The credit card industry is composed of issuers, processors, and card networks. Typically banks, thrifts, and credit unions are the organizations that issue credit cards and underwrite the credit that is provided to consumers. The issuance of credit cards is highly concentrated, with the eight largest issuers representing 88 percent of all outstanding consumer credit card balances reported by CardWeb.com, Inc., as of year-end 2005. Processors provide a wide range of services for thousands of issuers, including card production, transaction processing, and production and mailing of billing statements. The level of services provided by processors can differ depending on a specific issuer’s needs. For example, some issuers handle all billing calculations and maintain all related data within the organization and rely on processors solely for printing and mailing billing statements. Other issuers, including many of the smaller issuers, use processors to perform all necessary services related to their credit cards. Finally, credit card networks facilitate payment transactions between cardholders and merchants by transferring information and funds between a merchant and a cardholder. Credit card users can be characterized into two groups—those who use their cards for purchases but consistently pay their outstanding balance in full every month (convenience users) and those who carry a balance on their cards (revolvers). Different data sources report that in 2004 revolvers represented between approximately 46 and 55 percent of cardholders. Various data sources indicate that the proportion of cardholders that pay only the minimum payment or slightly more than the minimum payment at any given time ranged from about 7 and 40 percent between 1999 and 2005, while issuers indicated that a small percentage of their cardholders (from less than 1 percent and up to 10 percent) make multiple consecutive minimum payments. According to a survey conducted by the Federal Reserve in 2004, the median balance for U.S. families that carried balances on bank-type credit cards was $2,200, and the average balance was $5,100. Each issuer determines the minimum payments that cardholders must pay each billing cycle to keep an account in good standing. Issuers calculate minimum payment amounts in a variety of ways, including as a set percentage of a cardholder's outstanding balance, or the sum of all interest and fees to be paid as well as some portion of the principal balance, among other ways. For example, some issuers calculate minimum payments as 1 percent of the outstanding balance plus any finance charges and fees (such as late fees or over-the-limit fees) incurred for that billing period. Historically, required minimum payments generally averaged about 5 percent of the outstanding balance, but these amounts declined to about 2 percent in the last decade. The decrease in minimum payment rates lowered a cardholder’s monthly payment obligation, but also further delayed a cardholder’s repayment of principal. In some cases, the amount required for the minimum payment was not sufficient to cover all incurred interest or other transaction charges, which increased the outstanding balance. Concerns about such increases—known as negative amortization—as well as other practices compelled four federal banking regulators to issue guidance in January 2003 that stated that issuers should require minimum repayment amounts so that cardholders’ current balances would be paid off—amortize—over a reasonable period of time. The guidance was designed to discourage minimum payment formulas that result in prolonged negative amortization of accounts, a practice viewed by regulators as raising safety and soundness concerns. However, it is possible that a bank could satisfy a regulator’s expectations by requiring minimum payment amounts that represent less than the 5 percent of outstanding principal that previously was customary in the industry. According to a representative of the Office of the Comptroller of the Currency, by year-end 2005, nearly all the issuers that it oversees (which includes the largest issuers in the United States) had controls in place to address concerns regarding negative amortization of credit card accounts. As part of the Bankruptcy Act, issuers will be required to provide cardholders with information about the consequences of making minimum payments on outstanding credit card balances. More specifically, the act requires creditors to print on the billing statements of revolving credit products (of which credit cards are a form) a generic disclosure that “making only the minimum payment will increase the interest you pay and the time it takes to repay your balance.” In addition to the generic disclosure, the law requires creditors to choose from two options for providing additional information to cardholders: (1) providing a toll-free telephone number that cardholders could use to obtain the actual number of months that it would take to repay their outstanding balance if they made only minimum payments or (2) providing an example of the length of time required to pay off a sample balance at an interest rate of 17 percent and a toll-free telephone number cardholders could call to get an estimate of the time required to repay their balances. These requirements are intended to increase consumer awareness of the consequences of these types of payments. The Federal Reserve is currently establishing regulations to implement the new law, which it expects to complete in 2007. The minimum payment disclosure requirements will take effect 12 months after the final regulations are published. While the Bankruptcy Act mandated that generic disclosures be made to consumers on their billing statements, some lawmakers had sought to require additional and more customized disclosures that would have provided each cardholder with customized information about the costs and time involved in paying off credit card balances resulting from habitually making only minimum payments. Amendments that would have mandated these customized disclosures failed to pass prior to the passage of the Bankruptcy Act. While the details vary, five bills were pending in Congress as of March 2006 that would mandate that issuers provide customized disclosures to consumers. Table 1 illustrates the differences between the disclosure options that issuers will be required to implement as a result of the Bankruptcy Act and an example of the type of customized disclosures that have been envisioned as part of various legislative proposals. “Making only the minimum payment will increase the interest you pay and the time it takes to repay your balance.” “Minimum Payment Warning: Making only the minimum payment will increase the interest you pay and the time it takes to repay your balance.” “Minimum Payment Warning: Making only the minimum payment will increase the amount of interest paid and the length of time to repay the outstanding balance.” “For more information, call this toll-free number: ____________.” “For example, making only the typical 2% minimum monthly payment on a balance of $1,000 at an interest rate of 17% would take 88 months to repay the balance in full.” “For example, your balance of will take months to pay off…” The information required to be provided is the actual number of months that it will take the cardholder to repay his/or her outstanding balance. “For an estimate of the time it would take to repay your balance, making only the minimum payments, call this toll-free number: _______________. “…at a total cost of in principal and in interest if only the minimum monthly payments were made.” “To pay off your balance in 3 years, you would need to pay monthly.” An attempt to mandate customized disclosures on the consequences of making minimum payments also was made at the state level. In 2001, California enacted a law that required issuers to provide the state’s cardholders with more detailed information about making minimum payments. Issuers were required to provide one of two disclosure options. Both options required the issuer to provide a minimum payment warning. In addition to the minimum payment warning, one option required issuers to print an example of the length of time required to pay off a sample balance amount using a sample interest rate. Further, issuers were required to provide cardholders, via a toll-free telephone number, with information about both the length of time required and total cost of paying an outstanding balance if only minimum payments were made. The second option, which was mandated if a cardholder did not pay more than the minimum payment for 6 consecutive months, required issuers to print on the billing statement individualized information indicating an estimate of the number of years and months and the approximate total cost to pay off the total balance due, based on the terms of the credit agreement, if the holder were to make only the minimum payment. The disclosure also included a toll-free telephone number to a credit counseling referral service. In December 2002, the U.S. District Court for the Eastern District of California held that the state statute was preempted by federal law and determined that the law was inapplicable to all federally chartered banks, savings associations and credit unions. According to a staff attorney for the California Attorney General’s office involved in the case, the judge effectively invalidated the law for all issuers because federally chartered issuers held more than 95 percent of credit card debt in the state at the time, thereby compelling the state for fairness reasons to relieve all issuers from compliance with the law. According to credit card issuers and others we interviewed, providing customized estimates to cardholders would be feasible. However, the precision of these estimates would depend upon the assumptions incorporated in the calculations needed to produce this information, which can vary based on decisions about how various factors are included. Issuers also said providing such information could expose them to legal liability and suggested a variety of regulatory actions to address these concerns. Although uncertainty about format and content prevented issuers and processors from providing precise cost estimates, they told us the largest individual cost components for large and small issuers appeared to be ongoing postage and call center operations, as well as one-time programming costs. Total projected costs to implement customized disclosures varied widely. However, issuers already are going to bear some of these costs to implement Bankruptcy Act disclosures; and, according to an industry analyst, the costs appear very small when compared with large issuers’ net income.