she was required to make each month. It took Ms. Hard some months to realize that, despite making larger payments, her debt was hardly decreasing. When 

she saw her interest rate had been hiked to 24 percent and complained, Discover 

lowered it to 21 percent, still above where she started. 

The higher interest rates have made it more difficult for Ms. Hard to pay off her 

debt. Under her old rate of 18 percent, when she made a $200 payment, about $148 

went to pay for the finance charges and $52 went to pay down her debt. With the 

24 percent interest rate, out of that same $200 payment, about $176 went to finance 

charges and only about $24—less than half the amount previously—went to pay 

down the principal debt. 

This chart, Exhibit 2(a) shows the result. Over the last twelve months, Ms. Hard 

has kept her credit card purchases to less than $100 and has made steady monthly 

payments of $200 to reduce her debt. At the end of a year, her payments totaled 

$2,400, but due to those high interest rates of 21 to 24 percent, almost all of her 

money went to pay for finance charges. In fact, out of her $2,400, about $1,900 went 

to finance charges and she was able to pay down her principal debt by only about 

$350. 

Millard Glasshof of Milwaukee, Wisconsin, is a senior citizen living on a fixed income. For years he faithfully made a $119 monthly payment to Chase to pay off a 

credit card debt that is now about $4,800. In December 2006, a year ago, out of the 

blue, Chase decided to hike his interest rate, from 15 percent where it had been 

for years, to 17 percent and then in February to 27 percent. 

Why? Chase had decided to conduct an automated review of all its closed credit 

card accounts where balances were being paid off. Because that automated review 

found that Mr. Glasshof’s FICO credit score had dropped, it hiked his rate. Think 

about that. His account was closed. He made no new purchases. All he did for years 

was send in his payments like clockwork. But his interest rate was automatically 

hiked from 15 to 27 percent. Not only that, to rub salt in the wound, the new 27 

percent rate was applied retroactively to his existing credit card debt, and his finance charges skyrocketed. 

Under the 27 percent interest rate, out of his $119 monthly payments to Chase, 

about $114 went to pay for finance charges and only $5 a month went to pay down 

his principal debt. And even those $5 reductions were wiped out by sky-high fees. 

For example, Mr. Glasshof was often charged a $39 per month over-the-limit fee, 

until at our last hearing in March Chase ended its policy of charging repeated overthe-limit fees for going over the credit limit once. In addition, in August 2007, Mr. 

Glasshof got a confusing letter from Chase indicating that his minimum payment 

8

would change. He called Chase, was advised he could pay $111 instead of his usual 

$119, paid it, and got hit with a $39 fee for not paying enough. 

The end result, as shown in this chart, Exhibit 2(b), was that, over the last twelve 

months, Mr. Glasshof made payments totaling about $1,300, but was charged about 

$1,100 in interest and $200 in fees, which meant that none of his $1,300 in payments reduced his debt at all. 

Then there’s Bonnie Rushing of Naples, Florida. She has two Bank of America 

cards, one of which is affiliated with the American Automobile Association (‘‘AAA’’). 

For years, she paid both credit card bills on time. For years, both cards carried an 

interest rate of about 8 percent. But in April 2007, out of the blue, Bank of America 

increased the interest rate on her AAA card—not by a handful of points but by tripling it from 8 percent to 23 percent. Bank of America tripled the rate, because Ms. 

Rushing’s FICO score had dropped, and the bank used that FICO score to raise her 

rate, ignoring the fact that, for years, she had paid her credit card bills to Bank 

of America on time. 

Ms. Rushing, by the way, like Ms. Hard and Mr. Glasshof, doesn’t know why her 

FICO score dropped. She speculates that it may have been because, in January and 

March 2007, she opened Macy’s and J.Jill credit cards to obtain discounts on purchases—15 percent off some cosmetics and 20 percent off some clothes. She didn’t 

realize then that simply opening those accounts and receiving those cards could negatively impact her FICO score and hike her interest rate. 

When Ms. Rushing first saw the higher rate on her April billing statement, she 

called Bank of America, explained she’d never received notice of a rate increase, and 

wanted to opt out by closing her account and paying off her debt at the old rate. 

Bank of America personnel responded that she had already missed the opt out deadline and pressed her to accept a higher interest rate. Ms. Rushing resisted. She 

closed her account. She wrote to the Florida Attorney General; she wrote to this 

Subcommittee; and she called AAA. Bank of America finally agreed to restore the 

8 percent rate on her closed account, and refunded the $600 in extra finance charges 

it had collected in just two months. 

Linda Fox of Circleville, Ohio is a working grandmother. She has had a Capital 

One credit card for more than ten years. In April 2007, out of the blue, Capital One 

increased her interest rate from 8 percent to 13 percent. Capital One raised her 

rate, not because her FICO score had dropped (Capital One doesn’t use FICO scores 

to raise rates), but because Capital One had decided to pass on so-called additional 

borrowing costs to its cardholders. Capital One’s automated system selected accounts whose interest rates had not been increased in three years and had what 

the system deemed a ‘‘below market’’ interest rate. Ms. Fox’s account was one of 

many selected, and the higher rate was applied retroactively to her existing credit 

card debt. She tried without success to opt out and get her old rate back. Six months 

later, in November, after a Subcommittee inquiry, Capital One allowed Ms. Fox to 

close her account and pay off her debt at the old 8 percent rate. 

We have additional case histories, but I’ll stop with just one more. In 2007, Gayle 

Corbett of Seattle, Washington was hit with interest rates hikes on three separate 

credit cards in three separate months. Bank of America increased her rate from 15 

percent to 24 percent; Citi more than doubled her rate from 11 percent to 23 percent; and Capital One hiked her rate from 15 percent to 19 percent. Bank of America and Citi acted because her FICO score had dropped, while Capital One had selected her account as part of its practice to unilaterally pass on borrowing costs to 

its cardholders. After many calls, Ms. Corbett was able to convince each of the companies to partially or fully retract its rate increase. As a result, the interest rates 

on her three cards have settled for the moment at 10 percent, 19 percent, and 15 

percent. She told the Subcommittee that contesting these multiple increases, none 

of which were her fault and all of which threatened her ability to repay her debts, 

had left her exhausted and worried about what happens next. 

These case histories cause me a lot of worry too. In the United States, December 

is a big shopping month. Stores, advertisers, and sometimes even the President, are 

urging shoppers to spend more. But if you shop with a credit card, as most Americans do, dangers lurk that few consumers realize could damage their financial future. 

Suppose, for example, you spend up to—but not over—the credit limit on your 

credit card. Most Americans don’t realize that if they get too close to their credit 

limit, their FICO score could drop and trigger an interest rate increase on their 

credit cards—even for credit cards that they’ve paid on time for years—even for 

closed cards whose debts they’re paying off. And the same lower FICO score could 

trigger interest rate hikes on more than one credit card, increasing the debt on each 

one. At least 50 percent of U.S. credit cards carry debt from month to month, and 

9

the average American family today has five credit cards. Interest hikes on multiple 

cards at once could spell financial disaster for working families. 

Among the issues the Subcommittee has been investigating are who determines 

an individual’s FICO score, who decides when a lower FICO score will trigger a 

higher credit card interest rate, and who actually sets those higher interest rates. 

What we found is that most interest rate decisions are not made by individual employees, but by computer systems programmed to react to credit scores. 

It works like this. Take a look at this chart, Exhibit 2(c). FICO scores are generated by three so-called credit bureaus, Equifax, Experian, and TransUnion. To 

produce the scores, each credit bureau collects credit data from a variety of sources, 

including payment data from companies administering mortgages, car loans, utility 

bills, and credit card accounts, and information taken from bankruptcy and tax proceedings, debt collectors, and others. This credit data is fed into the credit bureaus’ 

computer systems on a continuous basis. 

The credit bureau computers take in, store, and organize the information so that 

a ‘‘credit report’’ can be called up for any one of hundreds of millions of individuals. 

Each credit report identifies the individual by name and address; lists what types 

of credit that person has, including any mortgage, car loan, or credit card; and describes whether the person is current or behind on the payments. The report also 

indicates whether that person has been the subject of debt collection efforts or has 

declared bankruptcy. 

In addition to compiling the credit reports, the credit bureaus apply a complex 

mathematical model, developed by Fair Issac Company, to analyze the data in each 

report in an attempt to predict how likely the person is to default on their credit 

obligations in the next 90 days. The model focuses primarily on such factors as the 

extent to which a person is past due in paying their bills, the level of debt incurred, 

and the extent to which the incurred debt is close to the person’s credit limits. Recent debt collection actions and bankruptcies are considered key factors that predict 

a greater likelihood of default. After analyzing the data in each credit report, the 

model assigns each person a FICO score, that number between 300 and 850 that 

is supposed to predict the likelihood of a default in the next 90 days. 

Fair Issac has designed the FICO scoring system so that the lower the number, 

the more likely the person is to default in the next 90 days. A person with a 720 

FICO score, for example, is seen as having odds of roughly 1 in 22 that they will 

default in the next 90 days; a person with a 680 score has 1 in 9 odds of defaulting; 

and a person with a 620 score is seen as having roughly 1 in 4 odds of defaulting. 

So the lower the score, the greater likelihood a person will default. 

Major credit card issuers typically check the FICO scores of each of their cardholders every 30-90 days. Since each issuer has millions of cardholders, millions of 

FICO scores are fed into the issuer’s computer systems on an automated basis. If 

a cardholder’s FICO score drops, the issuer’s own automated, risk analysis system 

automatically flags the account for additional review. The issuer’s system then uses 

the person’s FICO score and actual payment history at the issuer to generate an 

internal credit score evaluating the cardholder’s likelihood of defaulting in the near 

future. If that internal credit score falls within designated criteria—even if that 

cardholder has a perfect record of making on-time payments to the issuer—the credit card issuer’s computers use other criteria to select a higher interest rate for that 

cardholder. The system then sends a notice to the cardholder that the increased rate 

will be applied by a specified date, unless the cardholder follows certain procedures 

to opt out of the increase by closing the account. 

The automated process I’ve described, capable of making credit decisions on millions of accounts, has been in operation for years. Today, in most cases, no human 

being is involved at any point in deciding who will get an interest rate increase, 

selecting the interest rates to be imposed, and notifying the affected cardholders. 

While human beings do program the computers and sometimes are brought in to 

decide a small portion of individual cases, the vast majority of credit card interest 

rate increases today are being decided and imposed on an automated basis. And 

those automated rate increases can and do hike the interest rates of people with 

excellent histories of on-time payments. 

To make interest rate decisions, the issuers’ automated systems are driven by 

numbers, primarily FICO scores. What the Subcommittee has learned is that the 

mathematical models generating the FICO scores are so complex that even experts 

have trouble predicting what actions will increase or lower an individual’s score. 

Take, for example, the situation where a person opens a new credit card account 

in order to obtain a discount on a purchase. Opening a new credit card could increase a person’s FICO credit score if they have only a few credit cards and don’t 

use up a lot of the available credit on the new card. But the same action could lower 

another person’s score if they already have a handful of credit cards and buy a big 

10

ticket item that uses up or comes close to the credit limit on the new card. As the 

FICO experts explain, every factor depends upon every other factor to determine a 

person’s score, so it is difficult to predict how specific actions affect an individual’s 

FICO score. 

The Subcommittee also learned that, although credit bureaus typically transmit 

not only a person’s FICO score, but also the underlying credit report containing the 

information justifying that score, credit card issuers typically do not review or keep 

that credit report. The credit bureau does not retain the credit report either, because its automated systems are continually updating all of its credit information 

with the latest data streaming in. That means, unless a cardholder requests a credit 

report soon after a FICO score is transmitted to an issuer, the specific information 

used to generate the specific score may be lost. 

In most of the case histories we examined, when a credit card issuer was asked 

by the Subcommittee to explain why a particular cardholder’s interest rate was increased, the issuer pointed to the person’s lower FICO score. When we asked why 

the FICO score was lower, usually the only information the credit card issuer provided was a list of up to four ‘‘reason codes’’ supplied by the credit bureau at the 

time the lower score was transmitted. These reason codes provide generic statements on why a score is reduced, using such phrases as ‘‘balance grew too fast compared to credit limit’’ or ‘‘total available credit on bankcards is too low,’’ without 

identifying the specific facts that support or explain these statements. 

By law, credit card issuers who rely upon a credit score to increase an interest 

rate must inform the cardholder of the identity of the credit bureau who supplied 

the score, how to contact that bureau, and the cardholder’s right to review their 

credit report and correct any wrong data. Issuers often include that information in 

the same notice that informs a cardholder of an upcoming interest rate increase. 

The Subcommittee’s investigation has found, however, that few cardholders understand that their interest rate hike was caused by a lower credit score. And even for 

those who do make that connection, the investigation has found that it is difficult 

to look at the person’s credit report and identify what factors caused their score to 

drop. 

None of the cardholders contacted by the Subcommittee had known that their interest rates had been triggered by a lower FICO score. Janet Hard, for example, 

said she’d asked Discover why her interest rate had been increased but was never 

been informed that it was because her FICO score had dropped and so never requested or reviewed her credit report. In response to the Subcommittee’s request, 

Discover provided the three reason codes transmitted by a credit bureau to explain 

Ms. Hard’s lower score, which stated that the ‘‘proportion of balance to credit limit’’ 

was ‘‘too high’’ on her credit cards, she had too many ‘‘established accounts,’’ and 

she had ‘‘accounts with delinquenc[ies].’’ But Discover didn’t know what balances 

were ‘‘too high,’’ how many accounts were too many, or what accounts had delinquencies. Ms. Hard felt the stated reasons were inaccurate, since she has always 

been careful to pay all her bills and is current on all of her accounts. When we examined Ms. Hard’s credit report, we were also at a loss to explain these references, 

since her accounts are all paid up to date. We did notice that, just before her 2006 

rate increase, the credit report showed she was 30 days late paying a J.C. Penny 

credit card bill, but it is unclear if that lowered her score. We had the same difficulty in the case of Bonnie Rushing; Bank of America was unable to confirm 

whether her credit score dropped because, in early 2007, she opened Macy’s and 

J.Jill credit cards to obtain discounts on purchases. The bottom line is that the credit scoring process is at times akin to a black box; no one knows exactly how it works 

or what lowers a score, yet it has become the primary driver of interest rate increases for tens of millions of Americans. 

To me, if a person meets their credit card obligations to a credit card issuer and 

pays their bills on time, it is simply unfair for that credit card issuer to raise their 

interest rates. 

Equally offensive is the practice of credit card issuer’s applying the higher interest 

rate, not just to future debt, but retroactively to a cardholder’s existing debt. Take 

the case of Ms. Hard again, a woman who faithfully pays her bills on time. For the 

last year, she kept her purchases on her Discover card to less than $100 and paid 

$200 every month to reduce her debt. When Discover hiked her interest rate from 

18 percent to 24 percent, it applied the higher rate to her existing debt. After she 

complained, Discover lowered her rate to 21 percent, but that was still above where 

she started. Over the past twelve months, she has paid Discover a total of $2,400—

more than a quarter of her $8,300 debt. But $1,900 of those dollars did not go to 

pay down her debt; they were eaten up by the sky-high interest rates. At the end 

of twelve months, despite paying $2,300, she reduced her debt by only $350. If that 

isn’t unfair, I don’t know what is. 

11

One last point, which has to do with the appearance of arbitrary credit card interest rates. Credit card issuers have attempted to set up automated systems that assign interest rates using objective criteria based upon cardholders’ credit risks, represented by their FICO scores. But look at the case histories we’ve investigated. 

Over the course of the last year, even though his credit circumstances didn’t change, 

Mr. Glasshof’s credit card with Chase was assigned interest rates of 15 percent, 19 

percent, 27 percent and 6 percent. That 6 percent rate, by the way, came after the 

Subcommittee inquired about his account. Another case history, which we haven’t 

mentioned so far, involves Marjorie Hancock of Massachusetts. She has four Bank 

of America cards, carries similar amounts of debt on each, and presumably presents 

each with the same credit risk. Yet all four cards have different interest rates, 8 

percent, 14 percent, 19 percent, and 27 percent. 

The bottom line for me is this: When a credit card issuer promises to provide a 

cardholder with a specific interest rate if they meet their credit card obligations, 

and the cardholder holds up their end of the bargain, the credit card issuer should 

have to do the same. That’s why I’ve introduced legislation with Senator McCaskill 

and others, S. 1395, aimed at putting an end to these and other unfair credit card 

practices, and ensuring that cardholders who play by the rules are protected from 

unfair interest rate increases, including rate increases that are retroactively applied 

to existing credit card debt. 

Senator Coleman, I would like to thank you and your staff for your ongoing participation in the Subcommittee’s investigation into unfair credit card practices. That 

participation has greatly assisted in the Subcommittee’s understanding of the industry practices being discussed today.

Senator LEVIN. Senator Coleman, I want to thank you and your 

staff for your ongoing participation in the Subcommittee’s investigation into unfair credit card practices. That participation has 

greatly assisted in the Subcommittee’s understanding of the industry practices that are being discussed today. I am most appreciative 

for that support and participation, and I now recognize you. Senator Coleman. 

OPENING STATEMENT OF SENATOR COLEMAN 

Senator COLEMAN. Thank you, Mr. Chairman. I want to return 

the thanks by thanking you for your continued leadership in this 

very important area of credit card practices. I suspect that in this 

hall everybody sitting here has a credit card. When I travel to my 

town meetings around the State of Minnesota, it is very rare that 

someone is not touched by the work that you are doing, and so I 

thank you for your leadership. 

It is clear that, when it comes to credit, the world has changed. 

Not long ago, credit was something you had to earn. You made a 

case to a bank or a mortgage company that you were indeed capable of making payments. Not today. It seems every time we go to 

the mailbox, we are fighting off people who want to lend us money, 

and this easy credit has gotten a lot of folks into trouble. Lately, 

it seems you cannot read a newspaper or turn on the television 

without encountering stories about the credit crisis in the housing 

market. And while mortgage lending differs from credit card lending, the sectors are related. In fact, the chief economist at Moody’s 

economy.com recently drew a clear link between the current mortgage crisis on the one hand and the problem of credit card debt on 

the other, saying, ‘‘Homeowners are unable to borrow against their 

homes, so they are turning back to their credit cards.’’

My point is that while credit card debt may seem like a very personal problem, it clearly has implications for the entire Nation, and 

we should make no mistake: The credit crunch is very real. 

12

We have spoken to folks from our home State of Minnesota about 

certain credit card practices, and they are frustrated. Minnesota 

families find themselves ensnared in this seemingly inescapable 

web of credit card debt. They particularly report being saddled with 

interest rates that skyrocket on them from what they say is seemingly out of the blue. 

I want to pause here with that one expression, ‘‘out of the blue.’’ 

Folks out there are actually feeling ambushed. They feel like they 

are not getting sufficient notice of interest rate increases, and credit card companies need to do a better job here. Some of the witnesses we will hear from today will report not receiving or at least 

not reading change-in-terms notices. But, frankly, the problem is 

that, even when they read these notices, they seem to be written 

by and for lawyers, with an eye more towards staving off litigation 

rather than educating and providing actual notice to consumers. 

To be sure, over the past 20 years the credit card industry has 

created financial opportunities for countless Americans by extending credit to a far broader pool of borrowers than other lenders, including many high-risk borrowers who would not otherwise have 

obtained credit. This democratization of credit has been a boon for 

America—for consumers and the credit card industry alike. As we 

move forward, however, we must be mindful not to throw the baby 

out with the bath water. We must be mindful of the unintended 

consequences that sometimes result from Federal regulation of the 

marketplace, consequences like higher average interest rates for all 

cardholders, the return of high annual fees, and a reduction in the 

availability of credit to folks with less-than-stellar credit scores. 

I want to be clear: I fully understand that the democratization 

of credit has also brought greater complexity and greater vulnerability, and the reality is that many Americans continue to believe 

that the credit card system is rigged against them. But in addressing that problem, let’s make sure we do not inadvertently harm the 

very people we are trying to protect. 

With that in mind, I challenged the industry at our hearing last 

March to clean up its own act so that the Federal Government 

would not have to. In the aftermath of that hearing, I worked closely with industry representatives and directed my staff to work with 

credit card companies to help hammer out common-sense solutions 

to these challenges. I am happy to report that some credit card 

companies have begun the cleanup. Several have recognized the inadequacies of the disclosure and have worked with the Federal Reserve to provide new, clearer formats to better provide truly effective notice. 

Even more encouraging, certain issuers have taken truly bold 

steps to reform their policies and practices. This year alone, J.P. 

Morgan Chase has improved its disclosures, eliminated double 

cycle billing, changed its practices with respect to over-the-limit 

fees, and just last month promised never to increase a cardholder’s 

rate based on credit bureau information. Capital One has essentially the same policy. Similarly, Citi has agreed not to reprice customers who are in good standing more than once every 2 years. 

Oversight has its impact, Mr. Chairman. 

These are all important steps. They constitute serious self-reform, and I applaud these companies for their leadership and othVerDate 0ct 09 2002 09:01 Feb 21, 2008 Jkt 040504 PO 00000 Frm 00018 Fmt 6633 Sfmt 6601 P:\DOCS\40504.TXT SAFFAIRS PsN: PAT
13

ers like them. Credit card companies like Chase, Capital One, and 

Citi are starting to realize there is a benefit to be had, a competitive advantage to offering fair, consumer-friendly policies. Recently 

initiated plans like Chase’s ‘‘Clear and Simple’’ or Citi’s ‘‘A Deal Is 

a Deal’’ offer consumers a new level of transparency and predictability in managing their credit card obligations. 

But more needs to be done. More credit card companies need to 

follow these companies’ leads in combating the public’s impression 

that issuers design hair-trigger default rules, out-of-the-blue interest rate hikes, and stingy cure policies that can entangle unsuspecting consumers. A cardholder should never be startled by a 

rate hike. In short, more credit card companies need to make their 

policies transparent and predictable, and you do this by focusing on 

one thing: Notice—clear, user-friendly disclosures, and commonsense, straightforward alerts to changes in a card’s terms. 

I look forward to working with our witnesses and with Chairman 

Levin to create a more consumer-friendly lending environment in 

the future. Thank you, Mr. Chairman. 

Senator LEVIN. Thank you, Senator Coleman. Senator McCaskill. 

OPENING STATEMENT OF SENATOR McCASKILL 

Senator MCCASKILL. Mr. Chairman, I want to thank you for calling this hearing. I remain very concerned about the credit card industry and the reality that most Americans even with legal training do not dissect the very long small print that comes with every 

credit card and every credit card solicitation. 

In the hearing before on this subject matter, I had talked about 

some of the things that I had been through personally as it related 

to my mother’s credit cards. I have an installment on that saga. I 

finally, after some difficulty—I do not know how many of you have 

ever tried to pay off a credit card, but it is not easy. It is not easy 

to pay it off because they really do not want you to close the card, 

and so you keep saying, ‘‘I want this account closed,’’ and they do 

not want to close it. And so you may not know this, but you cannot 

just close your account by writing on the bill statement. You have 

to send them a separate letter in writing. You cannot call them and 

say you do not want the card anymore. You have to send them a 

separate letter. 

The last installment of the story is last week my mother heard 

from one of the credit card companies that I managed to finally get 

closed and thought it was over—and I will talk about some of the 

experiences with interest in the questioning of the bank executives 

later in the hearing. But she brought me an envelope last week she 

had gotten from one of these companies, and it was one of these 

cards that she had closed. It was an envelope of checks that she 

could sign for the Christmas holidays to begin using that card 

again. And this is, of course, after the company has been told in 

writing that she does not want a card, they should not solicit her, 

and so forth and so on. 

So it is harder than it looks. I want to say to all the witnesses, 

do not be ashamed. You are there with the rest of America. I think 

most Americans do not understand that they are in a hole in terms 

of minimum payments, and I think, frankly, Mr. Chairman, that 

we are not preparing for what can be the next subprime disaster. 

14

The next subprime disaster is the debt that is out there within the 

credit card obligations in America. I believe that all of that unsecured debt that is there that has been aggressively sought by these 

companies, I think that is another economic disaster that is waiting to happen very similar to the subprime mortgage disaster. 

So I think this hearing is timely. I think it is time for Congress 

to act. If these credit card companies cannot understand that 

America needs to know what they are getting into in clear language—and it should not be hard for a consumer to find out why 

they are paying what they are paying, when they are paying what 

they are paying, and how long it is going to take for them to get 

out of the hole if they are paying what they are being asked to pay. 

This is not that complicated, and it could be done by these companies without Congress doing a thing, if they wanted to do it. And 

I think if they will not do it, I am comfortable with the knowledge 

that eventually—I realize nothing happens quickly around here 

without a lot of pulling around. But I am confident that we will 

eventually force it upon the credit card companies if they do not 

become more consumer friendly. Thank you, Mr. Chairman. 

Senator LEVIN. Thank you, Senator. Senator Coburn, do you 

have an opening statement? 

Senator COBURN. No, I do not. 

Senator LEVIN. Thank you. 

I would now like to welcome our first panel of witnesses: Janet 

Hard, a consumer from Freeland, Michigan; Bonnie Rushing, a consumer from Naples, Florida; and Millard Glasshof, a consumer 

from Milwaukee, Wisconsin. I want to thank each of you for traveling here today. We look forward to your testimony. I would like 

to also welcome the family members who are here today, those who 

have accompanied you. 

Pursuant to Rule VI, all witnesses who testify before this Subcommittee are required to be sworn, and at this time I would ask 

each of you to stand and to raise your right hand. Do you swear 

that the testimony you are about to give before this Subcommittee 

will be the truth, the whole truth, and nothing but the truth, so 

help you, God? 

Ms. HARD. I do. 

Ms. RUSHING. I do. 

Mr. GLASSHOF. I do. 

Senator LEVIN. We will use a timing system today. There will be 

a 5-minute limit on your testimony. If you could possibly achieve 

that, we would appreciate it. About a minute before the red light 

showing the end of 5 minutes comes on, you will see that the light 

will change from green to yellow, which gives you an opportunity 

to conclude your remarks. Your written testimony will be printed 

in the record in its entirety. 

Ms. Hard, we will have you go first, followed by Ms. Rushing. 

Then we will finish up with Mr. Glasshof. And then after we have 

heard all of your testimony, we will turn to questions. Ms. Hard. 

15

1The prepared statement of Ms. Hard appears in the Appendix on page 63. 

TESTIMONY OF JANET HARD,1 CONSUMER, FREELAND, 

MICHIGAN 

Ms. HARD. Mr. Chairman, Members of the Subcommittee, I 

would like to thank you for having me here today. I will begin by 

introducing myself. 

My name is Janet Hard. I am from Freeland, Michigan, a small 

town in the Saginaw Bay area where my husband Bill and I have 

always lived. We have been married for 17 years and have two 

teenage sons. Bill is a steamfitter/welder and I am a registered 

nurse, but much of the time since having children we have chosen 

for me to be a stay-at-home mom. This decision meant significantly 

less income for our family, but we believe the benefits far outweighed the cost. When my boys were babies, I was the one who 

took care of them, I was there for all their firsts—first smiles, first 

words, first steps. The list goes on and on. They learned to read 

from me because I had time to read to them. When their school 

needed a volunteer for a class party or a chaperon for a field trip, 

I was always available. I would not give back the time I got to 

spend with them for all the money in the world, which brings me 

to the reason I am here. 

During this time we used credit cards to make ends meet when 

we needed to. Maybe this was not the best decision, maybe we 

could have been more frugal with our money, but we were paying 

our bills on time and keeping our heads above water. We figured 

the time would come when our children were older that we could 

increase our income and pay off our accumulated debt. This no 

longer seems possible considering what the Discover Card Company has done to us. 

This past February, I noticed that something was not right with 

our account. We were making payments more than the minimum 

amount required and using the card for only an $8-a-month Internet fee, but the balance was barely moving. So I did some investigating and found the reason. Our interest rate was at a whopping 

24.24 percent. Our payment history with them, as well as other 

credit card companies, is very clean. We have never accrued a balance over our limit and always made our payments on time. So I 

thought it must be an error and called Discover immediately for an 

answer. 

The woman that I spoke to explained to me that the reason our 

interest rates were increased was because they had run a spontaneous credit report on us and concluded that our credit card balances and the credit we had available from inactive accounts put 

us at risk of defaulting on our payments. When I pointed out that 

we were not late in making any payments, she agreed that our account was in very good standing, but they could still raise our rates 

due to this credit imbalance. 

During this same time we have also had balances on other major 

credit cards, including an HSBC account. Although they have the 

access to the same information as Discover, our interest rate with 

HSBC has remained at 6.9 percent, far from the outrageous interest fees that Discover has been charging us. 

16

1The prepared statement of Ms. Rushing appears in the Appendix on page 65. 

When I look at the money that we have paid to Discover during just the last 2 years, I feel sick. Out of the $5,618 made in payments to Discover, $3,478.39 went to interest. It is hard for me to 

even get my mind around that. The money that Discover has made 

in interest charges from my husband and I over the last 5 years 

is probably more than what we owe them now. We were never expecting to shirk our debt responsibility. We only expected to be 

treated fairly. We upheld our end of the agreement with Discover 

but have found that they have been able to change the rules to 

benefit themselves. 

My husband and I feel as though we have been robbed. To have 

so much of our hard earned money taken by a company as large 

as Discover seems so unfair. The stress it has caused affects us 

deeper than just financially. It has made us feel ashamed and foolish. We blame ourselves for letting it happen. As we struggle to 

overcome this financially, we also are struggling to overcome it on 

an emotional level. Some days this feels more difficult than the 

paying off of our balance. 

As with most all parents, our children are more important than 

anything. My husband and I want only the best for them. This includes a college education, which is just a couple of years away for 

us. Thinking about how much the money squeezed from us by Discover would help alters the way I feel about myself as a parent. 

Their future is why I have come here to testify. 

I hope that my voice can speak for every family out there who 

is going through the same thing as mine is. Thank you for your 

time. 

Senator LEVIN. Thank you, Ms. Hard. Ms. Rushing. 

TESTIMONY OF BONNIE RUSHING,1 CONSUMER, NAPLES, 

FLORIDA 

Ms. RUSHING. I am here before you today to tell you my recent 

experience with Bank of America. I am compelled by this experience to share it in hopes that by doing so you will be compelled to 

prevent what happened to me from happening to others. 

A year ago I lost a good-paying job due to downsizing. That cost 

me over $20,000 in annual salary, an annual bonus, and a substantial amount in medical benefits. In spite of this, I have never 

missed or even been late on any payment obligations to my credit 

card companies. 

In May 2003, I received an AAA-sponsored credit card solicitation from MBNA Bank with a 0 percent promotional interest rate. 

In October 2006, Bank of America replaced MBNA as the bank 

supporting this card. Since 2004, the interest rate was always 7.9 

percent, and that did not change when Bank of America first took 

over. However, when I received my April 2007 statement, it showed 

an interest rate of 22.90 percent with a minimum payment of $674 

due on May 8. 

On April 21, 2007, I contacted Bank of America to discuss this 

change in interest rate. I asked a bank representative named 

Claudette why my interest rate was suddenly increased. She explained that I had been sent a change in terms and had not reVerDate 0ct 09 2002 09:01 Feb 21, 2008 Jkt 040504 PO 00000 Frm 00022 Fmt 6633 Sfmt 6601 P:\DOCS\40504.TXT SAFFAIRS PsN: PAT
17

sponded; therefore, the interest rate had been increased to 22.9. I 

told her that I had not received any change-in-terms notice, and if 

the company would either resend the notice or simply take this as 

my rejection of the change in terms, we could resolve this matter. 

Claudette told me it did not matter whether or not I received the 

notification; the terms of my account had been changed, and I did 

not have any recourse at that point other than to accept the increased interest rate, pay off the account with another credit card, 

or disclose my financial information to her so that AAA could renegotiate another (higher than 7.9 percent) interest rate on the account. 

I felt a great deal of pressure during our entire conversation to 

do as Claudette wanted me to do regarding this account. I had to 

keep resisting from being intimidated into making the wrong financial decision. I told her the issue was that I had not received the 

notification of the change of terms until I received my April statement and that the April statement was my ‘‘notice of change of 

terms.’’ I asked to speak with a supervisor, and she stated that one 

would call me back. 

The only thing the supervisor, Mr. Watson, would do, when he 

called me, was renegotiate the interest rate to a lower than 22.9 

but higher than 7.9-percent interest rate on the account. I did not 

want to renegotiate the interest rate. I said that I wanted to close 

the account at the 7.9-percent interest rate I had before, as was my 

right, in order that this matter be finally resolved. Mr. Watson told 

me the bank need do nothing it did not want to do. I asked Mr. 

Watson about the notification letter and why the company could 

not send me another copy. Mr. Watson stated that the company 

does not have any responsibility to keep copies; he also said that 

they send out hundreds of this type of form letter daily. 

This matter was resolved by the card sponsor, AAA, intervening 

on my behalf and negotiating with Bank of America to reduce the 

rate to a fixed 7.99 percent. As a result of this reduction, Bank of 

America issued credit totaling $610.68 for overcharged interest on 

my account for the time my account had been at the 22.9 percent. 

A bank executive told me that the bank decided to change the 

terms because I am a good, longstanding customer, and they did 

not want to lose my business. 

The bank’s employees with whom I dealt appeared intimidating, 

and that disturbed me. I still remember how I felt when talking 

with both Claudette and Mr. Watson, her supervisor. I was not 

angry. I was deeply anxious about what they were insinuating 

about my credit. 

The reason I am here before you today is because of all the people who did not get that break, who do not have the ability to write 

a letter that may catch a Senator’s attention, who do not have the 

ability to carry their account for 2 to 3 months or longer, and who 

are now or will in the future suffer as a consequence far greater 

than I ever will. It is for each and every one of those that I am 

asking you to hear what happened to me. Thank you. 

Senator LEVIN. Thank you, Ms. Rushing. Mr. Glasshof. 

18

1The prepared statement of Mr. Glasshof appears in the Appendix on page 67. 

TESTIMONY OF MILLARD GLASSHOF,1 CONSUMER, 

MILWAUKEE, WISCONSIN 

Mr. GLASSHOF. Mr. Chairman and Members of the Subcommittee, my name is Millard Glasshof, and I am here with my 

wife, Winnifred, from Milwaukee, Wisconsin. We have 9 daughters 

and 26 grandchildren and 12 great-grandchildren. I have been retired since 1992. 

In April 1997, I started with MasterCard of Bank One. At the 

time I also had a Visa card, which I paid off in December 1999. 

Today, I only hold one credit card, which is the MasterCard with 

Bank One. In March 2004, I made an agreement with the bank 

that I would make payments of $119 per month at 14.9 percent interest. At the time my balance was $5,837.15 and my credit limit 

was only $4,500, but with over-the-limit charges and finance 

charges, very little was taken off the balance. 

In March 2005, Bank One was taken over by Chase with a bal- ance of $5,552.85 at 14.9 percent interest with payments of $119 

per month. 

On my December 2006 statement, the interest had increased to 

17.24 percent. I called Chase and asked why they had increased my 

rate, for I had been making all my payments on time. They could 

not explain the increase. 

In January 2007, the interest was still 17.24 percent. I called 

Chase again, with no explanation. 

In February 2007, the interest again went up to 27.24 percent. 

When I called this time, I was told if I made my next six payments 

on time that the interest would drop down to 14.9. Again, they 

could not explain the increase since I had not missed or been late 

on my previous payments. 

In March 2007, in the Milwaukee Journal there was an article 

on credit cards that Senator Levin was looking into. I wrote to the 

Senator about my dealings with Chase. In August 2007, I received 

a letter from Chase that my minimum payment would change. This 

letter was confusing and hard to read. I read it to say my payments 

would be $111 per month, so that is what I paid. I called Chase 

on the phone, and they verified that $111 was correct. I got a late 

fee because I paid $111, but I was never told that it was supposed 

to be more. I still don’t know. 

In November 2007, I was contacted several times from Senator 

Levin’s staff asking me to send information on Chase and authorizing them to contact the three major credit card bureaus, and if 

I would be willing to testify at a hearing on December 4, 2007, 

which I told them I would. 

It was then that they told me my interest had dropped to 6 percent, which I had not taken notice of on my last statement. My balance as of November 2007 was $4,957. With the interest 

and extra charges I was standing still. In 21⁄2 years of making pay- ments, my balance dropped a total of $554. I did not want to file 

bankruptcy so I took out a loan to pay Chase off. The interest is 

high, but at least I do not have any extra charges. 

Thank you. 

Senator LEVIN. Thank you very much, Mr. Glasshof. 

19

1See Exhibit 2.a. which appears in the Appendix on page 138. 

2See Exhibit 2.b. which appears in the Appendix on page 139. 

Let’s try an 8-minute round here for questions. Ms. Hard, we 

have analyzed your Discover credit card payments over the last 12 

months, from November 2006 to October 2007. I think you have a 

copy of that chart.1 It shows that during those 12 months you 

started off with a debt of about $8,300. You spent less than $100 

on new purchases. It also shows that you made a total of $2,400 

in payments over that year, $200 a month times 12. Of the $2,400 

in payments, $1,900 was attributed to interest, and your debt was 

decreased by only $350. 

Now, 2 years ago, you had an interest rate of 18 percent. Discover hiked that to 24 percent, and after a year then reduced it to 

21 percent. Do you know why they hiked your rate? Were you told 

why? 

Ms. HARD. No. 

Senator LEVIN. Discover told us it was because your credit score 

dropped and Discover decided that the lower score—an automated 

score, presumably—outweighed your history of regular payments to 

them. Now, were you told and did you understand at the time that 

it was a credit score drop that led to a higher interest rate? 

Ms. HARD. No, I didn’t. 

Senator LEVIN. Do you remember receiving a letter to that effect? 

Ms. HARD. No, I do not. 

Senator LEVIN. In light of your steady payments and your history 

of paying down your debt, you have asked Discover to restore your 

18-percent rate. Have they done that now? 

Ms. HARD. I think they did last week. 

Senator LEVIN. Thank you. 

Mr. Glasshof, your credit card situation over the last 12 months 

is similar, and we have a chart also for you, if you would take a 

look at it.2 It shows that during the past 12 months, from November to October, you started off with a debt of about $4,800. You 

made no new purchases. You were charged about $1,100 in interest 

and $200 in fees. That means that your payments totaling $1,300 

over the last year, which is $119 per month, did not reduce your 

overall debt at all. Is that correct? 

Mr. GLASSHOF. That is right. 

Senator LEVIN. You made $1,300 in payments, and you still owe 

the $4,800. Did you realize that your debt did not go down at all 

over the past year despite making the $1,300 in payment? 

Mr. GLASSHOF. I noticed it quite often. I just kept looking at it, 

and I kept calling them up, and I said, ‘‘It seems like I am getting 

further behind every month I make payments. It does not take off 

my balance.’’ I said, ‘‘If this keeps up, it is going to be higher in 

the next couple years than what I owe you today.’’ And, of course, 

I do not get the right response, and I was getting frustrated. I 

mean, the more I paid, the further behind I was getting. 

Senator LEVIN. Now, after they raised your interest rate to 27 

percent, out of your $119 monthly payment, about $114 went to finance charges and $5 to reducing the debt. And then when Chase 

hit you with a $39 penalty fee in September for paying $111 instead of the $119 that you had been paying, that pretty much 

20

wiped out all of the progress that you had made on reducing that 

debt. 

Did you know why Chase raised your interest rate? 

Mr. GLASSHOF. I was never notified at any time of my increase 

of my interest, which increased two or three times this year. 

Senator LEVIN. Your statements that we received copies of from 

Chase show that you have been paying like clockwork. You have 

not missed a single payment in 21⁄2 years. So it cannot be that you 

missed a payment as the reason for your rate hike. Is that correct? 

Mr. GLASSHOF. That is right. 

Senator LEVIN. Chase told us in a letter that it hiked your interest rate to 17 percent because an automated review of its closed accounts—and yours was a closed account—showed that your FICO 

score had dropped, and the system then raised your rate to 27 percent because you had failed to bring your balance under the $4,500 

credit limit on the account. 

Did anyone from Chase tell you that if you did not bring your balance under $4,500 by January 2007 that your interest rate 

would be raised to 27 percent? 

Mr. GLASSHOF. No, they didn’t. 

Senator LEVIN. Now, Ms. Rushing, you have had two Bank of 

America cards for years, both with an 8-percent interest rate. One 

was affiliated with AAA, as you mentioned, the Automobile Association of America. In April 2007, Bank of America nearly tripled 

the interest rate on that AAA credit card from 8 percent to 23 percent, and that, as you testified, caused your monthly interest 

charges to balloon from about $150 per month to $450 per month. 

You wrote the Florida Attorney General. You wrote the Subcommittee. You called AAA. And then after AAA’s intervention, apparently Bank of America agreed to restore your 8-percent rate on 

your closed account and refunded, as you testified, the extra interest charges for those 2 months, which totaled about $600. 

Do you know what made Bank of America change their mind? 

Ms. RUSHING. No. 

Senator LEVIN. When you spoke with bank personnel in that 2-

month period, were you working full-time at that time? 

Ms. RUSHING. Yes, sir. 

Senator LEVIN. So if you had not been so persistent, would you 

have gotten your old rate back? 

Ms. RUSHING. No, sir. 

Senator LEVIN. Do you know why Bank of America raised your 

rate and why they raised it to high? 

Ms. RUSHING. No, sir. 

Senator LEVIN. Now, you did open Macy’s and J. Jill credit card 

accounts in order to get discounts—is that correct?—on their cosmetics and clothing purchases? 

Ms. RUSHING. Yes, sir. 

Senator LEVIN. Did you pay those on time, do you know? 

Ms. RUSHING. Yes, sir. 

Senator LEVIN. Bank of America told us that they lowered your 

rate—excuse me, that they had raised your rate because of a low 

FICO score. They also saw that your debt level was very close to 

your credit limit. Did you know that going close to, but not over, 

your credit limit could trigger a new interest rate? 

21

1See Exhibit 16 which appears in the Appendix on page 174. 

Ms. RUSHING. No, sir. 

Senator LEVIN. What Bank of America told us is that you were 

getting close to your credit limit, so we assume that is something 

that triggered that reduced FICO score. But didn’t they, in fact, 

send you $2,500 credit card checks which you could use, which 

would have then pushed you even closer to your account? 

Ms. RUSHING. Yes, sir. 

Senator LEVIN. Now, on retroactivity, each of you had your interest rates increased, and that increased rate was applied not just to 

new purchases but to your pre-existing credit card debt. So all of 

a sudden, the debt that you had been carrying, which was functioning with interest rates of 8, 15, or 18 percent, now were raised 

to 23, 24, or 27 percent. Did you know that was going to happen 

based on a credit scoring that did not relate to your relationship 

and your payment history with the credit card company but to 

some other credit card score? Did you know that, Ms. Hard? 

Ms. HARD. No, I did not. 

Senator LEVIN. Ms. Rushing. 

Ms. RUSHING. No. 

Senator LEVIN. Mr. Glasshof. 

Mr. GLASSHOF. No. 

Senator LEVIN. Ms. Hard, after you were told that you had a 

higher interest rate and the reason that we discovered is this FICO 

score, this credit card rating went down, did you still receive in the 

mail—well, first of all, was your account a joint account with your 

husband? 

Ms. HARD. I believe so. 

Senator LEVIN. If you look at Exhibit 16 in your book, we have 

determined that it is a joint account with your husband, a Discover 

Card.1 After your interest rate was raised dramatically by Discover 

Card and it was a joint account with your husband, and presumably because some automated account said you were a greater risk 

although you had paid your account with Discover on time every 

time, did your husband receive another invitation to join a special 

3.9-percent fixed APR? 

Ms. HARD. Yes, he did. 

Senator LEVIN. Thank you. Senator Coleman. 

Senator COLEMAN. Thank you, Mr. Chairman. 

Ms. Hard, you indicated that at a certain point in time you were 

getting your bills and you ‘‘noticed something not right.’’ How did 

you notice that? 

Ms. HARD. I pay the bill online, view it online, paperless statements, and it was when I noticed from a previous balance to a new 

balance from month to month and saw that it was almost identical, 

is what drew my attention. 

Senator COLEMAN. Do you recall then receiving any change-ofrate forms, any change-in-term forms? 

Ms. HARD. No, I do not. 

Senator COLEMAN. And, Ms. Rushing, you testified that you simply do not recall receiving any change-in-term forms? 

Ms. RUSHING. I did not receive one. 

22

Senator COLEMAN. OK. And, Mr. Glasshof, your testimony was 

that you got a confusing letter that was hard to read. Is that correct? 

Mr. GLASSHOF. That is right. 

Senator COLEMAN. I am not sure if we have—is there a copy of 

this exhibit? It is actually Bank of America’s change-of-terms notice. I am not sure if there is one in the file. Do the witnesses have 

a copy of that? Apparently they do not. 

Ms. Rushing, you were at Bank of America? 

Ms. RUSHING. Yes, sir. 

Senator COLEMAN. I am not sure if you can look at all the——

Ms. RUSHING. I can read it. 

Senator COLEMAN. My question is if you had received this form? 

Ms. RUSHING. Sir, I work with attorneys. If I had received this 

form, I would know what it said. 

Senator COLEMAN. And if you did not work with attorneys, would 

you know what it said? ‘‘We are increasing’’—‘‘Your margin for Categories A, C, and D is increasing to 15.74 percentage points.’’ Do 

you know what Categories A, C, and D are? 

Ms. RUSHING. Sir, I cannot say that for sure. 

Senator COLEMAN. ‘‘As of April 30, the U.S. prime rate index is 

8.25 percentage points.’’ Does that mean much to you? 

Ms. RUSHING. If I did not work with attorneys, it probably would 

not, sir. 

Senator COLEMAN. It also notes that there are specific—and it is 

in bold: ‘‘You may reject the APR increase by following the rejection 

instructions described below,’’ and there are rejection instructions. 

It says you have got to write a separate letter and then with a specific address. 

Ms. RUSHING. I have gone through this process before. 

Senator COLEMAN. You have gone through that. And then you 

must not use your account. 

Ms. RUSHING. Right, sir. 

Senator COLEMAN. Since you work with attorneys, you actually 

may be in a good position to respond to this. If it was in big, bold—

would it make a difference if you got something that said in big, 

bold letters you cannot use your account after a certain date if you 

intend to reject? Are there certain things that you would have 

highlighted or want to be highlighted for the average person to 

simply take a look and understand this? 

Ms. RUSHING. Yes. 

Senator COLEMAN. And, Mr. Glasshof, do you recall receiving any 

form like this? 

Mr. GLASSHOF. No, I didn’t. 

Senator COLEMAN. What would have been helpful for you, Mr. 

Glasshof, in terms of better understanding any change of terms 

and conditions? Is there something that would have been helpful, 

something that you can draw upon that said, yes, I think I would 

have gotten it if I saw this or I read something? 

Mr. GLASSHOF. Well, like I mentioned before, all the increase 

that was given to me, I was never informed at any time that they 

were going to increase it. And every time they did increase it, I 

would call them, without getting any satisfaction. 

23

Senator COLEMAN. Ms. Hard, have you thought about what could 

have helped you avoid this situation, what type of notice, what type 

of information, what form the information would take? 

Ms. HARD. I think in simple terms, the information is not that 

complicated that most people could not understand what the credit 

card companies were saying. But I think it is deliberately misleading and confusing, so you do not really get what they are telling you. 

Senator COLEMAN. Do you understand the phrase ‘‘Your margin 

for Categories A, C, and D is increasing to 15.74 percentage 

points’’? Do you know what Categories, A, C, and D are? 

Ms. HARD. No, I do not. 

Senator COLEMAN. Do you know what the U.S. prime rate index 

is? 

Ms. HARD. No, I do not. 

Senator COLEMAN. One of the other issues raised by your testimony is what we may call lack of predictability. It sounds like not 

knowing why a rate has been increased can be almost as bad as 

a rate hike itself. Again, I am trying to see if there is anything that 

we can do with notice. 

Ms. Hard, the challenge that you had with your situation is, as 

I look through the numbers, even if they had not changed the 

rate—your payment at 18 percent, your original payment, if you 

were making a $200 payment, even at that rate, unchanged rate, 

75 percent is going to finance charges. So you would have been 

paying off this debt a long time at that level. Is that correct? 

Ms. HARD. I believe you are probably correct. 

Senator COLEMAN. So one of the challenges just across the board 

is the nature of credit card debt. If you are in, you are in, and it 

becomes tough to pay back at whatever the rate. So initially you 

may have been treading water—and you may have been treading 

a long time. But then, clearly, when it was jacked up, I get the 

sense that you felt like you were drowning——

Ms. HARD. Right. 

Senator COLEMAN. When it went to 24 percent. 

Ms. HARD. Exactly. 

Senator COLEMAN. I am trying to get if there is a practical sense 

of what a credit card company can do to notify you, to give you at 

least a sense of what’s in store for you. Ms. Rushing, in your situation, I go back to you, you are sophisticated about the legal process; 

you took the initiative to call. And, by the way, did you feel intimidated? 

Ms. RUSHING. Yes. 

Senator COLEMAN. And why did you feel intimidated? What happened that gave you that sense of intimidation? 

Ms. RUSHING. It was a sense of intimidation. I felt fearful for myself. My husband is retired early because of health issues. I am the 

sole wage earner for my family at this point in life. We are getting 

older. I am 62. My husband is 65. What they were insinuating 

about my credit, the way they made me feel about my credit and 

how this is going to impact how I pay the rest of my bills—I mean, 

I make my payments. I keep my finances very well. But when you 

are faced with having made good payments—and I pay over the—

I do not make the minimum payment. I make more than the minVerDate 0ct 09 2002 09:01 Feb 21, 2008 Jkt 040504 PO 00000 Frm 00029 Fmt 6633 Sfmt 6601 P:\DOCS\40504.TXT SAFFAIRS PsN: PAT
24

imum payment on all of my credit cards. But when you are faced 

with having made—$150 pays well on one credit card, and then all 

of a sudden you are making a $674 payment on a credit card, look 

how that will impact the rest of how I make my payments. That 

makes a very difficult decision for me as to how I make the rest 

of my payments. It was going to make a very difficult situation for 

me being the sole wage earner in my family. My husband does 

have health issues. He had a stroke in January, and he had another mini-stroke in February. We have medical issues. 

So it was an extremely difficult situation for me. It made me 

very fearful. 

Senator COLEMAN. Is there anything that the company could 

have done to not make you fearful? 

Ms. RUSHING. They could have—they were pressuring me very 

hard to give them the financial information to renegotiate this 

above the 8 percent. They were not reasonable. They were very dictatorial. They were very adversarial. I did not feel that they were 

being reasonable. They made me feel fearful for me, for my credit. 

Senator COLEMAN. Thank you, Mr. Chairman. 

Senator LEVIN. Thank you, Senator Coleman. Under our early 

bird rule, Senator McCaskill you are next. 

Senator MCCASKILL. Thank you, Mr. Chairman. 

It is my understanding that none of you recall receiving a notification from the credit card company about the increase in the interest rate. Is that correct? 

Mr. GLASSHOF. That is right. 

Ms. HARD. Yes. 

Ms. RUSHING. Yes. 

Senator MCCASKILL. None of you recall receiving that. And yet 

all of the companies maintain they sent you that notification. Is 

that correct? Ms. Hard, did they indicate that they sent you notification that your interest rate was going up? 

Ms. HARD. I believe when I initially contacted them that they 

said that they had sent something, and I told them I never received 

anything, and they went on for the explanation of why they had 

raised the interest rate. 

Senator MCCASKILL. Did they indicate that this was a sheet of 

paper put in with your bill or whether you received a stand-alone 

communication addressed to you? 

Ms. HARD. They didn’t say that, but I do receive my bill in a 

paperless statement over the Internet, so it would not have come 

in the mail. 

Senator MCCASKILL. OK. And what about you, Ms. Rushing? Did 

they indicate to you that they had sent this to you as a piece of 

paper stuck in your bill or as a stand-alone communication to you? 

Ms. RUSHING. They were not sure how it was sent. 

Senator MCCASKILL. They did not know? 

Ms. RUSHING. That is right. 

Senator MCCASKILL. Did you ask them how it was sent? 

Ms. RUSHING. Yes. 

Senator MCCASKILL. And they could not tell you? 

Ms. RUSHING. That is right. 

Senator MCCASKILL. And how about you, Mr. Glasshof? How did 

you get—did they tell you how they had sent you this notification? 

25

Mr. GLASSHOF. No, they didn’t. 

Senator MCCASKILL. Did you ask them how they sent it? 

Mr. GLASSHOF. I didn’t know they were going to send one. 

Senator MCCASKILL. OK. So you just realized by looking at your 

bill that the interest rate had gone up. 

Mr. GLASSHOF. Right. 

Senator MCCASKILL. You do not have any recollection of receiving any communication from them. 

Mr. GLASSHOF. No. The statement is the only thing I had. 

Senator MCCASKILL. Ms. Hard, did you say your bill comes by 

the Internet? 

Ms. HARD. Yes, it does. 

Senator MCCASKILL. OK. Either Ms. Rushing or Mr. Glasshof, do 

you all use the Internet to receive or pay your bills? 

Mr. GLASSHOF. No, I don’t. 

Ms. RUSHING. I pay mine online, but I receive hard copies. 

Senator MCCASKILL. OK. But you do not even get a hard copy, 

Ms. Hard? 

Ms. HARD. No, I don’t. 

Senator MCCASKILL. OK. Mr. Glasshof, I was reading the paragraph where they did notify you about how they were going to 

change your payment, and for the record, I just want to read the 

paragraph that explains it, because I think it is important for people to understand that it would be easy to be confused, Mr. 

Glasshof. 

Mr. GLASSHOF. Right. 

Senator MCCASKILL. This is the paragraph: ‘‘Effective with your 

September 2007 billing statement, if your new balance is $10 or 

less, your minimum payment will be the amount of the new balance. Otherwise, your minimum payment due calculation will be 

the greater of the following: $10, 2 percent of the new balance, or 

the sum of 1 percent of the new balance, billed interest, and any 

billed late fees. Any amounts that are past due or over your credit 

limit may be added to this calculation.’’

Did you call them after you got this letter? 

Mr. GLASSHOF. Yes, I did. 

Senator MCCASKILL. And did you ask them what you were supposed to pay? 

Mr. GLASSHOF. Right. 

Senator MCCASKILL. And did they send you anything confirming 

that conversation saying what the amount was that you were supposed to pay? 

Mr. GLASSHOF. No. This was all done over the phone until I got 

my next statement, and I paid $111 and $111 was on the statement that I had paid it. Like I say, I was confused when I read 

that thing, and I called them, and they verified that $111 would 

be my payment. But then further down the statement they had a 

different figure. 

Senator MCCASKILL. Well, they have two figures here. They have 

$111 if it was the old, and then they have $159 under the new required minimum payment. But I can understand why you would 

want to check and see. 

26

1See Exhibit 4 which appears in the Appendix on page 142. 

Now, when you got the bill after you only paid the $111, did it 

tell you that you had to pay more than that, and that is when you 

realized the $111 wasn’t enough? 

Mr. GLASSHOF. No, there was nothing said. That is why I continued now with the $111. 

Senator MCCASKILL. And have you ever been late with your payment? 

Mr. GLASSHOF. No. 

Senator MCCASKILL. So there was nothing that you had done on 

this card that would have required—in terms of your payment history with them, that would have, in fact, required the higher interest payment? 

Mr. GLASSHOF. No. 

Senator MCCASKILL. There is an exhibit, Exhibit 4,1 in our book 

that the Subcommittee staff put together that is, I think, very good 

that gives the sample of reasons provided by credit bureaus and 

credit card issuers to explain lower credit scores, and I am going 

to briefly read through some of these and ask any of you if you 

have ever seen it explained this way on any solicitation you have 

ever gotten for a credit card. 

Have you ever heard, when someone has tried to get you to take 

out a credit card, have they ever told you that your interest rate 

would go up potentially on another credit card if you took it out? 

Ms. HARD. Never. 

Senator MCCASKILL. Ms. Rushing. 

Ms. RUSHING. No. 

Senator MCCASKILL. Mr. Glasshof. 

Mr. GLASSHOF. No. 

Senator MCCASKILL. Have you ever been told that the balances 

on your bank card accounts being too high could cause your interest rates to go up? 

Ms. HARD. No. 

Ms. RUSHING. No. 

Mr. GLASSHOF. No. The only thing is you see it on your statement that you are being charged. 

Senator MCCASKILL. How about the excessive utilization of revolving accounts? Has anyone ever told you that the fact that you 

were using a lot of revolving accounts, that might cause your credit 

rate to go up? 

Ms. HARD. No. 

Ms. RUSHING. No. 

Mr. GLASSHOF. No, because I don’t have any other ones. 

Senator MCCASKILL. Some of these are common sense, but some 

of these, I think, people would be surprised to learn. It seems to 

me, Mr. Chairman, this would be a good list to require them to put 

on a notification when someone gets a credit card. I don’t ever recall seeing any of these when I have been solicited for credit cards. 

Thank you, Mr. Chairman. 

Senator LEVIN. Thank you. Senator Warner, I think we are going 

to go back and forth. Thank you. 

Senator Carper. 

27

OPENING STATEMENT OF SENATOR CARPER 

Senator CARPER. Thanks very much, Mr. Chairman. I arrived, I 

think, after you had already finished the opportunity for Members 

to give opening statements, and what I want to do is just begin my 

questioning with a statement. 

I want to thank our witnesses for coming here today and for 

using your own experiences to illuminate and inform us as we go 

forward and address these issues, whether it is in a committee of 

the Senate or whether it is through the issuance of regulations by 

the Federal Reserve and other bank regulators. 

Today, as we know, millions of Americans have access to credit, 

and we can purchase consumer goods on credit cards and start enjoying them immediately. We, as consumers, use these purchases 

well. We pay them off, either at the end of the month or over time. 

And it is our decision. It is the consumer’s decision. 

Over time the cost of credit has decreased for a lot of consumers—not all. Annual fees on credit cards have for the most part 

disappeared. I think that is a good thing. And because of risk-based 

pricing, interest rates have increased for some credit cardholders 

while rates have also decreased for other credit cardholders. Many 

Americans ordinarily denied credit cards in the past have been able 

to get a credit card. 

These improvements have encouraged many Americans to use 

credit cards in place of cash. If you go to the local coffee house or 

convenience store, you can see people paying for a $2 cup of coffee 

with a credit card—not always, but in instances where that makes 

more sense for them. A consumer chooses this method of payment 

in some cases to better track their expenses or in other cases to get 

airline miles or other benefits. But for the majority of Americans—

not all, but for the majority of Americans—the credit card is a 

helpful tool to help us manage our household finances. 

For some, however, credit card experience is not so positive, as 

we have heard here again this morning. Some companies engage 

in questionable practices that raise interest rates and impose fees 

on customers. I have said on many occasions that if a company cannot explain or defend its practices in public in the light of day, in 

a hearing like this with cameras rolling, they ought to stop those 

practices. 

Card companies have a responsibility to manage the risk, 

though. But customers also have a right to know when and how 

the terms of their credit card accounts may be changed. From the 

credit card company’s perspective, every transaction that they do is 

an unsecured loan. It is not a loan that is secured by your house. 

It is not a loan that is secured by a car. It is really an unsecured 

loan. And every time that we, as a customer, swipe our credit 

cards, we are in effect applying for an unsecured loan in that 

amount, and the interest begins accruing on that date. 

Over time a customer’s credit may deteriorate, and the card company will look to manage its risk imposed by that deterioration. 

That may mean higher interest rates or it may mean increased 

fees. We, as customers, have a right to know when our interest 

rates will be raised and when those fees are going to be imposed. 

We also have a right to have our payments credited to us on time. 

28

As I mentioned earlier, the Federal Reserve is tackling this issue 

of disclosures, and I applaud their efforts. I believe we are going 

to see in the next several months the issuing of a regulation that 

will stipulate that when credit cards tell us what our minimum 

payment is, how long it is going to basically take us to pay down 

our debt if we make the minimum payment. That kind of approach, 

I think, is meritorious. 

I would like to see disclosures that are in plain English and easy 

to understand. We have heard some of our colleagues here reading 

disclosures and information that is sent to customers that is difficult, really, for any of us to understand and to be able to act responsibly on. I believe there should be a gold standard also for 

companies, including some of the companies that are represented 

here today, to adhere to when telling customers what they have 

agreed to do. Obviously, there are many improvements that the 

credit card companies can make to better serve their customers, 

and that is all of us. Many companies have already made voluntary 

changes, and they ought to be applauded for doing that. 

I believe it is valuable to shine a light on this industry, and that 

is what the Chairman is seeking to do, and not only talk about the 

good things that come along with access to credit—and there are 

good things—but also to focus on the things that need improvement. 

However, in the rush to judgment, to shine a spotlight on those 

actions that we think are deplorable, I do not want to do anything 

that would restrict access to credit and force us to return to universally high interest rates and the annual fees of the past. 

What I want to do in my first question, just sitting here thinking 

about it—and I understand that at least one of our industry witnesses will announce that they are going to stop the policy or they 

have stopped the policy that we are basically having our hearing 

on today, and I understand another does not have that kind of policy at all. But let me just say—is it Ms. Rushing? 

Ms. RUSHING. Yes, sir. 

Senator CARPER. Ms. Rushing, let’s say you are a credit card 

company, I am your customer, and our other witnesses—one of 

them I have gotten a car loan from and the other I have gotten a 

mortgage for my house from, and my colleagues up here are folks 

who have loaned me money as well. I signed up and have an agreement to pay a certain amount of interest on the things that I 

charge with my credit card from you. You find out that I have 

stopped paying my car loan, and you find out also that I have 

stopped paying my mortgage on my house, and you find out that 

the money that I owe my creditors up here, my colleagues, that I 

have stopped paying those as well. Should a credit card company 

have the ability, given everything else that is going on in my life, 

should they have the ability to come in and say, maybe I ought to 

make this guy Carper pay a little more interest because his risk 

profile has increased? 

Now, we have had some credit card companies here today that 

either do not do that—they do not—I can be delinquent on every 

one of my other credit obligations, and they have a policy that says 

they are still not going to come in and raise my interest rate. Others are just changing to that policy. 

29

But let me just ask you, put yourself in the shoes of the credit 

card company. When I am not meeting any of my other credit obligations except to you, should that set off some alarms in your credit card business to say what is going on in his life and has his risk 

profile increased, and should I do anything about it? 

Ms. RUSHING. So the question is, as a credit card company, 

should I do something about it because you are not meeting your 

credit obligations? 

Senator CARPER. Yes. Just how would you react? How would you 

react if you were the credit card company and I am not meeting 

my other obligations? I am meeting my obligations to you, but not 

to anyone else that I owe money to. 

Ms. RUSHING. OK. So you are meeting your obligations to me, 

but not to the other debts. You have, sir, the right. The hairs on 

the back of my neck should be going up. It is a business. Credit 

card companies have obligations to their shareholders, just like 

they do, like every other business does. And they should be aware 

when you are not meeting your debts to your other vendors and to 

your other obligations. 

However, is raising the interest rate on your account the answer? 

I don’t know. Is the answer telling you, sending you specific notification in clear, plain English that you no longer have any credit 

available to you in that account, is that the answer, as opposed to 

raising your interest rate? Perhaps that is the business decision 

that a company needs to make as opposed to raising your interest 

rates. 

These are policy decisions that the business needs to make, what 

is best for their shareholders, what is best for their business, what 

is best for the consumer. You obviously have in you, as their consumer, someone who is in deep financial trouble if you are not 

making any of your obligations. 

However, if, on the other hand, you have a consumer who is 

meeting all of his or her obligations—they are meeting all of their 

other debts, they are not in any way, shape, or form, not meeting 

any of—are meeting all of their other obligations to you and all of 

their other creditors, then should they arbitrarily increase your interest rate? That really is the question here today, Senator. 

Senator CARPER. Alright. I think my time has expired. You have 

been very generous, Mr. Chairman. Thank you for your response. 

Ms. RUSHING. You are welcome, sir. 

Senator LEVIN. Now, presumably, these credit ratings are based 

on risk. Even though they are automated, that is the theory of 

them. In your case, when your interest rate went up, presumably 

based on that credit rating going down, not only was it inaccurate 

in your case, you were not notified in your case. But if it was a 

risk-based decision, isn’t it kind of weird that you were then sent, 

as I understand it, some additional blank credit card checks in the 

mail? 

Ms. RUSHING. Actually, Senator, if I may correct that, sir——

Senator LEVIN. Please. 

Ms. RUSHING. Actually, that had been previous to when I had— at a previous time, they had given the $2,500 previous to that 

when——

Senator LEVIN. Previous to your interest rate going up? 

30

Ms. RUSHING. Yes. 

Senator LEVIN. OK. Then let me ask Ms. Hard, did your husband, who was a joint owner of that account with you, not receive 

an offer to open up a new credit card at 0 percent interest? Is that 

not true, after your interest rate was raised? 

Ms. HARD. Exactly. 

Senator LEVIN. And were you not offered more credit, as a matter of fact, after your interest rate was raised? 

Ms. HARD. Yes, I was. 

Senator LEVIN. It went up from $10,000 to $11,000, did it not? 

Ms. HARD. Yes, it did. 

Senator LEVIN. So, maybe folks should have an opportunity to 

explore what it is that drove their interest rate up from an automated system. None of you were given notice of that. You did not 

know why it happened. You were not able to have an opportunity 

that you knew of to challenge that. It was wrong. Each one of you 

were good credit risks. As a matter of fact, that automated system 

was not accurately reflecting a credit risk in your situation, even 

as to other credit cards or to other debts. Is that correct? In other 

words, you were paying off your other debts. You were not behind 

in other debts, were you? 

Ms. HARD. No. That is correct. 

Senator LEVIN. And, Ms. Rushing, as a matter of fact you have 

no idea what it was that caused that credit rating to go down. 

Ms. RUSHING. I have actually—no. 

Senator LEVIN. Alright. And in your case, at least, Ms. Hard, 

after that reduced credit rating, presumably based on risk, that you 

did not know about so you could challenge, after that triggered a 

higher interest rate in your case, nonetheless totally going in the 

opposite direction, you were offered an increase in your amount of 

credit available. Is that correct? 

Ms. HARD. Yes, it is. 

Senator LEVIN. And your husband, who was a joint cardholder 

with you on that same Discover Card, was since sent another offer. 

Ms. HARD. From Discover, yes, he was. 

Senator LEVIN. From Discover. 

Ms. HARD. Yes, he was. 

Senator LEVIN. At 0 percent interest presumably because he is 

such a great risk. 

Ms. HARD. Right. 

Senator LEVIN. OK. Does anyone else have additional questions 

on the second round? Did you want to ask something? 

Senator COLEMAN. Could I just ask one question? Just following 

up on Senator Carper’s statement, Ms. Rushing, if you were given 

notice by the credit card company—or, actually, any of the witnesses—that said for whatever reasons, and they would clearly tell 

you the reasons, we are going to now change your rate, the rate 

you came in was 6.9 percent, it is going to 15 percent, if you do 

not want to accept that rate, you have to stop using your credit 

card, you can pay off your old debt at that rate, the original rate; 

but if you use the card again because of changed circumstances it 

is a new rate, would you think there was anything problematic 

with that? 

Ms. RUSHING. No. 

31

Senator COLEMAN. Ms. Hard. 

Ms. HARD. I think that is fair. 

Senator COLEMAN. Mr. Glasshof. 

Mr. GLASSHOF. No. 

Senator COLEMAN. Thank you, Mr. Chairman. 

Senator LEVIN. So if you knew about that, you were informed 

clearly and knew about it and had that opportunity, you would 

then think that was appropriate? 

Ms. RUSHING. Absolutely. 

Senator LEVIN. That is what is supposed to happen. 

Ms. RUSHING. That is the way a contract works. 

Senator LEVIN. That is what is supposed to happen. It did not 

happen in any of your cases. 

Ms. RUSHING. No. 

Mr. GLASSHOF. No. 

Ms. RUSHING. I would have closed the account and been happy. 

Senator LEVIN. Thank you. OK. Any other questions of this 

panel? Senator Carper, you did have one. 

Senator CARPER. Yes. Thanks very much. 

Just to go back to what Senator Coleman was asking, as you 

probably know, there are a number of credit card companies that 

are located in Delaware. They are subject to Delaware law. One of 

those laws requires credit card companies to disclose what the 

terms and conditions are of the accounts and when they are 

changed. We, as customers, have a right to contact our credit card 

company, and we have a right to demand that the account be 

closed, as Senator Coleman has mentioned. We, as cardholders, 

cannot make any new charges during the period but are required 

to make the monthly payment on the account. 

Ms. Rushing, do I understand, were you the Bank of America 

customer? 

Ms. RUSHING. Yes, sir. 

Senator CARPER. Under Delaware law, they are required when 

they want to raise your interest rate, if you call them and say, hey, 

you cannot do that, or you have an obligation to me to let me pay 

it off at the lower rate, you contacted them and said that, didn’t 

you? 

Ms. RUSHING. Yes, sir. 

Senator CARPER. And did they agree to the lower rate that they 

had promised you in the first——

Ms. RUSHING. No, sir. They said they had an option—they said 

that I could not do that, pointblank no. 

Senator CARPER. Alright. We will get into this question later on 

with our industry panel, but my understanding was that they have 

an obligation to say, Alright, you owe us X dollars, we want to 

raise your interest rate, you can pay it off at the lower rate, but 

if you decide to use your card again, then the higher rate is to be 

charged, was that communicated to you? 

Ms. RUSHING. Sir, they said I had no option except to accept the 

higher interest rate, pay off the account with another credit card, 

or to give them my financial information so that they could renegotiate with me at a higher interest rate than the 7.9 percent, but 

perhaps a little bit lower than the 23 percent they were trying to 

raise it. 

32

Senator CARPER. Alright. 

Ms. RUSHING. That was it. 

Senator CARPER. And a question of our other witnesses. How 

many of you received a notice when your interest rate was 

changed? 

Mr. GLASSHOF. I did not. 

Ms. HARD. I did not. 

Ms. RUSHING. I did not. 

Senator CARPER. And how many of you contacted your credit 

card company and asked that your account be frozen at the previous rate and terms? 

Mr. GLASSHOF. Well, I called them and asked why the increase, 

and they just—like I said, I didn’t get no plain answer, and the increase stayed on my statements. 

Senator CARPER. Alright. Have the issues that you have shared 

with us today been a factor as you shop around for new credit 

cards or different credit cards? 

Mr. GLASSHOF. No, I don’t have any credit cards. 

Senator CARPER. OK. 

Ms. RUSHING. I am not opening any new credit cards, and I am 

paying off the ones I have and closing them as I pay them off. 

Ms. HARD. Yes, the same as her. I am not opening any new ones. 

Senator CARPER. Alright. Thanks very much. 

Senator LEVIN. Senator McCaskill. 

Senator MCCASKILL. Ms. Rushing, when they told you that you 

could pay off the balance with another credit card, at that time did 

they explain to you that—when you pay off a credit card with another credit card, did they explain to you about trailing interest? 

Did they mention to you that you might incur additional interest 

charges on your other credit card if you used it on a transferred 

balance? Did they explain that? 

Ms. RUSHING. No, ma’am. 

Senator MCCASKILL. So there was no indication to you that, in 

fact, by using another credit card to pay off that balance, you were 

going to incur extra costs that you would not otherwise if you were 

just using that other credit card to make purchases? 

Ms. RUSHING. No. 

Senator MCCASKILL. Thank you. 

Senator LEVIN. Senator Coburn. 

Senator COBURN. No. It has been answered. 

Senator LEVIN. Thank you. OK. We thank you all. Thank you so 

much for coming forward. 

Ms. RUSHING. You are very welcome. 

Senator LEVIN. Your testimony is going to be not only helpful to 

this Subcommittee and to hopefully this Congress, but also we hope 

it will have a positive impact on millions of credit cardholders 

across the country over time. We appreciate your coming forward. 

Senator LEVIN. Let me now welcome our next and final panel of 

witnesses for today’s hearing: Roger Hochschild, who is Chairman 

and Chief Operating Officer at Discover Financial Services; Bruce 

Hammonds, President of Card Services at Bank of America; and 

Ryan Schneider, President for Card Services at Capital One Financial Corporation. I welcome you all to this hearing, and I want to 

thank you all for your cooperation that you have shown to this 

33

1The prepared statement of Mr. Hochschild appears in the Appendix on page 69. 

Subcommittee. We have some significant differences, obviously, 

with some of your practices, but we do not have a complaint at all 

about the way you have responded to requests from this Subcommittee. Quite the opposite, you have been forthcoming with information, and you have voluntarily appeared to testify, and we 

very much appreciate that. 

Pursuant to Rule VI, all witnesses who testify before this Subcommittee are required to be sworn, and I would now ask each of 

you to please stand and raise your right hand. Do you swear that 

the testimony you are about to give before this Subcommittee will 

be the truth, the whole truth, and nothing but the truth, so help 

you, God? 

Mr. HOCHSCHILD. I do. 

Mr. HAMMONDS. I do. 

Mr. SCHNEIDER. I do. 

Senator LEVIN. I think you heard that we will be using a timing 

system today. We will ask that you complete your testimony in 5 

minutes, and 1 minute before the 5 minutes is over, the light will 

turn from green to yellow to give you an opportunity to conclude 

your remarks. 

Mr. Hochschild, why don’t you go first, followed by Mr. Hammonds, then Mr. Schneider, and then we will turn to questions. 

Thank you. 

TESTIMONY OF ROGER C. HOCHSCHILD,1 PRESIDENT AND 

CHIEF OPERATING OFFICER, DISCOVER FINANCIAL SERVICES, RIVERWOODS, ILLINOIS 

Mr. HOCHSCHILD. Mr. Chairman and Members of the Subcommittee, my name is Roger Hochschild. I am the President and 

Chief Operating Officer of Discover Financial Services. Thank you 

for the opportunity to appear before you today. 

The Subcommittee asked Discover to respond to several questions, which we have done in detail in our written testimony and 

extensive detailed oral briefings with Subcommittee staff. Over the 

next few minutes, I would like to talk about our pricing policies 

and, in particular, about how and when we reprice customer accounts. 

Pricing in the credit card industry is based on the risks associated with each customer’s account. When we open a new account 

for a customer, we make every effort to ensure the customer will 

be able to manage the credit we give them. But if a customer’s risk 

profile increases, we may increase their annual percentage rate. 

This is largely due to the nature of a credit card compared to other 

loan products. Every credit card transaction can be regarded as a 

new loan, and we are financially responsible for every loan that is 

not repaid. 

Before opening a new account, we take a number of steps to ensure the responsible issuance of credit. We use a rigorous process 

to verify income, employment, and existing debt levels to make 

sure each customer can manage the credit we are granting. We 

look at credit bureau information and at the customer’s relationships with other lenders because these are important predictors as 

34

to how they will behave in the future. We assign credit lines that 

are, on average, lower than other card issuers and increase them 

only after the customer has established a consistent record of managing their debt. All told, we decline more applicants for credit 

than we approve. 

Once we open an account, we give significant effort to helping 

customers stay current with their payments. We were the first 

credit card company to offer customers e-mail reminders if they get 

close to their credit limits or payment dates. We promote the responsible use of credit and provide online tools to help customers 

understand credit costs. Our grace periods are among the longest 

in the industry, and we stop all promotional offers, including balance transfer and check mailings to accounts that we deem to be 

high risk. We make more than 1.5 million calls every year to customers who appear to be struggling with their debt, even before 

they are delinquent, to assist them in managing their finances. 

And for customers who do become delinquent or over a limit, our 

customer assistance team works with them to try to bring their accounts current again. 

At present, we have more than 350,000 customers on programs 

to help them make timely payments, reduce their balance, and get 

through a stressful period in their lives. And to ensure the quality 

of these conversations, we do not outsource or offshore our customer service. We use our own employees at locations in Delaware, 

Ohio, Arizona, and Utah. 

Our efforts have had a significant positive impact on our customers. Since 2002, we have seen a reduction of more than 50 percent in the number of customers who are delinquent on their account or over their credit limit. We take care when issuing credit 

that the risk associated with some accounts increases over time. As 

risk increases, we raise prices on those accounts commensurate 

with the increased risk. It is not unlike the automobile insurance 

industry where rates may go up if you have a traffic violation, 

move to a different State, or other factors change which increase 

the projected claims costs. 

That said, it is important to remember two things. When we do 

raise the price of a customer’s account based on risk, we give that 

customer the option of closing the account and paying off the loan 

at the existing rate. And when we raise prices because of default, 

many of those accounts return to a lower price after we see a consistent record of on-time payments. 

Let me conclude by noting that a core component of Discover’s 

philosophy as a company is to do the right thing on behalf of our 

customers. With roughly 50 million customers, we are not always 

perfect. But I think the recent launch of the Discover Motiva Card 

shows we are still looking to change the industry. It is the first 

product that offers cash awards to customers for paying on time. 

We are very proud of our reputation, and we recognize that every 

action we take has an impact on our reputation, and we strive to 

ensure that we always act with integrity and fairness. Thank you. 

Senator LEVIN. Thank you. Mr. Hammonds. 

35

1The prepared statement of Mr. Hammonds appears in the Appendix on page 78. 

TESTIMONY OF BRUCE HAMMONDS,1 PRESIDENT, BANK OF 

AMERICA CARD SERVICES, BANK OF AMERICA CORPORATION, WILMINGTON, DELAWARE 

Mr. HAMMONDS. Good morning, Chairman Levin, Senator Coleman, and Members of the Subcommittee. My name is Bruce Hammonds, and I am President of Card Services for Bank of America. 

The focus today is risk-based pricing. Let me explain how riskbased pricing works in general, the benefits of risk-based pricing 

for consumers, and how we at Bank of America practice risk-based 

pricing. 

When a customer initially applies for a credit card, we use credit 

scores and other data to determine approval and assign an initial 

credit limit and interest rate. We then continuously monitor a customer’s behavior, periodically repricing small riskier segments of 

the population using highly predictive statistical models. For 

riskier customers, we also decrease credit limits that govern the 

amount they borrow. 

Today, there are two primary forms of risk-based repricing related to customer behavior: Contractual defaults and behavioral 

repricings, which come with prior notice and the ability to opt out. 

Under the industry-wide practice of contractual default, higher 

interest rates may apply if the customer violates his or her obligations under the agreement, for example, by paying late. Leaving 

aside contractual violations, certain other behaviors indicate that a 

customer is more likely to default. These include their performance 

with us—making only minimum payments for a long time or taking 

large cash advances—and off-us behavior—like poor payment history, taking out numerous loans, or defaulting on loans with other 

lenders. 

We will reprice on this basis, but the customer has the right to 

say no to such an increase. And usually 9 to 10 percent of those 

customers actually do opt out. The customer will then repay any 

outstanding balance under the original terms, including the original interest rate, although he or she must discontinue using the 

card. 

To provide some perspective, over the past year only 6.5 percent 

of our total accounts received an interest rate increase based on repricing; 25.9 percent received a decrease in interest rate, and 67.6 

percent had no change. So, bottom line, 93.5 percent of our customers now have the same or lower rate than they did at the end 

of last year. 

Risk-based pricing has considerable benefits for consumers. Before risk-based pricing, card companies simply charged all cardholders higher interest rates, imposed annual fees and other fees, 

and granted credit to fewer people. Risk-based pricing has democratized access to credit and allowed prices to drop for those who 

pose less risk. Furthermore, experience shows that customers who 

are repriced often adopt better card management practices: They 

make more than the minimum payments, pay on time, and stay 

within their credit limits by charging less. 

36

I have described the three types of risk-based pricing, but as you 

know, different issuers have adopted different pricing strategies. 

Let me discuss why we have chosen the mix we have. 

All issuers use past credit performance, including performance 

with other creditors, in setting initial pricing, and we are no exception. With respect to contractual defaults, there are several variables. 

First, some issuers use hair trigger defaults—increasing a customer’s rate based on a single default. Bank of America allows two 

defaults before it can reprice. 

Second, issuers define ‘‘default’’ differently. Bank of America considers only late payments and going over limit as defaults; others 

include bounced checks, even if a valid payment has been made. 

Third, some issuers, including Bank of America, will offer a 

‘‘cure’’ to a lower rate with good payment behavior; others do not. 

Finally, different banks employ different levels of discretion in 

default pricing. Only a minority of accounts that trigger default 

pricing at Bank of America actually get repriced. 

With respect to behavioral repricing, industry practices also vary. 

Bank of America maintains a 12-month stand-off on its periodic 

risk reviews—that is, no account that has been repriced will be 

subject to a periodic risk-based repricing for at least 12 months. 

Others price less frequently. We understand one other major issuer 

is now at 24 months. We believe our customers like our mix of policies. They like getting a second chance if they make a mistake. 

They do not like being repriced based on a bounced check. They 

like the chance to cure a mistake, and they appreciate the ability 

to opt out of a risk-based repricing. 

We listen to our customers. I personally have spent hundreds of 

hours in the last year listening to our credit card customers, and 

my leadership team does the same. 

As these hearings demonstrate, issuers have different pricing 

and risk management policies. We believe competition in pricing 

practices is healthy for consumers. Consumers who fear they will 

default on other obligations but are confident they will never pay 

late may wish to go to our competitors; those who generally manage their credit well but occasionally forget to mail their payments 

may wish to come to Bank of America. And if either of us is wrong, 

the market will tell us that. 

Of course, effective consumer choice depends upon full transparency and clarity of disclosures so consumers can make informed 

choices. The Federal Reserve is in the process of amending Regulation Z to better facilitate such comparisons by consumers, and we 

are undertaking our own efforts, which are detailed in my written 

testimony. Thank you. 

Senator LEVIN. Thank you very much, Mr. Hammonds. Mr. 

Schneider. 

37

1The prepared statement of Mr. Schneider with an attachment appears in the Appendix on 

page 89. 

TESTIMONY OF RYAN SCHNEIDER,1 PRESIDENT, CARD SERVICES, CAPITAL ONE FINANCIAL CORPORATION, McLEAN, 

VIRGINIA 

Mr. SCHNEIDER. Chairman Levin, Ranking Member Coleman, 

and Members of the Subcommittee, good morning. My name is 

Ryan Schneider, and I am the President of Capital One Financial 

Corporation’s credit card business. Thank you for the opportunity 

to address the Subcommittee. The credit card is one of the most 

popular forms of payment in America today. It is valued by consumers and merchants alike for its convenience, efficiency, and security. 

Today, the Subcommittee is focused on the issue of repricing. A 

flexible pricing structure is an essential tool in the safe and sound 

underwriting of an open-ended, unsecured credit product. Unlike 

mortgages, auto loans, and other closed-end, secured loans, credit 

cards have balances that can fluctuate significantly on a monthly 

or even daily basis and repayment patterns that are neither consistent nor predictable. The ability to modify the terms of the credit 

card agreement to accommodate changes over time to the economy 

or to the creditworthiness of consumers must be preserved as a 

matter of fiduciary responsibility. The consequences of imposing severe restrictions on the ability to reprice such loans in response to 

these changes could include significant reductions in the availability of credit to many and higher pricing for all, especially those 

historically underserved customers who pose a higher level of risk. 

Although we want to take this opportunity to point out that even 

the most well intentioned of policy initiatives can have unintended 

consequences, Capital One shares many of the concerns expressed 

by you and other Members of the Subcommittee. We applaud your 

efforts to continue the discussion on what we believe to be the most 

challenging practice in our industry today, and that is aggressive 

repricing without customer choice. 

Capital One testified before Chairman Dodd’s committee and 

Chairman Maloney’s subcommittee earlier this year in support of 

the Federal Reserve’s proposal to enhance the consumer protections 

offered by Regulation Z. We believe that requiring card issuers to 

notify consumers 45 days prior to any repricing is a positive step 

forward. We also support the Federal Reserve’s effort to expand 

this notice requirement to default or penalty-based repricing. 

Capital One recommends, however, that the Federal Reserve go 

one step further by permitting customers to reject the new interest 

rate in exchange for stopping the use of their card and paying off 

their existing balance at the previous rate. This right to reject the 

new terms is already available to most customers through changein-terms or notice-based repricing; however, it is not offered to customers who are repriced as a result of a default on their account. 

Well in advance of the Federal Reserve’s finalization of its proposed revisions to Regulation Z, Capital One has already taken several meaningful steps of its own to address concerns regarding repricing. 

38

First, we have adopted a single, simple default repricing policy 

for all our customers that provides them with a clear warning before we will consider taking any action. Capital One will not consider default repricing any customer unless they pay 3 or more 

days late two times in a 12-month period. And after their first infraction, customers are provided with a prominent statement on 

their monthly bill alerting them that they may be repriced if they 

pay late again. 

Even after that second late payment, the decision to reprice 

someone is not automatic. For many customers, Capital One chooses not to do so. If we do reprice someone, we will let them earn 

back their prior rate by paying us on time for 12 consecutive 

months, and that process is automatic. To be clear, Capital One 

will not reprice customers if they go over their credit limit or if 

they bounce a check. 

Second, Capital One does not practice any form of universal default, and this has been our longstanding policy. We will not reprice a customer if they pay late on another account with us or on 

another account with another lender. And as the Chairman noted 

in his opening remarks, we never reprice a customer because their 

credit score goes down for any reason. 

Third, when economic conditions do require us to make changes 

to the terms of our customers’ accounts, we have already chosen to 

adopt the Federal Reserve’s proposed 45-day advance notice period. 

Despite the fact that the revisions to Regulation Z have not been 

finalized, we believe this longer notice period strikes the right balance for us and for our customers. 

Fourth, we ensure that our customers have meaningful choice 

and complete transparency regarding the changes to their accounts. 

To that end, we offer our customers the ability to reject our new 

terms, cease use of their accounts, and pay off their balances at 

their previous rate over time. We are also very proud of our industry-leading clarity and prominence of our notice, a sample of which 

is included in our written testimony, and up on the easel to my left. 

Fifth, and finally, as a matter of longstanding practice, we will 

not reprice our customers via a change in terms for at least 3 years 

from either the time they open their account or from the time of 

any prior change in terms of pricing. 

In conclusion, while we believe that the Federal Reserve’s proposal represents a positive step forward for consumers and the industry, we do not view it as a substitute for continuously adapting 

our practices and policies to keep up with consumer demand, the 

rigors of competition, and the standards of sound banking. Capital 

One has over 30 million credit card customers, the vast majority 

of whom have a good experience with our products. When they do 

not, we regard that as a failure and seek to find out why. In a 

highly competitive market, we must continuously strive to improve 

our products and services if we are to attract and retain the best 

customers. 

Thank you, and I look forward to answering any questions you 

may have. 

Senator LEVIN. Thank you, Mr. Schneider. 

Mr. Hochschild, let me ask you about the Janet Hard testimony. 

Did you hear that testimony? 

39

Mr. HOCHSCHILD. Yes, I did. 

Senator LEVIN. Can you explain your response and your activity 

relative to her card? 

Mr. HOCHSCHILD. Yes, I can. First, it is a bit awkward because 

I would prefer not to discuss the personal financial details of our 

customers, but I understand she has provided a waiver. 

There were several inaccuracies with that testimony, the first 

being that over the course of a 1-year period Ms. Hard was late in 

her payments to Discover three times. At that time, because we use 

a holistic approach that looks at both her performance on us as 

well as her credit bureau, because of her credit bureau score, we 

did not reprice her account. At a later period of time, when her 

credit score had also deteriorated, we did reprice that account. 

I think it is important also for the record to state that the account is in Ms. Hard’s name. It is not a joint account with her husband. 

Senator LEVIN. Was the chart that we showed before, was that 

an accurate chart for that 1-year period? 

Mr. HOCHSCHILD. That chart is an accurate chart for that 1-year 

period. 

Senator LEVIN. It is accurate. 

Mr. HOCHSCHILD. It is accurate 

Senator LEVIN. Alright. So during that year period, she owed $8,330. Her interest charges were $1,900. She made $2,400 in payments. Is that correct? 

Mr. HOCHSCHILD. Yes. 

Senator LEVIN. And were they paid on time? 

Mr. HOCHSCHILD. Yes. 

Senator LEVIN. During that year? 

Mr. HOCHSCHILD. During that year, yes. 

Senator LEVIN. And then she was repriced? 

Mr. HOCHSCHILD. Yes. 

Senator LEVIN. So after she made those payments—or during the 

period of time that she made those payments, she was repriced? 

Mr. HOCHSCHILD. Yes. 

Senator LEVIN. And that was based on her credit score? 

Mr. HOCHSCHILD. That was based on a combination of her performance on her Discover account as well as her performance on 

all her other debts. 

Senator LEVIN. So you are saying during that year—was she ever 

charged a late fee during that year for making a late payment? 

Mr. HOCHSCHILD. No. 

Senator LEVIN. But you said that she made a late payment during that year? 

Mr. HOCHSCHILD. No. In 2004, in March——

Senator LEVIN. No. I am talking about when her interest rate 

was raised. That is what we are talking about. Why was her interest rate raised? And then it was raised after she had consistently, 

for at least a year, made payments on time? Is that correct? 

Mr. HOCHSCHILD. Yes. 

Senator LEVIN. Alright. So then the major reason, obviously, for 

raising her interest rates were not that she was not paying on 

time, because she had paid them on time for a long period of time. 

It was based mainly on her credit score going down. Is that correct? 

40

Mr. HOCHSCHILD. Yes. 

Senator LEVIN. OK. Now, at our hearing in March, the CEO of 

Citicards testified as follows: ‘‘It has been standard practice for 

credit card issuers to consider raising a customer’s interest rates 

based on behavior with respect to financial commitments to other 

companies.’’ But last week he said, ‘‘We eliminated the practice altogether for customers during the term of their cards. Citi will consider increasing a customer’s interest rate only on the basis of his 

or her behavior with us—when the customer fails to pay on time, 

goes over the credit limit, or bounces a check.’’

‘‘Second, in order to be able to respond to general market conditions in the financial markets, the industry has traditionally kept 

the right to increase a cardholder’s rates and fees at any time for 

any reason. We are eliminating this practice effective next month, 

so long as a customer is meeting the terms of his agreement with 

us. We will not voluntarily increase the rates or fees of the account 

until a card expires and a new card is issued.’’

Chase has indicated that they are going to be taking similar 

steps, I believe by next spring, and I understand that you, Mr. 

Schneider, do not increase people’s rates based on their credit card 

score. Is that correct? 

Mr. SCHNEIDER. That is correct. 

Senator LEVIN. So now we have three major companies, at least, 

that are going to drop the practice of increasing somebody’s interest rates because of a credit score which is outside of the relationship between the credit card company and the customer. Why, if 

it is good enough for Citibank and if it is good enough for Capital 

One and it is good enough for Chase, isn’t that also good enough 

for Discover and Bank of America? Why shouldn’t you do what 

other card companies are doing and not continue a practice which 

is unfair to people who have had a consistent payment record with 

your company? Mr. Hochschild. 

Mr. HOCHSCHILD. As Mr. Hammonds said, I believe, in his testimony, different companies use different risk practices, and that is 

part of what the market will determine, who is successful and who 

isn’t. 

Senator LEVIN. Well, you may be more successful. I am asking 

about fairness. 

Mr. HOCHSCHILD. Part of why I chose to go back to 2004 is that 

is an incident where the credit score benefited Ms. Hard. She was 

late three times. Virtually every other credit card company, as you 

have heard, would have repriced her account upwards. 

Senator LEVIN. Alright. 

Mr. HOCHSCHILD. We did not because of her credit score. Our 

credit models by the Equal Credit Opportunity Act are statistically 

sound and empirically derived. And I believe that not using a cardholder’s behavior on their other debts as part of your predictive 

model is like taking the batteries out of a smoke detector. It is important criteria for how we manage the risk and the pricing in our 

business. 

Senator LEVIN. It is not important for Citibank. 

Mr. HOCHSCHILD. Again, I cannot comment on the strategies——

Senator LEVIN. It is not important for Chase? 

41

Mr. HOCHSCHILD. I cannot comment on the strategies that other 

financial services companies might follow. 

Senator LEVIN. Well, they have adopted that strategy following 

our hearing or right before our hearing last March. They have indicated that there has been no significant negative impact on their 

profit. This is a real problem for people. The notice that they are 

given that their credit score has somehow or other had an impact 

on their interest rate, and when you then have a big whopping increase in people’s interest rates—it is very difficult for people to get 

through the murky information that is sent to them, by the way. 

That is another issue—to be informed that it is a credit score that 

has got nothing to do with their payment record with your company. We can go through those notices. If they are received, they 

are very difficult to understand or to read. That is a major problem 

which should be changed. 

Then they are given 30 or 45 days to opt out, which is very complicated. As a matter of fact, it is almost impossible for them to 

find out what is the basis of that score from a credit bureau in time 

for them to respond, even if they are given notice and understand 

what the rules of the game are. 

But this is a different question. This goes to fundamental fairness. These folks have made their payments on time, regularly to 

you. At least in the reasonable past they have done it, and suddenly they are given an increase—a whopping increase in the case 

of Bank of America, a big increase in the case of Discover. It is 

viewed, I think, by most people as being unfair. It is viewed by 

major credit card companies as being unfair to do that when their 

relationship and payment record with you has been so good. 

And so I will ask you, Mr. Hammonds, Bank of America, we had 

here a witness who said she had an excellent payment record with 

you. Suddenly, based on an outside credit score—which she did not 

even know about. You are going to argue you gave her notice, and 

we can go into your notice. It is totally murky and very unclear. 

But assuming you did give her notice, why should she be penalized 

because of some outside activity—which, by the way, never happened. But putting that aside, and, by the way, she did not receive 

a notice. Why, if it is good enough for major credit companies such 

as Citibank, such as Chase, such as Capital One, to no longer take 

that other activity, alleged, and to cause an increase in interest 

rates should you at Bank of America continue that practice? 

Mr. HAMMONDS. Senator Levin, let me, note that first of all—I 

have read what Chase has said, but I do not know until I read 

their disclosure statement exactly what they are doing. We do not 

increase rates based only on a credit score. We do increase based 

on a number of risk behaviors. If you look at Citibank, what 

Citibank has said is they will increase at 24 months. We have a 

12-month stand-off. So there is a difference there, but we are doing 

the same thing that Citibank is doing. 

Senator LEVIN. I am sorry. You are saying you do not increase 

the interest rate——

Mr. HAMMONDS. Just based on credit score, that is correct. 

Senator LEVIN. Based on the credit score. It is a factor that goes 

into——

42

Mr. HAMMONDS. That is one of the many factors that goes into 

the decision, yes, sir. But we look at a variety of things: Behavior 

on our account, the amount of debt, whether they are paying only 

minimum payments and things of that nature. 

Senator LEVIN. And the witness you heard this morning, why 

was her rate tripled? 

Mr. HAMMONDS. Well, Ms. Rushing is a customer whose risk of 

default increased dramatically after we opened the account. We 

sent her our change of terms, and she, in fact, did opt out of the 

change in terms. 

Some time later, she reactivated her account. We then sent her 

another change of terms, which obviously you heard Ms. Rushing 

say she did not get. I think we also heard Ms. Rushing say that 

we talked to her and asked her for updated credit information, 

which she did not give us. I do not think that is an unreasonable 

thing. We do have a responsibility to the safety and soundness of 

the institution. These are loans that go on forever. They can go on 

for 10 or 20 years. And we have a responsibility for the safety and 

soundness of the institution to make sure that we are doing the 

right thing from a credit standpoint for the institution, for our customers, and for our shareholders. 

Senator McCaskill, you made a comment earlier comparing credit 

cards to the subprime mortgage business. I do not believe we are 

in that kind of shape, but I believe if we drop our ability to monitor 

credit, we could get there. But I think the credit card industry has 

done a good job of monitoring credit. 

Senator LEVIN. We have received a document that was a response to our requests from this Subcommittee. The credit report 

that was used in the 2007 repricing of Ms. Rushing, it said the following: ‘‘We did not receive a copy of Ms. Rushing’s full credit bureau report at the time of this periodic portfolio review risk. Rather, the decision was made on the basis of the FICO score and the 

bank’s experience with the customer.’’

Mr. HAMMONDS. That is correct. 

Senator LEVIN. So it was those two things. What was your negative experience with the customer which in 2007 caused you to increase her interest rate three times? 

Mr. HAMMONDS. Well, it was the amount of total debt that the 

customer had and the fact that the customer was making only minimum payments. 

Senator LEVIN. To the bank? 

Mr. HAMMONDS. To the bank and to others as well, yes. Yes, sir. 

Senator LEVIN. And the debt to you, was that above your limit? 

Mr. HAMMONDS. No. It was right at the limit. 

Senator LEVIN. As a matter of fact, hadn’t she been sent these 

checks to encourage her to go right up to the limit? 

Mr. HAMMONDS. She had been sent checks earlier when the risk 

was lower, yes, sir. 

Senator LEVIN. And did those checks bring her closer to the 

limit? 

Mr. HAMMONDS. Those checks brought her closer to the limit. 

The issue, sir, is——

43

Senator LEVIN. Then getting closer to the limit is one of the reasons that you then increased her interest rate, after you sent her 

checks which would get her closer to the limit? 

Mr. HAMMONDS. No, sir. That is not correct. Let’s take two different customers. You find many——

Senator LEVIN. No. Take her. 

Mr. HAMMONDS. Well, let me just talk about two different customers: Ms. Rushing, who goes to the limit and then only makes 

minimum payments; or another customer who goes to the limit and 

pays the balance down almost every month. Obviously two completely different risks. 

Senator LEVIN. That is not the question, Mr. Hammonds. The 

question is she was not over the limit. As a matter of fact, the 

checks that she was sent brought her closer to the limit, sent by 

you folks. 

Mr. HAMMONDS. Right. 

Senator LEVIN. Encouraging her to use them. It brings her closer 

to the limit. Then you use that against her? 

Mr. HAMMONDS. No, sir, we did not. 

Senator LEVIN. Yes, you did, because the only two things that 

you say were used relative to her increased interest rates were 

those two factors: She approached the limit, and her FICO score 

went down. Those are the two factors. That is what you told us in 

your statement to us when you answered questions. Were there 

any other factors? 

Mr. HAMMONDS. Yes. Total debt and the fact that the customer 

was only making minimum payments. 

Senator LEVIN. And so she is told that her rate is going to go up. 

You disclose to the people that if you do not go above the limit, we 

are still going to raise your rate if you have outside debts somewhere else? You tell people that? 

Mr. HAMMONDS. We do not disclose that. I think Senator 

McCaskill made the comment that maybe there are things we 

should tell customers. And I agree that perhaps those things would 

be helpful to customers. 

One of the issues I think we all have is how much we disclose, 

and if you put that in, what else might have to come out to supplant that. Again, we will be very happy to work with the Subcommittee on changing the notices for a change in terms or anything of this nature. 

Senator LEVIN. Senator Coleman. 

Senator COLEMAN. Thank you, Mr. Chairman. 

One of the things that all the witnesses agreed on was they all 

thought that it would be fair if they were about to face a situation 

that their rates were going to be adjusted, if they received notice 

that they could understand, that they were then told that if they 

stopped using the card they could then not be subject to any increased risk of an increased rate, and they could pay off the existing debt at the original rate. 

So to me one of the first questions becomes one of notice. 

I would turn to Mr. Hochschild and then Mr. Hammonds. Is 

there a better way for you to do notice than you do today? 

Mr. HAMMONDS. Yes, sir. I think we can make it clearer. I think 

we have tried. We have changed our notice and put in bold right 

44

up at the top that you can reject these terms. And I think we can 

continue to improve it, and we are working on both change in 

terms as well as Regulation Z. So I would be very much in favor 

of working with the Subcommittee to make those clearer. 

Senator COLEMAN. One of the problems—and I am going to turn 

to you in a second, Mr. Hochschild. But one of the concerns we 

have is we get so much information from the banks—it may be 

about a new offer, it may be additional checks—there is a question 

of what is actual knowledge, what is meaningful understanding. Is 

there a better way to address that? Is there something on the outside—I do not want to construct that sitting up here, but all I am 

saying is that I am getting a lot—I get a lot of mail and a lot of 

notices from the bank and a lot of different offers. But a changein-terms notice is really significant. This one is really significant. 

Have you given thought as to how we can do a better job of ensuring the cardholder’s actual knowledge, meaningful understanding? 

Mr. HAMMONDS. Yes, sir. First of all, I do think that most customers see it and understand it. We have, as I said earlier, 9 to 

10 percent opt-out of changers in terms, which I understand is a 

high opt-out in anything that you do. So certainly I think the majority of customers are seeing and understanding it. But we constantly also do what we call voice of the customer, listening to our 

customers for ways to make things better in how we can disclose 

terms to them. And certainly there are things we can continue to 

do to improve that. We have done a lot already. We have just put 

out a new brochure to all of our customers called ‘‘Credit Cards and 

You,’’ which explains how to use a credit card, how to avoid becoming delinquent, how to avoid late fees and interest if you do not 

want to pay them. And so we are constantly looking at that and 

certainly always willing to take suggestions. 

Senator COLEMAN. Mr. Hochschild. 

Mr. HOCHSCHILD. I agree with Mr. Hammonds’s comments. 

Clearly, we can always do a better job on disclosure. I think it is 

important not just what we send through the mail, but also on the 

Internet. As Ms. Hard said, a lot of our customers now get their 

statements online, so we need to try and use every tool we can to 

improve disclosure, as well as working with the Subcommittee in 

general on consumer education. 

Senator COLEMAN. This is clearly a competitive industry, and I 

think that is a good thing. The benefit of that is a lot of folks have 

the opportunity to get lower rates than they might otherwise have. 

But I am interested in how people actually know the differences. 

Today when you buy a car, you can go online and do a comparative 

analysis—you compare that car to two or three others. 

Mr. Schneider, you do not do bureau-based repricing. I think you 

have a pretty good cure policy. Among the three of you here, there 

are differences in what your cure policy is. There is a difference in 

how you do your repricing. There is a difference in opt-out terms. 

I know Chase gives folks flexibility to opt out even after the window is closed. We heard some testimony here about some concerns 

about whether folks can opt out. 

How could consumers get better information regarding the difference in policies? Mr. Hammonds, your future policy will bring 

you down 2 percent. Was it Mr. Schneider who said that Capital 

45

One’s cure policy can bring you all the way back to the original 

rate? How do you educate customers so that they actually know 

what the competitive differences are and they can make an informed choice? 

Mr. SCHNEIDER. Senator, good question. I think there are two 

parts to it. First, there is a continuing onus on us to continue to 

improve the clarity of our disclosures wherever we can. And, second, it is critical that we push forward with the Federal Reserve 

on their proposed revisions to Regulation Z. That proposal is to increase consumer protection through much greater clarity of disclosures. It will give a common standard in the industry around credit 

card discloses these things and make it much easier for consumers 

to compare and contrast between different offers in the competitive 

marketplace, and then make the choice that is best for them. 

Senator COLEMAN. Mr. Hammonds. 

Mr. HAMMONDS. Yes, I do agree with that also, Senator. It is not 

the easiest thing in the world to do, though, because customers 

constantly demand a lot of different choices on their credit cards. 

Some customers want a lot of different rewards. Others want lower 

rates. And there are many things that customers have to compare. 

But I absolutely agree we should constantly work on making those 

comparisons clear. 

I have been in this business for almost 40 years. I have done 

hundreds and hundreds of hours of talking and listening to our 

customers. I think the vast majority of our customers get it. And 

certainly there is no lack of competitors for them to go to when 

they do not find that Bank of America is serving their interest in 

the way they want on a particular credit card. 

Senator COLEMAN. Mr. Hochschild. 

Mr. HOCHSCHILD. I would agree on competition. Most customers 

have several credit cards that they are using at a given time and 

will shift their business based on how they feel their relationship 

with each card is. We pioneered no annual fees and rewards in the 

industry. We pride ourselves on having the best customer service. 

And so each issuer competes in a different way, and, again, many 

customers have more than one card and will shift their business 

based on how good a job we do satisfying their needs. 

Senator COLEMAN. One of the concerns, as we have looked at the 

cases in front of us is this: I think both Ms. Hard and Mr. Glasshof, 

were making payments and it really did not impact the principal 

very much. Even if you had not changed the rates, they would be 

making payments for many years with only minimal decreases in 

the actual principal that they owed at, say 18 percent interest. Ms. 

Hard was reducing, but, still looking at this, probably about 75 percent of her payment was interest. Mr. Glasshof was—15 percent 

was his original rate. He was making a $120 payment, probably 

$95 was interest and $25 was going towards principal. And so for 

an 80-some-year-old guy, that is going to take many years. 

What do you do to help high-risk borrowers? I look at these folks, 

and they seem to be trapped in a cycle of credit card debt. Is there 

stuff that you do, is there some way that you can help them avoid 

that, some way to ease the burden? 

Mr. HAMMONDS. Senator Coleman, if I might offer, I think a 

credit card is a great financial tool for the middle class. It allows 

46

people to pay the balance in full and not pay any interest at all. 

But in a particular month, if a customer has a cash flow issue, just 

like a business, they can make a smaller payment and then pay the 

balance in full next month. 

In our portfolio, in any given month, about 8 percent of the customers will make a minimum payment. If you look at customers 

making three minimum payments in a row, that drops to about 3 

percent. And if you look at customers making minimum payments 

for a full year, you are down to like 20 basis points. 

That is a high-risk customer. That is a customer that we would 

rather not see make a minimum payment, because there is a high 

probability that they are going to eventually go to default. 

We have hundreds of credit analysts that are looking through 

our accounts and calling customers like that and asking if they can 

update their credit information and trying to help them with solutions, whether it is something we can do internally—17 percent of 

our delinquent customers, for example, we have reduced payments 

and interest—or whether we get them to a consumer credit counseling agency. But it does not help anybody to get customers in 

trouble, and customers generally who are making only minimum 

payments are headed for trouble. So we are constantly trying to 

help them. 

Senator COLEMAN. Mr. Hochschild. 

Mr. HOCHSCHILD. We provide a whole series of different tools to 

help our customers manage their debt. Some we just developed and 

are online where they can look at, given their rate and a certain 

payment, how long it will take to pay down their balance. 

In addition, they can look at that before making any purchase 

and understand the impact of that purchase, and if they are planning an additional purchase, how much longer then they will be 

paying down their balance because of that purchase. 

So there are a whole series of things we do to try and help our 

customers manage their risk. 

Senator COLEMAN. I think it would be an eye opener to look at 

how long it would have taken either of these witnesses to pay off 

that credit card debt at the rate that they were doing it, and perhaps if there was a way up front for them to have understood that, 

they might not be in that position. 

Thank you, Mr. Chairman. 

Senator LEVIN. Thank you. Senator McCaskill. 

Senator MCCASKILL. It seems to me, in listening to all this, that 

part of the problem here is that the behavior you encourage is the 

behavior you use to raise interest rates. And I think the statement 

you made, Mr. Hammonds, if you pay the balance off in full every 

month there will be no interest charges is simply not true. I will 

give you an example. Unbeknownst to me, my mother made a credit card payment on one of the cards I was paying off, and I paid 

off the balance. So when the bill came the next month, which it 

came because we had not sent them a separate letter in writing 

that we wanted to cancel the card, it showed that the company 

owed my mother $224, but there was $9 in interest charged. 

So I am looking at this bill thinking, Now, how in the world does 

this company owe us money but we have to pay them interest this 

month? And, of course, the answer was that part of that balance 

47

was either a cash advance or a transfer balance. She paid off another credit card. So the interest was charged from the first of the 

month even if the card had been paid off. 

So it is not true that if you pay off the balance in time every 

month you do not have interest, not if you use one of those checks 

you send. That is just simply not correct. 

And, by the way, that is not told to the customer when they get 

those checks. If it is told to them, it is not told in clear language. 

So what you are doing is you are encouraging your customers to 

go close to their credit limit. You are encouraging them to make 

the minimum payment by putting in very plain language what the 

minimum payment is, without telling them that it could put them 

in a hole for decades. But yet those are exactly the things you are 

using to raise their interest rates based on what your companies 

have said. 

Don’t you have some obligation to tell the consumer, ‘‘By the 

way, if you take out this credit card, because you have already got 

four your interest rate might go up for all of them’’? ‘‘By the way, 

if you open this account at Macy’s to get the 10 percent off, if you 

have an account—if you open an account, it may cause your other 

credit card interest rates to go up’’? ‘‘By the way, if you make a 

minimum balance payment for an extended period of time, your interest rate may go up’’? Do you feel no obligation to explain to the 

consumer that reality? Mr. Hochschild. 

Mr. HOCHSCHILD. We have online what we put out in terms of 

a guide to using credit wisely, and we do the best job we can to 

explain to our consumers how they should be using credit. 

Senator MCCASKILL. Do you tell a consumer when you solicit a 

credit card from them that if they take out a credit card, it could, 

in fact, increase their interest rate with another card they hold? Do 

you say that in your solicitations? 

Mr. HOCHSCHILD. Depending on how their particular financial 

situation is, it may raise or lower their risk. One of the risk factors 

is taking out too many credit cards. But if you look at one of the 

practices we talked about in terms of utilization, in terms of using 

too much of your credit line, what we tell customers—and this is 

available to all our customers, as well as online on our public site—

is we tell them to keep their total charges well below the credit 

limit. I could read this to you, and you can tell me whether you 

think it is in plain enough English. And we are doing the best we 

can. 

‘‘If you want to boost your credit history and credit score, you 

will want to keep your total monthly charges well below your credit 

limit. If you are going to carry a balance each month, make sure 

that balance never exceeds 25 to 30 percent of your maximum credit limit. Why? In calculating your credit score, you will take a hit 

if your balance is above that limit because it signals the creditors 

that you may be having financial difficulties and, thus, are a 

riskier borrowers.’’

Senator MCCASKILL. Do you send checks to customers that are 

at that point in their credit? 

Mr. HOCHSCHILD. No. At a certain point in risk, we cut off all efforts to encourage a customer to use their card——

48

Senator MCCASKILL. How close to their credit limit must one of 

your customers be in order for you not to send them checks they 

can cash? 

Mr. HOCHSCHILD. It varies based on the customer. Sometimes we 

do it even if they are not close to their credit limit but are showing 

signs of risk on their account as well as paying the minimum payment. So it is not even necessarily a function of whether or not 

they are close to their credit limit. 

Senator MCCASKILL. Mr. Hammonds, do you have a calculation 

that you quit sending checks if someone is close to their credit 

limit? Or do you keep sending checks even if they are approaching 

their credit limit? 

Mr. HAMMONDS. It is exactly the same as Mr. Hochschild described. It is based on risk. It is not based on credit line because, 

again, a customer can be close to their credit line today and pay 

it way down tomorrow. So, overall, if the risk is up, we stop sending checks. 

Senator MCCASKILL. Well, I have to tell you, my experience is 

not what you are saying. Because of factors beyond her control, my 

mother was not a good risk. And it was obvious. She had a lot of 

cards. She was at her limit on most of them. She was trying very 

hard, but she kept getting checks. And, by the way, they are still 

sending checks. She just received another package of them. So it 

does not appear the reality matches what you are saying. 

If your credit score drops—how many points does it take for the 

credit score to drop for your company to raise the rates? Mr. 

Schneider. 

Mr. SCHNEIDER. We do not raise rates based off a consumer’s 

credit score, so we would not look at that fact. 

Senator MCCASKILL. Mr. Hammonds. 

Mr. HAMMONDS. We do not raise rates based on the credit score. 

It would be one part of a variety of things we would look at, but 

there is no drop that would automatically trigger a rate increase. 

Senator MCCASKILL. Mr. Hochschild. 

Mr. HOCHSCHILD. The same. We do not make any decisions purely on the basis of a consumer’s credit score. 

Senator MCCASKILL. OK. I noticed in your testimony, Mr. 

Hochschild, that you said that the impact of rate increases on default. Now, common sense would tell me that the reason you are 

raising the rate is you are, in fact, worried that someone is going 

to default or you are going to have to charge off, right? Would that 

be correct, Mr. Schneider? 

Mr. SCHNEIDER. The only reason we would raise a rate in a default situation is when a customer has paid late with us two different times in a 12-month period by 3 days. 

Senator MCCASKILL. Maybe this does not apply to you because 

I am talking about risk-based increases, not customer behavior 

with you but risk-based increases similar to what some of the witnesses talked about. 

Mr. SCHNEIDER. We do not look at our customers’ credit bureau 

scores. 

Senator MCCASKILL. OK. Mr. Hammonds, obviously the riskbased increases you are doing, like the woman who testified, you 

49

would assume that is because you are worried there is going to be 

a default or a charge-off. 

Mr. HAMMONDS. We do it because we know based on history that 

if you look at the variety of accounts that behave like that, the risk 

is higher that they will go to default. That is correct. 

Senator MCCASKILL. But in reality, according to the testimony of 

Mr. Hochschild—and I assume it is true for you—your experience 

demonstrates that it does not increase the likelihood of default, correct? 

Mr. HAMMONDS. Well, actually, if we raise the rate, what we 

have found for the most part is the customer makes higher payments and pays the account off faster. So, in fact, it lowers our 

risk. That is correct. 

Senator MCCASKILL. So you are telling me that when your—you 

can demonstrate to us with numbers that when you raise the interest rate, they pay off the debt faster? 

Mr. HAMMONDS. That is correct, yes, Senator. 

Senator MCCASKILL. Well, I would love to see that data because 

I am—that is kind of counterintuitive that these people who are 

struggling and making minimum payments, that you are going to 

raise their rate, then all of a sudden they are going to up their payments and pay off the loan faster? 

Mr. HAMMONDS. That is what happens in general, yes. 

Senator MCCASKILL. Well, I would love to see that documentation. If you could get that for us, I would love to see—obviously, 

not specific to consumers, but the broad—because that does not 

make sense to me that would happen. 

Thank you, Mr. Chairman. 

Senator LEVIN. Thank you very much. Senator Carper. 

Senator CARPER. Thanks, and to all our witnesses, welcome. 

Some of you have been before us before, and it is good to see you 

again. 

From time to time, we in the Congress look in the mirror, and 

we do not like what we see. And it may be with regard to the way 

we raise funds for campaigns. It may be with respect to different 

aspects of our ethical behavior. And we change the law. They are 

not easy changes to make. Sometimes they take several years, but 

this year, after a lot of debate, we changed our ethics rules. We 

have changed in the past campaign finance rules as well. 

When you look in the mirror, are there things that you have seen 

in recent years for your company practices that you felt were hard 

to defend and that you have changed them? Would you just cite a 

couple of those examples for us? 

Mr. HOCHSCHILD. Sure. I think we are continually evaluating our 

practices both in terms of educating customers as well as in terms 

of the disclosures we provide. We have recently expanded, for example, the cure provision so that customers who do see an increase 

in their rates, if they pay on time, they will see their rates go 

down. And, in fact, Ms. Hard’s rate has now been reduced, based 

on her good credit performance, back to where it was in the beginning. And so I think she has gone through that cycle. 

So, again, we are always looking at what we can do better for 

our customers. 

Senator CARPER. Alright. Mr. Hammonds. 

50

Mr. HAMMONDS. Yes, Senator, let me just start with, not that 

many years ago, in the mid-1990s, what the credit card industry 

was like before risk-based repricing. Everybody paid an annual fee, 

and everybody paid 19.8 percent across the board. Today, on average, our rates are less than 13 percent in total. The drop from 19.8 

to 13 percent is, I think, a good indication of the impact of riskbased repricing. 

Just in recent times, over the last year or so, we reduced the 

amount that we charge customers for an over-limit fee. We thought 

that it was not fair if a customer went over limit to keep charging 

an over-limit fee month after month after month, and so we cut 

that off at three charges as opposed to keep charging them for the 

over-limit fee, is another example. 

Senator CARPER. Alright. Thank you. Mr. Schneider. 

Mr. SCHNEIDER. Senator, one of the things I am most proud of 

is that there are a number of practices we have not had to make 

changes on. For example, we have never practiced any form of universal default. We have never gone to a credit bureau to look at 

someone’s credit score to reprice them, and we have continued to 

not engage in those practices. 

The place I think we continue to make the most progress on is 

clear disclosure. We give consumers notice whenever there is a 

change in their account, with a substantial window, 45 days, and 

then give them choices in a very clear way they can understand, 

clear ability to opt out, clear ability to keep their existing rate, and 

pay off the existing balance. So clear disclosures is a place where 

we continue to think it is really important for us to change for the 

consumer. 

Senator CARPER. Alright. Today we are here talking a little bit 

about a little too strict of a standard and somewhere in the middle 

is probably, I guess, the right standard. And we have seen consumers get into problems with the subprime lending because they 

really haven’t had in too many cases not much of a standard. And 

here, again, we are talking about a standard that might be too 

strict. Somewhere in the middle there has got to be a standard that 

is more appropriate. 

Let me just ask, each of you, I think, may be regulated by a different regulator. I am not sure that is the case, but there are several major regulators out there, and you may be. But have any of 

your regulators issued guidance about how to manage your credit 

risk? 

Mr. HAMMONDS. Well, Senator, we are regulated by the Office of 

the Comptroller of the Currency, and they are constantly looking 

at how we manage risk. They have a sizable full-time staff that is 

in with us, and especially with any company that is as big as ours, 

they are looking every day at how we are managing risk and challenging us on our ability to manage things in a safety and soundness way. They have over the last 3 or 4 years tightened the rules 

for all credit card companies, and we have embraced those rules. 

So in my case, I would say I think the Comptroller of the Currency 

has certainly been on top of managing risk. 

Senator CARPER. Thank you. The other witnesses respond, if you 

would. 

51

Mr. SCHNEIDER. We are regulated by the Federal Reserve, and 

we are in the exact same situation as Mr. Hammonds of very frequent interaction, substantial dialogue, and very strong oversight 

on their part of our lending practices. 

Mr. HOCHSCHILD. We are regulated by the State of Delaware as 

well as the FDIC and are in almost continuous dialogue with our 

regulators, a lot of it focused on the safety and soundness of our 

lending practices, but also in terms of how we treat our customers. 

Senator CARPER. As a Delaware company—two of you have substantial operations in Delaware, and we are grateful for that. But 

as a Delaware company, under Delaware law, you have an obligation, as I understand it—if I am a customer and you decide to raise 

my interest rate for one of the reasons that you believe to be legitimate, do you have an obligation to tell me you are doing that? 

Mr. HAMMONDS. That is correct. 

Mr. HOCHSCHILD. Yes. 

Senator CARPER. I do not know what it is like for my Chairman, 

but we get a lot of mail at our house. I go home every night to 

Delaware, and I usually open the mail, try to keep up with it every 

day. And there is rarely a week that goes by that somebody in our 

household does not get a credit card solicitation from somebody. We 

have two sons—one in high school, a senior, and one who is in college—and they even get solicitations now, too, along with my wife 

and me. 

As a consumer, if you are going to tell me that I am going to 

have to pay a higher interest rate and I just do not think it is justified, I am getting literally every week applications for other credit 

cards with different kinds of interest rates, in some cases more attractive ones. What is to keep me from just saying to heck with you 

guys, whoever my credit card company is who wants to raise my 

rate, I am going to take advantage of one of these other rates, what 

stops me from doing that as a customer? 

Mr. HAMMONDS. Not a thing, and customers make those choices 

every day. 

Mr. SCHNEIDER. Nothing. It is a very competitive marketplace, 

and that is why we have got to take care of our customers and 

meet their needs, or they are going to go to one of the competition, 

whether it is someone sitting at this table or someone who is not. 

Senator CARPER. Why do you suppose some customers do not 

take advantage of the marketplace and those other opportunities to 

lower their costs? You all talk to your customers all the time, so 

what contributes to that? We have got a law in my State that basically says, if somebody is going to raise your interest rate, Delaware company, they have got to tell you; and if you do not like that 

idea, you can tell them do not do that, they have to go back to the 

lower rate; and then as long as I do not charge anything else 

against my credit card and pay off that credit card and use somebody else’s credit card. Some people obviously are not taking advantage of that. Is it because the disclosures are too confusing, I 

just do not understand them? 

Mr. HOCHSCHILD. We do our best to provide clear disclosures, 

and most consumers really see offers everywhere they go for credit 

cards. I would argue it is one of the most aggressively marketed 

industries, and we all spend our time trying to take each other’s 

52

customers. Pricing is just one element. It could be customer satisfaction. It could be a rewards program. It could be an affinity to 

a particular organization. There are many reasons that consumers 

pick a card, and many of them have multiple cards. So, really, we 

are fighting to be the one pulled out of the wallet, not even to establish the customer relationship. And I think that is why you continue to see tremendous innovation in the credit card industry. 

Mr. HAMMONDS. I agree with that, and in our portfolio this year, 

four times as many customers have had their interest rate lowered 

as have gone up. 

Senator CARPER. Mr. Schneider. 

Mr. SCHNEIDER. I agree with my colleagues. 

Senator CARPER. Well, Mr. Chairman, I am glad we are having 

this hearing. I know it is probably not pleasant for all of our witnesses, but we are grateful that you are here. I think there is value 

in putting a spotlight on practices that are—that I think most people would think are inappropriate, in some cases unseemly. I think 

practices of these customers are a good deal easier to defend than 

the practices of some other issuers that are not here. And my hope 

is if we have another round of hearings along this nature, along 

this line, that we will bring in some of those issuers as well so that 

they can have their day in the sun and the opportunity to be put 

on the hot seat, if you will. 

I look forward to the issuance of Regulation Z by the Federal Reserve, and they have spent a fair amount of time asking—saying 

this is what they are thinking of doing, asking customers, consumers, industry, us, what would be appropriate. And I think there 

is an opportunity to address some of the concerns that we have 

been discussing here today. And the issuance of those regulations 

cannot come too soon. 

Thank you again, Mr. Chairman, for holding this hearing and for 

all of you who have shown up and testified. 

Senator LEVIN. Thank you, Senator Carper. 

Mr. Hochschild, let me go back to Ms. Hard’s case. You say that, 

I guess a few days ago now, you have lowered her rate back to 

where it was, the 18 percent. Is that correct? 

Mr. HOCHSCHILD. I was not aware of that until this morning, 

but, yes, that is correct. 

Senator LEVIN. What changed in her risk? I know the hearing 

was coming up and we——

Mr. HOCHSCHILD. I can tell you——

Senator LEVIN. I wish we could have a million witnesses in front 

of us so all their rates would be reduced. We cannot do that, so we 

have to just pick some examples. But what changed in her risk profile? 

Mr. HOCHSCHILD. I can tell you for a certainty it had nothing to 

do with this hearing. Otherwise, I would have known about it before this morning. I would tell you she called and requested a lower 

rate, spoke to one of our account representatives, I believe in Phoenix. That representative looked at the account, agreed that at that 

time she did qualify for a lower rate, and lowered her rate. We are 

very happy to have her as a customer. 

53

Senator LEVIN. We are, too. We are very happy that the rate was 

lowered. What changed about her risk? She had been paying on 

time for 48 months. 

Mr. HOCHSCHILD. I would have to look at the details. 

Senator LEVIN. I know that, but you do not know what changed 

specifically in terms of her risk? 

Mr. HOCHSCHILD. It could have been any number of multiple factors. 

Senator LEVIN. Could it have been that her credit rating went 

up? 

Mr. HOCHSCHILD. It very well could have been her credit rating 

went up. 

Senator LEVIN. Could it be that by itself? 

Mr. HOCHSCHILD. Her credit score is one factor in the model. 

Whether it was a change in that——

Senator LEVIN. I understand, but if there is no other change 

other than that, could it have been just that? 

Mr. HOCHSCHILD. Without looking in detail, I am not sure that 

is the only thing that has changed. It could have been just that 

and——

Senator LEVIN. I am asking you, could it have been just that? 

Mr. HOCHSCHILD. Yes. 

Senator LEVIN. So you do base your interest rates, on some occasions at least, based purely on a change in the credit score. Is that 

correct? 

Mr. HOCHSCHILD. No, I do not think that is right. 

Senator LEVIN. There are all those other factors——

Mr. HOCHSCHILD. Those are inputs to a model. 

Senator LEVIN. I got you. 

Mr. HOCHSCHILD. Any one of those inputs could change. 

Senator LEVIN. It could never be just a credit score change? 

Mr. HOCHSCHILD. Again, it could be the change of any one of the 

inputs in the model. 

Senator LEVIN. Including that one? 

Mr. HOCHSCHILD. Including that one. 

Senator LEVIN. And that by itself could trigger the increase or 

decrease? 

Mr. HOCHSCHILD. Any factor in the model could by itself change 

the outcome of the model. 

Senator LEVIN. And is the credit score one of the factors in the 

model? 

Mr. HOCHSCHILD. The credit score is one of the factors in the 

model. 

Senator LEVIN. Therefore, could the credit score by itself trigger 

the increase or decrease, since it is one of the factors and any of 

the factors in the model, when changed, could trigger an increase 

or decrease? That is my question. 

Mr. HOCHSCHILD. The credit score, working through the model, 

could change sufficiently to change the outcome of the model. 

Senator LEVIN. By itself? 

Mr. HOCHSCHILD. By itself. 

Senator LEVIN. Why did it take me so long to get that answer? 

Mr. HOCHSCHILD. I am not sure. 

54

1See Exhibit 17 which appears in the Appendix on page 179. 

Senator LEVIN. Now, Mr. Hammonds, would you answer that 

question the same way? 

Mr. HAMMONDS. For Ms. Rushing? 

Senator LEVIN. No. For your policy. 

Mr. HAMMONDS. The credit score alone does not make the difference. 

Senator LEVIN. So it could not by itself result in an increase or 

decrease in the interest rate? Is that what you are telling me? 

Mr. HAMMONDS. I believe that is correct, Senator, yes. 

Senator LEVIN. So you differ, then, with Discover? 

Mr. HAMMONDS. Yes, sir. 

Senator LEVIN. OK. Now let’s get back to you, Mr. Hochschild. 

I want to show you, I think, the most recent credit card bill.1 Do 

you have a copy of that there? 

Mr. HOCHSCHILD. I do. 

Senator LEVIN. I think Ms. Hard testified that this was a joint 

account. You said no, it was not. Is that your Discover bill? 

Mr. HOCHSCHILD. Yes, it is. 

Senator LEVIN. Does it show both their names at the top? 

Mr. HOCHSCHILD. Yes, it does. 

Senator LEVIN. Doesn’t that indicate that it is a joint account or 

is there something else going on there? 

Mr. HOCHSCHILD. No, a joint account refers to when both people 

are responsible for the account. You can also add someone as an 

authorized user to the account. You could add a child. You could 

add a parent. You could add a whole series of people to your account. That does not make it a joint account. 

Senator LEVIN. But if both names are at the top of the bill, would 

my child, whom I have authorized to use my account, have her 

name on my bill at the top? 

Mr. HOCHSCHILD. They might, yes, if they are also an authorized 

user. 

Senator LEVIN. Alright. So he at a minimum is an authorized 

user of her account? 

Mr. HOCHSCHILD. Yes. The comments referred to the fact that we 

had given him an offer of credit. His credit is determined independently because this is not a joint account. 

Senator LEVIN. I understand. But he can use her account. 

Mr. HOCHSCHILD. She has chosen to give him permission to use 

her account. 

Senator LEVIN. Which is the same as saying yes. 

Mr. HOCHSCHILD. Yes. 

Senator LEVIN. Opt-out rights, let’s go back to those. I think 

there is a certain period of time that people have to opt out if they 

are notified that their interest rate has gone up because there is 

a credit rating change. Is that correct? Let me ask you this, Mr. 

Hammonds. Is that correct, there is a certain number of days? 

Mr. HAMMONDS. That is correct. 

Senator LEVIN. And how many days is that? 

Mr. HAMMONDS. It is at least 25 days. 

Senator LEVIN. Alright. But there is an opt-out limit when you 

notify people that their interest rate has gone up and that it is 

55

1See Exhibit 15 which appears in the Appendix on page 170. 

based on a credit score that has gone down and that they could 

contact the credit bureau to get a copy of their credit report. Isn’t 

that correct? 

Mr. HAMMONDS. No, sir. We would not notify a customer that we 

were raising their price because of a FICO score going down. We 

would notify customers we might be raising their price for other 

risk factors, but not for a FICO score going down. And then we 

would provide them with a notice that would give them at least 25 

days to opt out. 

Senator LEVIN. Could you look at Exhibit 15? 1 This is a very 

lengthy, very complicated notice of an increase in credit card rates. 

I do not think it is fair notice. I do not think it comes close to what 

one of you said was clarity and transparency. But that is not my 

immediate question. If one can work their way through all of this 

and figure out what it is that is in this notice, it says here on page 

2—there is no number on it, but it is page 2. Near the top is, ‘‘As 

part of the annual percentage rate amendment decision, we obtained consumer report information such as your accounts with 

other creditors from Equifax Credit Services. Equifax did not make 

the decision, is unable to provide the specific reasons why the interest rate was increased.’’ Do you see that? 

Mr. HAMMONDS. Yes, sir. 

Senator LEVIN. OK, so you do refer them to credit bureaus. Is 

that correct? 

Mr. HAMMONDS. We tell them we got some of the information 

that we made the decision on from the credit bureau. That is right. 

Senator LEVIN. And that they can call that credit bureau. Is that 

correct? 

Mr. HAMMONDS. That is correct. 

Senator LEVIN. ‘‘You have the right to dispute the accuracy,’’ as 

to the specific reasons for their increase in their interest rate, and 

then they are supposed to contact you. Is that correct? 

Mr. HAMMONDS. That is correct, yes. 

Senator LEVIN. Alright. But they are referred to the credit bureau since they play a role, perhaps, in their increase in interest 

rate? 

Mr. HAMMONDS. Absolutely, yes, sir. They play a role. 

Senator LEVIN. Could you say it could be a major role? 

Mr. HAMMONDS. Yes, it could be a major role. 

Senator LEVIN. Alright. So we got from Mr. Hochschild, after a 

few minutes, that it could be the exclusive reason, and from you, 

Mr. Hammonds, that it could be the major reason. Is that fair? 

Mr. HAMMONDS. It could be the major reason, yes, sir. 

Senator LEVIN. Alright. 

Mr. HAMMONDS. But, sir, that is the credit bureau report, not the 

FICO score alone. 

Senator LEVIN. Alright. But the credit bureau report is based on 

the FICO score, is it not? 

Mr. HAMMONDS. No. I think the FICO score is derived from the 

credit bureau credit experience information. 

Senator LEVIN. Alright. So the credit report then drives the FICO 

score. Is that correct? 

56

Mr. HAMMONDS. Yes, sir. 

Senator LEVIN. Alright. Now, on the opt-out, if somebody has an 

account which has been closed and they are not adding any purchases to it, they are told that they can—well, let me go back. A 

person is told their interest rates are going up. It is not because 

of default on payments to your company. It is based on other factors. And they are told they can opt out—at least they are supposed to be told they can opt out. Are we together so far? Is that 

fair enough? Except in your case, I know, Mr. Schneider, you do 

not follow this practice. 

But they are also told in this three- or four-page notice that there 

is a limit on that, that they have to notify you in a certain way 

in a certain number of days. Is that correct? I am looking now to 

Mr. Hammonds and Mr. Hochschild. Is that correct? 

Mr. HAMMONDS. That is correct. 

Mr. HOCHSCHILD. Yes. 

Senator LEVIN. They have a certain number of days to do that. 

Now, assume—well, first of all, do you raise rates on closed accounts, Mr. Hammonds? 

Mr. HAMMONDS. I cannot recall a time when we raised rates on 

closed accounts. We do occasionally change some practices. We 

might send a change in terms. 

Senator LEVIN. Might you change rates, Mr. Hochschild, on a 

closed account? 

Mr. HOCHSCHILD. We do not do any risk-based repricing on 

closed accounts. 

Senator LEVIN. OK. Now, let’s assume that the person opts out 

within the time period given. At that point they are going to pay 

at the old rate. Let’s assume that they don’t add any additional 

purchases whatsoever, but they don’t notify you. They just simply 

are going to not use your card anymore. If they don’t notify you, 

they will be charged at the higher rate. Is that correct, Mr. 

Hochschild? 

Mr. HOCHSCHILD. Yes. 

Senator LEVIN. Mr. Hammonds. 

Mr. HAMMONDS. Well, I guess I am a little confused. I would 

have thought a closed account would not have had a balance on it, 

Senator. 

Senator LEVIN. No. Then I am using a different term than you 

used. 

Mr. HAMMONDS. OK. 

Senator LEVIN. Take someone who has an account, they have got 

a balance on it. You notify them——

Mr. HAMMONDS. And if they do not opt out——

Senator LEVIN. They do not notify you that they are opting out. 

Mr. HAMMONDS. That is correct. Same answer. 

Senator LEVIN. At that point, you get the same answer. 

Mr. HAMMONDS. Yes, sir. 

Senator LEVIN. They are going to be paying a higher interest rate 

even if they add no purchases. Is that correct? 

Mr. HAMMONDS. That is correct. 

Mr. HOCHSCHILD. Yes. 

Senator LEVIN. OK. Now, in that circumstance, at least, why 

shouldn’t they be able to opt out at any time? They may not have 

57

understood your notice, your four-page notice. It may have taken 

them more than 30 days. You will not let someone opt out if they 

notify you in 50 days even though they have not made a purchase. 

They have got to pay a higher interest rate, and it is going to apply 

to the existing balance. Is that correct, Mr. Hochschild? 

Mr. HOCHSCHILD. If they do not opt out——

Senator LEVIN. Within the 30 days, or whatever number of days 

you give them. 

Mr. HOCHSCHILD [continuing]. Within the time period. 

Senator LEVIN. And they do not make any purchases. They did 

not even understand your notice. They decided, the heck with this 

company, I am not adding any more purchases to this company. 

OK? They have increased my interest rates, the heck with them; 

I am going to some other company. They owe you some money, but 

they are not opting out. They do not even understand the opt-out 

notice. They are just saying to heck with you. They do not notify 

you. Or they notify you 10 days late. But either way they have to 

pay the higher interest rate—is that correct—on that balance? 

Mr. HOCHSCHILD. If they do not opt out, they have to pay the 

higher interest rate. That is correct. 

Senator LEVIN. OK. Even though they had no purchases. 

Mr. HOCHSCHILD. Irrespective of what they do with their account, because——

Senator LEVIN. I am giving you that they had no purchases but 

they have not opted out in time, and are they still then charged 

the higher interest rate? 

Mr. HOCHSCHILD. Yes. 

Senator LEVIN. OK. Is that true with your company? 

Mr. HAMMONDS. Yes, sir. 

Senator LEVIN. OK. Now, that strikes me, by the way, as being 

manifestly unfair, if they make no purchases, why they are charged 

a higher interest rate on existing debt. I think it is unfair in any 

event, but I will leave it just in that circumstance, where people 

drop your card. We were talking here about all this competition 

that exists. They can quit using your card, and they do. But they 

do not understand this opt-out business, or they figured it out and 

they went to the credit bureau, but they went there on the 48 day 

instead of the 30 day, and so they are not buying anything more 

that they are charging on your credit card. But they are still going 

to be charged the higher interest rate, and it is going to apply to 

the existing debt. I believe that is manifestly unfair. 

Now, on Capital One, let me take your circumstance. You do not 

use the score, the credit rating. Is that correct? 

Mr. SCHNEIDER. That is correct. We do not use credit score or 

credit bureaus in the way that we have been discussing. 

Senator LEVIN. But you do raise interest rates, obviously. And 

you allow people to opt out or not? 

Mr. SCHNEIDER. Yes, we allow people to opt out, and we——

Senator LEVIN. Is there a time period? 

Mr. SCHNEIDER. Yes, we give them 45 days’ notice, which is consistent with where the Federal Reserve is moving with its Regulation Z disclosure revisions. 

58

Senator LEVIN. And even if they make no more purchases on 

your card, they will be paying the higher interest rate on an existing debt. Is that correct? 

Mr. SCHNEIDER. We ask them to opt out, and if they do not do 

that, then they will be paying the higher interest rate on the existing debt. 

Senator LEVIN. Alright. You actually ask them to opt out? 

Mr. SCHNEIDER. We believe in clear customer communication, 

and so when they get the notice—and we had our notice up on the 

board, and it has been submitted with our testimony. 

Senator LEVIN. I do think they are a lot clearer than the other 

companies, by the way. I want to give you credit for that. 

Mr. SCHNEIDER. Thank you. 

Senator LEVIN. You actually ask them to opt out? 

Mr. SCHNEIDER. Well, we give them the opportunity to opt out, 

so we give them a one-page part of our statement, and then another page that tells them how to opt out. 

Senator LEVIN. Right, and it is clearer. But you are not asking 

them to. If they can understand your clearer one than the others, 

then they have the opportunity. 

Mr. SCHNEIDER. Yes. 

Senator LEVIN. OK. Let me ask, while checking with staff here. 

Mr. Hammonds, on the Bonnie Rushing rate, that was a huge rate 

increase, 8 percent to 23 percent. Does that not trouble you when 

you find out her history? 

Mr. HAMMONDS. Well, Senator, again, I think if you go back——

Senator LEVIN. I mean her recent history, just the last 24 

months. 

Mr. HAMMONDS. Senator, if you go back to prior to risk-based repricing, everybody paid 19.8 on average. When you look at the risk 

profile of an account, we price based on that risk profile. 

Senator LEVIN. Did her story trouble you? 

Mr. HAMMONDS. I think we——

Senator LEVIN. From what you heard here today and assuming 

that she told the truth, does that trouble you? 

Mr. HAMMONDS. Well, Senator, any time a consumer talks about 

any kind of financial difficulty, it troubles me. 

Senator LEVIN. How about this time? 

Mr. HAMMONDS. Sure. But I do believe we made the right risk 

decision on this account. 

Senator LEVIN. You think it was right to raise her—to triple her 

interest rate based on that history? 

Mr. HAMMONDS. I think it was right to price that account at that 

rate given the risk at that particular time, yes, Senator. 

Senator LEVIN. And do you know, since she had been making her 

payments consistently on time for the last, what, 2 years or so. And 

she had two credit cards with you for years. Suddenly it was tripled. And give me the reason again that was tripled. Try me again 

on that one. 

Mr. HAMMONDS. Just the risk profile of that particular customer. 

Senator LEVIN. What was there that happened? 

Mr. HAMMONDS. It was primarily, Senator, a combination of the 

amount of overall debt along with the customer making minimum 

59

payments, and us asking the customer if we could update her credit history to which she declined. 

Senator LEVIN. So she was making the minimum payments. She 

was not over her limit. Those two things, plus her credit rating, 

triggered the tripling of her interest rate. 

Mr. HAMMONDS. Senator, one of the things that would indicate 

the highest degree of risk for a credit card is a customer that is 

making consistent minimum payments. A very small percentage of 

customers do that. 

Senator LEVIN. Do you discourage people making minimum payments? 

Mr. HAMMONDS. Yes, sir, we do. We have hundreds of credit analysts that are looking at accounts and calling out to customers and 

talking to them about the fact that they need to increase their minimum payment, that if they are making nothing but minimum payments, they will take years and years to pay the account off. 

Senator LEVIN. And it is your policy—I want to be real clear here 

because I think it is good for customers to know. It is the Bank of 

America’s policy that where someone is paying on time, regularly, 

month after month, at least their minimum payment—she was 

making more than her minimum payment, by the way, but at least 

the minimum payment—that even if they do not go above their 

limit, that something else could trigger tripling their interest rate. 

You think that is a fair policy? 

Mr. HAMMONDS. Sir, something else can trigger a risk-based repricing. 

Senator LEVIN. I know, but the only thing that happened here 

outside of the fact that she approached her limit, did not go over 

it, was cashing checks you sent her, was making her minimum 

payments regularly, did not miss any—made more than her minimum payments in some cases—the only other element here is a 

credit score that nobody can figure out what happened except that 

she took out a couple credit cards from a couple retailers in order 

to get discounts. And you think that is a fair way to treat a Bank 

of America customer? I just want to get a yes or no answer on her. 

I know that you have got a model and all the rest, but I am just 

saying you think that is fair treatment of a customer? 

Mr. HAMMONDS. I think from a safety and soundness standpoint 

and for the good of both customers and shareholders, we have to 

price the account commensurate with the risk. Yes, sir. 

Senator LEVIN. Bank of America, a woman named Marjorie Hancock had four Bank of America credit cards carrying equivalent 

debt loads, presumably posing the same credit risk for each card. 

Her interest rates on the four cards varied from 8 percent to 27 

percent. So they were 8 percent, 14 percent, 19 percent, and 27 percent. How does that make sense? 

Mr. HAMMONDS. Well, I think we had risk-based repriced one account. That is what I described earlier, that is we have several 

stand-offs when we do not reprice an account, 12-month stand-offs 

and so forth. And the other accounts were not eligible to be repriced because of those stand-offs. 

Senator LEVIN. What is stand-off? What does that mean? 

60

Mr. HAMMONDS. Well, for example, if we have repriced an account in the last 12 months, we will not consider another price increase. 

Senator LEVIN. Are you familiar with her accounts? 

Mr. HAMMONDS. I have seen the files, yes, sir. 

Senator LEVIN. Were they repriced within the last 12 months? 

Mr. HAMMONDS. I do not know specifically if that is the case on 

those. I do know that the other three hit some kind of stand-off. 

Senator LEVIN. Let me close the hearing with just a very brief 

comment. 

I believe what we have uncovered in a number of hearings now 

is a series of unfair practices when it comes to credit cards. Today’s 

hearing focused on interest rate hikes on credit cardholders who 

were paying their bills on time. We are seeing in people like Janet 

Hard, people who are penalized by a drop in their credit scores. Despite her years-long record of paying her bills on time, she gets a 

big interest rate increase from her credit card company. We saw 

Ms. Hard and Bonnie Rushing being penalized by a credit score 

drop, possibly caused by such trivial factors as one alleged late payment on a different credit card bill or the opening of an extra credit 

card to get a discount on a purchase. 

A woman named Gayle Corbett, whose case we looked at, engaged in a terrible game of Whack-a-Mole, which consisted of increase after increase on three credit cards, even though she had not 

done anything wrong and paid all of her credit card bills on time. 

Our witness, Millard Glasshof, and Bonnie Rushing, another witness, and others were subjected to steep interest rate hikes out of 

the blue, some of which doubled or even tripled their interest rates 

and their finance charges. 

In all those cases, these higher interest rates were being applied 

retroactively to existing credit card debt, forcing cardholders to pay 

more finance charges and higher minimum payments. We saw consumers paying $1,300 or $2,400 on their credit card 

bills over the course of a year, but due to high interest rates and 

fees, seeing their debts shrink little or not at all. 

At the same time, credit card companies are labeling consumers 

as higher credit risks, and they are hiking their interest rates, and 

too often dangle more and more offers of credit that will lead those 

consumers deeper into debt. 

I think we have to stop these practices. I would obviously hope 

that the companies would stop them on their own. In the case of 

increasing people’s interest rates based on outside credit ratings 

which do not relate to the relationship between the credit card 

company and that consumer, that should stop just the way Chase 

and Citi have stopped it—and Mr. Schneider’s company has never 

used it, apparently. 

The bill that we have introduced, S. 1395, to stop unfair practices 

in credit cards, along with Senators McCaskill, Leahy, Durbin, 

Bingaman, Cantwell, Whitehouse, and Kohl, would address some of 

these issues. It would prohibit the retroactive application of higher 

interest rates to existing debt. It would prohibit interest rate hikes 

on consumers who play by the rules with their company, that meet 

their credit card company’s obligations, and who pay their bills on 

time. A lot of consumer groups have endorsed this bill. Senator 

61

Dodd also has a bill, and there are a number of other bills which 

have been and will be introduced. 

And all I can tell folks in the credit card industry is that I am 

deeply troubled by the kinds of facts which we heard about today. 

I would hope they would be, too. To me it is unconscionable that 

people who pay their bills on time to a credit card company, who 

do not go over the limit, are somehow given a murky notice, sometimes four and five pages of legalese, that their credit card interest 

rates are going up. They are told that they can get a copy of their 

credit rating if they will go to a certain company within a certain 

length of time. All of that is buried and lost in very complicated 

notices. 

I think clarity would help a great deal. Transparency would help 

a great deal. A straightforward notice that if you make a minimum 

payment of this amount, that under your current interest rate X 

amount is going to go towards principal, but under the increased 

interest rate, if you make that same minimum payment, you are 

going to have a much greater increase go to your interest rate. In 

other words, due to that increased interest rate which is put in the 

notice, this is what is going to happen to you. 

That clarity and transparency would help a great deal, but it 

does not change the fundamental problem that interest rate hikes 

are imposed on people who have done nothing wrong with their 

own credit card company. I think that violates most people’s sense 

of fairness. It is not corrected by an opt-out provision, in my book, 

unless that provision is so absolutely clear in terms of the impact 

that it is unmistakable as to what will happen if people do not opt 

out. 

Frankly, I would think that if people stop putting any purchases 

on that credit card, they ought to be able to opt out at any time 

under the old interest rate and not have a retroactive rate. If they 

stop using a credit card but do not notify the company because they 

either do not realize that they have to do it in X number of days, 

or they notify the company after those numbers of days have expired but they have not added any purchases, it seems to me it is 

just unfair to hit them with the significant higher interest rate on 

their existing debt. 

So, again, I want to express the hope that our credit card industry will make some significant reforms. I hope our regulators will 

adopt those reforms if the industry does not. I hope that the Congress will adopt some needed changes in law to try to prevent these 

kinds of practices from continuing to happen. 

I want to end, though, on a positive note with, again, a note of 

thanks to the industry for cooperating with this investigation. I 

know that it is not always the easiest thing to do, because we have 

very different points of view. But I want to express the gratitude 

of this Subcommittee to the industry for giving us the documents 

we have requested, for testifying here without being required by 

subpoena to do so, and all we can do in the season of good cheer 

is express the hope that there will be some changes in practices 

which will make your customers more satisfied that they are being 

treated fairly. 

With that, we will stand adjourned. 

[Whereupon, at 12:27 p.m., the Subcommittee was adjourned.] 

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