Statements to the Congress - policy statements by members of the Board of Governors Federal Reserve System - Transcript

Federal Reserve Bulletin, Dec, 1991

H.R.2440

H.R.2440 would amend the Truth in Lending Act to provide for additional disclosures to accompany credit and charge card applications and preapproved solicitations mailed to consumers. The bill would also expand the disclosure requirements of the Truth in Lending Act for credit and charge card advertisements. Finally, the bill would require additional disclosures and provide substantive rights to consumers in connection with certain changes in the terms of card accounts.

The Board believes that existing law generally provides adequate disclosure to consumers of the key costs associated with credit and charge card accounts. Furthermore, a wealth of public information is available to consumers about credit card rates and nonrate terms. For example, the Federal Reserve Board collects information and then publishes a semiannual report of the terms of credit card plans offered by the largest card issuers in the United States. The Board's September 1991 report (attached to this statement) includes twenty-eight card issuers that offer a rate below 16 percent. (1) Seventeen issuers impose no annual membership fee. Lists of rates and other fees offered by card issuers also are available from groups such as Bankcard Holders of America and from commercial sources. In addition, the media report on credit card rates. In short, it is not apparent to the Board that the current disclosure rules and public information on credit card charges need to be supplemented by further legislation.

Disclosures on Card Applications

and Solicitations

In March 1989, the Fair Credit and Charge Card Disclosure Act amendments to the Truth in Lending law went into effect. Before these amendments were enacted, consumers sometimes did not receive full disclosure of the credit terms on their card accounts until after they had received a credit card accessing the account.

The Fair Credit and Charge Card Disclosure Act requires that card issuers provide early disclosure of rate and other cost information to potential cardholders. The disclosures generally must be provided in direct mail or telephone applications and preapproved solicitations and in applications made available to the general public. Most of the required disclosures must be provided in the form of a table (attached to this statement) that the Board prescribes to allow easy comparison of the terms offered by different card issuers.

H.R.2440 would require that the prescribed disclosure table appear on envelopes containing card applications or preapproved solicitations mailed to consumers. For card issuers that operate in several states, providing their disclosure tables on the outside of envelopes could be difficult given the length of the disclosures.

Although the Board recognizes the value of early disclosure of essential credit information to consumers to facilitate credit shopping, it believes that this proposed requirement would not offer any meaningful benefit to consumers. The consumer who is intrigued by a card issuer's offer to open an account will of necessity have to open the envelope to act on the offer and therefore will encounter the current disclosure table. The consumer who fails to open the envelope (and thereby does not see the disclosure table) obviously is not taking the offer, has not been misled by the card issuer's marketing, and cannot be deemed to have been harmed just because the table is not on the outside of the envelope. Accordingly, the Board believes that this additional disclosure requirement is unnecessary.

Credit Card Advertising

Under the current Truth in Lending Act, creditors that mention specific costs in advertisements for any type of open-end credit product must also disclose other relevant cost information. Under this "trigger term" approach, a card issuer that advertisers its annual percentage rate, for example, must also disclose any minimum finance charge, transaction fee, or similar charge. The Board by regulation also requires that any fee for membership or participation be disclosed.

In general credit card advertisements, when no specific costs are stated, the law does not mandate that any other cost information be provided. In addition, if creditors advertise that certain fees are not charged on an account, no additional disclosures are required. For example, a card issuer may advertise that annual fee is imposed on a card account, without disclosing the rate. Or a card issuer may represent in an advertisement that the annual percentage rate on its accounts is "low," without providing additional disclosure. Consequently, although the Truth in Lending Act and the Board's implementing regulation generally require uniform disclosure of cost information in credit advertisements, they do not require full cost information about credit and charge cards in all advertisements--only in those in which the advertiser triggers the need for further detail.

H.R.2440 would expand the advertising provisions of the Truth in Lending Act to specifically mandate detailed disclosure in any advertisement that promotes credit and charge card accounts. The bill would require that the prescribed Fair Credit and Charge Card Disclosure Act table as well as information about cash advance fees be included, or referred to, in all advertisements of card accounts no matter how brief or general. Disclosure requirements would vary according to the medium (such as television, radio, or print) in which the card advertisement appears.