Eugene Robert Zarwell
PMB 98 1153 Rt. 3 North
Gambrills, MD 21054
410 258-5064
gene@ccconline.net

November 20, 2001

The Honorable Timothy J. Muris, Chairman
Federal Trade Commission
600 Pennsylvania Ave. N.W.,
Washington, DC 20580

Dear Commissioner Muris:

            This letter is about concerns over the abuse of credit reports, banking penalties, credit card fees, irresponsible reporting by creditors, and the impact it is having on individuals affected by circumstances beyond their control.    These are personal observations and recommendations based upon experiences as well as those of some clients who recently applied for refinancing of their homes to take advantage of the extremely low interest rates for home mortgages. 

          I will briefly discuss each concern and may offer a suggestion for its remedy: 

1.     Federally regulated credit card interest rates – it is not well known by the consumer public that home office rule establishes interest rates on credit cards and retail credit.  There should be a federal cap and a change in the rules from the Congress.

a.      Transfers of balances are treated as cash advances and used to lure consumers to brand name credit cards.

                                                                         i.       Truth of the matter is that cash advances to most consumers can never be paid off until a card is zeroed out – something only a few credit card holders achieve.  Cash advances accrue at a high interest rate and cost consumers more than twenty times the original advance over the life of their card.

                                                                       ii.       Why?  The Government allows banks to issue cards and hold the cash advance until all card purchases are paid first.  Therefore, when a bank attaches the card to a checking account the incentive is for the bank to charge a minimum of $100 per overdraft cover. These covers are usually a few dollars, but interest accrues from first day to life of the card at up to 25% interest rate.   When consumers close out the account they are hit with an exorbitant cost exceeding any usury rate considered illegal in earlier days.  Cash advances should be treated at a lower interest rate and be paid first since the imposition of the fees is discretionary by the bank as is the amount of the advance.

b.     Another practice to be challenged is assessing overlimit charges to accounts that as they approach maximum limits receive over limit authorizations placed on accounts by Hotels and automatic card readers at the gas pump. 

                                                                         i.      This practice can penalize cardholders between $30 to $70 each time they buy products while not knowing their card is maxed out.    The banks automatically authorize those purchases without notifying the cardholder that it will exceed their limit.

                                                                       ii.       How fair is a discretionary charge when the bank exceeds the limit with its overcharges and then seeks immediate remedial penalties of up to $70 and each 30-days adds identical charges to the same transaction. 

                                                                    iii.      Consumers should expect banks to alert them through the card reader that “this charge may exceed your credit limit and penalty fees could be imposed”.   Then the consumer can make the decision to go forward with the transaction or not go forward with the transaction. 

2.     Federally regulated or authorized credit reporting agencies need to be given better guidelines.

a.      Presently, credit bureaus collect predominantly adverse information without regard to extenuating circumstances.   The effect of this is that many people can never recover from an imposition by HMO’s, a major financial loss through fraud, or an accident.

                                                                         i.      HMO’s take insurance claim money and fail to distribute it to attending physicians and healthcare professionals.  Result is that patients receive an insurance check to be given to the HMO or Healthcare provider, but the attending staff is not paid.  The professional corporation then files for judgment against the patient – not the well endowed HMO or ‘provider.  While the dispute progresses, it is adversely reported to the credit bureaus.  It takes 7 years for the information to clear because individuals cannot obtain a resolution from the creditor who imposed the adverse report even though it was settled as agreed or through a third party HMO or ‘provider.

                                                                       ii.      Financial losses through a fraud or erroneous report cannot be removed or corrected by the consumer in a timely manner.  Why?  Because they don’t pay the credit bureau for the service.  Therefore, the government must demand the creditor be responsive to consumer explanations.  If a loss takes a year or two to resolve and it is paid as agreed from subsequent negotiation, it should be reported as current and paid as agreed.  

1.     Negotiations sometimes provide that consumers can split their payments to two times a month to recover from a loss.  It is subsequently reported as late or slow pay to the credit bureau without regard to the negotiated pay scheme.

2.     International payments for services are sometimes 2-3 months between distributions as are payments from U.S. Government contracts.  If paid in full upon receipt the consumer is reported as late for each month waiting and not shown as paid as agreed.  Although a consumer explanation is available it is not considered in the credit score.

3.     Consumers who pay cash or use credit cards sparingly are penalized for being frugal and responsible.  This is most important to first time homebuyers or retired folks who for the first time must revert to borrowing funds and cannot because of the lack of a credit rating.   An alternative rating scheme must be envisioned to encourage responsible consumers who live by the global cash economy and within their means.

b.     Credit bureaus need to be empowered to enforce responsible reporting by the creditors:

                                                                         i.      Creditors must be financially penalized for erroneous reports and use of adverse reporting tactics to collect debts during disputes.  Any adverse reporting should be considered as fraudulent by the creditor, until a resolution or agreed payment is made and then reported as agreed. And all adverse reports removed by the bureaus, otherwise, what incentive does the creditor offer the consumer to pay the debt.

                                                                       ii.      Bureaus should be financially penalized for erroneous reports where individuals with same name, divorced, and/or separated adversely affect others’ individual credit scores.  Further, after divorce the merged files should reflect only an individual’s credit performance thus penalizing only the abuser.  Instead of joint credit accounts, creditors should be required to issue distinctively different account numbers to family members or additional named and the activity reported as such.  This would be an exceptional way for wives or females to establish their own credit in advance of a separation.  

3.     National and Regional Banks should be regulated to prevent assessing overdraft charges and overlimit fees caused by discretionary penalties.   When depositors are forced to use government, wire, or private delivery services to transmit deposits, they should not be assessed addition charges if the funds cannot reach the destination in a timely manner.  Currently there is a two to five month delay on International and DC local delivery.

a.       When circumstances are beyond control of the depositor such as paper check transmittal to transfer funds rather than International electronic funds transfer, it causes excessive delays as does mail scrubbing, holidays, etc. banks should be required to back out the assessments if it is apparent that the deposit was intended to arrive in time to prevent a deficit.   Creditors should be instructed to not report late or slow pay under such circumstances.

b.     First of the month transactions do not always happen during the workweek.  Either banks must honor weekend transactions and record deposits on Saturdays and Sundays or debits should have a grace period of 2-10 days as well to prevent abusive imposition of discretionary penalties by posting debits from retailers before posting mail-in or delivery deposits.

c.      Consumers should earn interest for deposits and balances at the same prime interest rate given by the Federal Reserve or as an alternative - service charges should be eliminated altogether since banks earn interest on deposits from consumers in third party loans or consumers should be given interest free loans up to the amount of their annual deposits.

d.     The Federal Reserve and/or Federal Trade Commission must enact policy through the Congress to allow electronic transfer between domestic and foreign banks or through Internet on-line banking programs to facilitate bill paying on overseas obligations.  These transactions could have a spur link to report details of transfers over $10,000 to regulators.  It would keep honest people honest and the others as usual. 

Copies of this letter are being held for later electronic transmittal to the Senate Banking committee members, the comptroller of the currency and the Chairman of the Federal Reserve to allow for your review, response, and preparation of remedial recommendations to the Congress.  If I can be of service in this matter, please contract me.