TAILIEUCHUNG - Increased Complexity in Rates and Fees Heightens Need for More Effective Disclosures to Consumers

In the European Union, the existing insurance and reinsurance directives do not contain any provisions that place reliance on credit rating agencies. There is no explicit credit risk charge for the solvency margin in the Solvency I framework. The solvency margin in the Solvency I framework is not the sum of different capital charges related to different risks, but a single capital charge calibrated to reflect all the risks an insurance company faces. Nevertheless, the importance of credit quality is taken into account in the rules applying to asset allocation; but they are not based on the use of. | GAO United States Government Accountability Office Report to the Ranking Minority Member Permanent Subcommittee on Investigations Committee on Homeland Security and Governmental Affairs . Senate September 2006 CREDIT CARDS Increased Complexity in Rates and Fees Heightens Need for More Effective Disclosures to Consumers i A . Aocountablllty Integrity . Reliability GAO-06-929 September 2006 À GAO ÌỈỈM Accountability Integrity Reliability Highlights Highlights of GAO-06-929 a report to the Ranking Minority Member Permanent Subcommittee on Investigations Committee on Homeland Security and Governmental Affairs . Senate Why GAO Did This Study With credit card penalty rates and fees now common the Federal Reserve has begun efforts to revise disclosures to better inform consumers of these costs. Questions have also been raised about the relationship among penalty charges consumer bankruptcies and issuer profits. GAO examined 1 how card fees and other practices have evolved and how cardholders have been affected 2 how effectively these pricing practices are disclosed to cardholders 3 the extent to which penalty charges contribute to cardholder bankruptcies and 4 card issuers revenues and profitability. Among other things GAO analyzed disclosures from popular cards obtained data on rates and fees paid on cardholder accounts from 6 large issuers employed a usability consultant to analyze and test disclosures interviewed a sample of consumers selected to represent a range of education and income levels and analyzed academic and regulatory studies on bankruptcy and card issuer revenues. What GAO Recommends As part of revising card disclosures the Federal Reserve should ensure that such disclosure materials more clearly emphasize those terms that can significantly affect cardholder costs such as the actions that can cause default or other penalty pricing rates to be imposed. The Federal Reserve generally concurred with the report. cgi-bin getrpt GAO-06-929. To

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