[Senate Hearing 110-289]
[From the U.S. Government Publishing Office]
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
U.S. GOVERNMENT PRINTING OFFICE
40-504 WASHINGTON : 2008
_____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512�091800
Fax: (202) 512�092104 Mail: Stop IDCC, Washington, DC 20402�090001
COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
JOSEPH I. LIEBERMAN, Connecticut, Chairman
CARL LEVIN, Michigan SUSAN M. COLLINS, Maine
DANIEL K. AKAKA, Hawaii TED STEVENS, Alaska
THOMAS R. CARPER, Delaware GEORGE V. VOINOVICH, Ohio
MARK PRYOR, Arkansas NORM COLEMAN, Minnesota
MARY L. LANDRIEU, Louisiana TOM COBURN, Oklahoma
BARACK OBAMA, Illinois PETE V. DOMENICI, New Mexico
CLAIRE McCASKILL, Missouri JOHN WARNER, Virginia
JON TESTER, Montana 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 NORM COLEMAN, Minnesota
MARK L. PRYOR, Arkansas TOM COBURN, Oklahoma
BARACK OBAMA, Illinois PETE V. DOMENICI, New Mexico
CLAIRE McCASKILL, Missouri JOHN WARNER, Virginia
JON TESTER, Montana 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
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
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
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.
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 also summarized in a set
of eight case histories in Exhibit 1,\1\ which will be made
part of the hearing record.
---------------------------------------------------------------------------
\1\ See Exhibit 1 which appears in the Appendix on page 120.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\2\ See Exhibit 2.a. which appears in the Appendix on page 138.
---------------------------------------------------------------------------
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 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
payments 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-the-limit 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.
---------------------------------------------------------------------------
\1\ See Exhibit 2.b. which appears in the Appendix on page 139.
---------------------------------------------------------------------------
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. 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 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.
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:]
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 over-the-
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 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 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 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.
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.
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 others 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 common-sense,
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. 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.
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.
---------------------------------------------------------------------------
\1\ The prepared statement of Ms. Hard appears in the Appendix on
page 63.
---------------------------------------------------------------------------
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.
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.
---------------------------------------------------------------------------
\1\ The prepared statement of Ms. Rushing appears in the Appendix
on page 65.
---------------------------------------------------------------------------
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 responded; 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.
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.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Glasshof appears in the Appendix
on page 67.
---------------------------------------------------------------------------
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
balance 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 2\1/2\
years of making payments, 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.
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.
---------------------------------------------------------------------------
\1\ See Exhibit 2.a. which appears in the Appendix on page 138.
---------------------------------------------------------------------------
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?
---------------------------------------------------------------------------
\2\ See Exhibit 2.b. which appears in the Appendix on page 139.
---------------------------------------------------------------------------
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 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 2\1/2\ 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?
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?
---------------------------------------------------------------------------
\1\ See Exhibit 16 which appears in the Appendix on page 174.
---------------------------------------------------------------------------
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-
of-rate 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.
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.
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 minimum 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?
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.
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.
---------------------------------------------------------------------------
\1\ See Exhibit 4 which appears in the Appendix on page 142.
---------------------------------------------------------------------------
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.
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.
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.
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?
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.
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.
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 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.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Hochschild appears in the
Appendix on page 69.
---------------------------------------------------------------------------
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 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.
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.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Hammonds appears in the Appendix
on page 78.
---------------------------------------------------------------------------
The focus today is risk-based pricing. Let me explain how
risk-based 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.
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.
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.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Schneider with an attachment
appears in the Appendix on page 89.
---------------------------------------------------------------------------
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 change-in-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.
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?
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?
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?
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----
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----
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 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 change-in-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 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 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 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----
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 risk-
based increases you are doing, like the woman who testified,
you 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.
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 risk-based 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.
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 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.
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.
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?
---------------------------------------------------------------------------
\1\ See Exhibit 17 which appears in the Appendix on page 179.
---------------------------------------------------------------------------
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 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?
---------------------------------------------------------------------------
\1\ See Exhibit 15 which appears in the Appendix on page 170.
---------------------------------------------------------------------------
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?
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 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.
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 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?
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 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.]
A P P E N D I X
----------
[GRAPHIC] [TIFF OMITTED] T0504.001
[GRAPHIC] [TIFF OMITTED] T0504.002
[GRAPHIC] [TIFF OMITTED] T0504.003
[GRAPHIC] [TIFF OMITTED] T0504.004
[GRAPHIC] [TIFF OMITTED] T0504.005
[GRAPHIC] [TIFF OMITTED] T0504.006
[GRAPHIC] [TIFF OMITTED] T0504.007
[GRAPHIC] [TIFF OMITTED] T0504.008
[GRAPHIC] [TIFF OMITTED] T0504.009
[GRAPHIC] [TIFF OMITTED] T0504.010
[GRAPHIC] [TIFF OMITTED] T0504.011
[GRAPHIC] [TIFF OMITTED] T0504.012
[GRAPHIC] [TIFF OMITTED] T0504.013
[GRAPHIC] [TIFF OMITTED] T0504.014
[GRAPHIC] [TIFF OMITTED] T0504.015
[GRAPHIC] [TIFF OMITTED] T0504.016
[GRAPHIC] [TIFF OMITTED] T0504.017
[GRAPHIC] [TIFF OMITTED] T0504.018
[GRAPHIC] [TIFF OMITTED] T0504.019
[GRAPHIC] [TIFF OMITTED] T0504.020
[GRAPHIC] [TIFF OMITTED] T0504.021
[GRAPHIC] [TIFF OMITTED] T0504.022
[GRAPHIC] [TIFF OMITTED] T0504.023
[GRAPHIC] [TIFF OMITTED] T0504.024
[GRAPHIC] [TIFF OMITTED] T0504.025
[GRAPHIC] [TIFF OMITTED] T0504.026
[GRAPHIC] [TIFF OMITTED] T0504.027
[GRAPHIC] [TIFF OMITTED] T0504.028
[GRAPHIC] [TIFF OMITTED] T0504.029
[GRAPHIC] [TIFF OMITTED] T0504.030
[GRAPHIC] [TIFF OMITTED] T0504.031
[GRAPHIC] [TIFF OMITTED] T0504.032
[GRAPHIC] [TIFF OMITTED] T0504.033
[GRAPHIC] [TIFF OMITTED] T0504.034
[GRAPHIC] [TIFF OMITTED] T0504.035
[GRAPHIC] [TIFF OMITTED] T0504.036
[GRAPHIC] [TIFF OMITTED] T0504.037
[GRAPHIC] [TIFF OMITTED] T0504.038
[GRAPHIC] [TIFF OMITTED] T0504.039
[GRAPHIC] [TIFF OMITTED] T0504.040
[GRAPHIC] [TIFF OMITTED] T0504.041
[GRAPHIC] [TIFF OMITTED] T0504.042
[GRAPHIC] [TIFF OMITTED] T0504.043
[GRAPHIC] [TIFF OMITTED] T0504.044
[GRAPHIC] [TIFF OMITTED] T0504.045
[GRAPHIC] [TIFF OMITTED] T0504.046
[GRAPHIC] [TIFF OMITTED] T0504.047
[GRAPHIC] [TIFF OMITTED] T0504.048
[GRAPHIC] [TIFF OMITTED] T0504.049
[GRAPHIC] [TIFF OMITTED] T0504.050
[GRAPHIC] [TIFF OMITTED] T0504.051
[GRAPHIC] [TIFF OMITTED] T0504.052
[GRAPHIC] [TIFF OMITTED] T0504.053
[GRAPHIC] [TIFF OMITTED] T0504.054
[GRAPHIC] [TIFF OMITTED] T0504.055
[GRAPHIC] [TIFF OMITTED] T0504.056
[GRAPHIC] [TIFF OMITTED] T0504.057
[GRAPHIC] [TIFF OMITTED] T0504.058
[GRAPHIC] [TIFF OMITTED] T0504.059
[GRAPHIC] [TIFF OMITTED] T0504.060
[GRAPHIC] [TIFF OMITTED] T0504.061
[GRAPHIC] [TIFF OMITTED] T0504.062
[GRAPHIC] [TIFF OMITTED] T0504.063
[GRAPHIC] [TIFF OMITTED] T0504.064
[GRAPHIC] [TIFF OMITTED] T0504.065
[GRAPHIC] [TIFF OMITTED] T0504.066
[GRAPHIC] [TIFF OMITTED] T0504.067
[GRAPHIC] [TIFF OMITTED] T0504.068
[GRAPHIC] [TIFF OMITTED] T0504.069
[GRAPHIC] [TIFF OMITTED] T0504.070
[GRAPHIC] [TIFF OMITTED] T0504.071
[GRAPHIC] [TIFF OMITTED] T0504.072
[GRAPHIC] [TIFF OMITTED] T0504.073
[GRAPHIC] [TIFF OMITTED] T0504.074
[GRAPHIC] [TIFF OMITTED] T0504.075
[GRAPHIC] [TIFF OMITTED] T0504.076
[GRAPHIC] [TIFF OMITTED] T0504.077
[GRAPHIC] [TIFF OMITTED] T0504.078
[GRAPHIC] [TIFF OMITTED] T0504.079
[GRAPHIC] [TIFF OMITTED] T0504.080
[GRAPHIC] [TIFF OMITTED] T0504.081
[GRAPHIC] [TIFF OMITTED] T0504.082
[GRAPHIC] [TIFF OMITTED] T0504.083
[GRAPHIC] [TIFF OMITTED] T0504.084
[GRAPHIC] [TIFF OMITTED] T0504.085
[GRAPHIC] [TIFF OMITTED] T0504.086
[GRAPHIC] [TIFF OMITTED] T0504.087
[GRAPHIC] [TIFF OMITTED] T0504.088
[GRAPHIC] [TIFF OMITTED] T0504.089
[GRAPHIC] [TIFF OMITTED] T0504.090
[GRAPHIC] [TIFF OMITTED] T0504.091
[GRAPHIC] [TIFF OMITTED] T0504.092
[GRAPHIC] [TIFF OMITTED] T0504.093
[GRAPHIC] [TIFF OMITTED] T0504.094
[GRAPHIC] [TIFF OMITTED] T0504.095
[GRAPHIC] [TIFF OMITTED] T0504.096
[GRAPHIC] [TIFF OMITTED] T0504.097
[GRAPHIC] [TIFF OMITTED] T0504.098
[GRAPHIC] [TIFF OMITTED] T0504.099
[GRAPHIC] [TIFF OMITTED] T0504.100
[GRAPHIC] [TIFF OMITTED] T0504.101
[GRAPHIC] [TIFF OMITTED] T0504.102
[GRAPHIC] [TIFF OMITTED] T0504.103
[GRAPHIC] [TIFF OMITTED] T0504.104
[GRAPHIC] [TIFF OMITTED] T0504.105
[GRAPHIC] [TIFF OMITTED] T0504.106
[GRAPHIC] [TIFF OMITTED] T0504.107
[GRAPHIC] [TIFF OMITTED] T0504.108
[GRAPHIC] [TIFF OMITTED] T0504.109
[GRAPHIC] [TIFF OMITTED] T0504.110
[GRAPHIC] [TIFF OMITTED] T0504.111
[GRAPHIC] [TIFF OMITTED] T0504.112
[GRAPHIC] [TIFF OMITTED] T0504.113
[GRAPHIC] [TIFF OMITTED] T0504.114
[GRAPHIC] [TIFF OMITTED] T0504.115
[GRAPHIC] [TIFF OMITTED] T0504.116
[GRAPHIC] [TIFF OMITTED] T0504.117
[GRAPHIC] [TIFF OMITTED] T0504.118
[GRAPHIC] [TIFF OMITTED] T0504.119
[GRAPHIC] [TIFF OMITTED] T0504.120
[GRAPHIC] [TIFF OMITTED] T0504.121
[GRAPHIC] [TIFF OMITTED] T0504.122
[GRAPHIC] [TIFF OMITTED] T0504.123
[GRAPHIC] [TIFF OMITTED] T0504.124
[GRAPHIC] [TIFF OMITTED] T0504.125
[GRAPHIC] [TIFF OMITTED] T0504.126
[GRAPHIC] [TIFF OMITTED] T0504.127
[GRAPHIC] [TIFF OMITTED] T0504.128
[GRAPHIC] [TIFF OMITTED] T0504.129
[GRAPHIC] [TIFF OMITTED] T0504.130
[GRAPHIC] [TIFF OMITTED] T0504.131
[GRAPHIC] [TIFF OMITTED] T0504.132
[GRAPHIC] [TIFF OMITTED] T0504.133
[GRAPHIC] [TIFF OMITTED] T0504.134
[GRAPHIC] [TIFF OMITTED] T0504.135
[GRAPHIC] [TIFF OMITTED] T0504.136
[GRAPHIC] [TIFF OMITTED] T0504.137
[GRAPHIC] [TIFF OMITTED] T0504.138
[GRAPHIC] [TIFF OMITTED] T0504.139
[GRAPHIC] [TIFF OMITTED] T0504.140
[GRAPHIC] [TIFF OMITTED] T0504.141
[GRAPHIC] [TIFF OMITTED] T0504.142
[GRAPHIC] [TIFF OMITTED] T0504.143
[GRAPHIC] [TIFF OMITTED] T0504.144
[GRAPHIC] [TIFF OMITTED] T0504.145
[GRAPHIC] [TIFF OMITTED] T0504.146
[GRAPHIC] [TIFF OMITTED] T0504.147
[GRAPHIC] [TIFF OMITTED] T0504.148
[GRAPHIC] [TIFF OMITTED] T0504.149
[GRAPHIC] [TIFF OMITTED] T0504.150
[GRAPHIC] [TIFF OMITTED] T0504.151
[GRAPHIC] [TIFF OMITTED] T0504.152
[GRAPHIC] [TIFF OMITTED] T0504.153
[GRAPHIC] [TIFF OMITTED] T0504.154
[GRAPHIC] [TIFF OMITTED] T0504.155
[GRAPHIC] [TIFF OMITTED] T0504.156
[GRAPHIC] [TIFF OMITTED] T0504.157
[GRAPHIC] [TIFF OMITTED] T0504.158
[GRAPHIC] [TIFF OMITTED] T0504.159
[GRAPHIC] [TIFF OMITTED] T0504.160
[GRAPHIC] [TIFF OMITTED] T0504.161
[GRAPHIC] [TIFF OMITTED] T0504.162
[GRAPHIC] [TIFF OMITTED] T0504.163
[GRAPHIC] [TIFF OMITTED] T0504.164
[GRAPHIC] [TIFF OMITTED] T0504.165
[GRAPHIC] [TIFF OMITTED] T0504.166
[GRAPHIC] [TIFF OMITTED] T0504.167
[GRAPHIC] [TIFF OMITTED] T0504.168