The United States Government Accountability Office (GAO) has issued a report that examines the interest rates, fees, and penalties of major credit card issuers. The title summarizes the conclusion of the report, “Credit Cards: Increased Complexity in Rates and Fees Heightens Need for More Effective Disclosures to Consumers.” The basic finding of the report is that the average consumer does not understand the interest rates and fees associated with their credit card account, and the disclosure statements issued to consumers are part of the problem.

Here are some interesting facts from the GAO report:

1. The number of credit cards in circulation in the U.S. is nearly 700 million.

2. Between 1980 and 2005, the amount that U.S. consumers charged to their cards grew from an estimated $69 billion per year to more than $1.8 trillion annually.

3. The increased use of credit cards has contributed to an expansion in household debt, which grew from $59 billion in 1980 to roughly $830 billion by the end of 2005.

4. In 2005, about 80 percent of the active credit card accounts (for the top six issuers) were assessed interest rates of less than 20 percent — with more than 40 percent having rates of 15 percent or less.

5. In 2005, 35 percent of the active credit card accounts (for the top six issuers) were assessed late fees and 13 percent were assessed over-limit fees.

6. The disclosure statements issued to consumers were found to have “serious weaknesses that likely reduced consumers’ ability to understand the costs of using credit cards.” The disclosures were found to be difficult to read — with large blocks of text in small font sizes — and poorly organized.

7. Late fees have climbed at a rate which greatly outpaces normal inflation, from $12.83 in 1995 to $33.64 in 2005, an increase of over 160 percent. A similar sharp rise also occurred for over-limit penalties.

While the report touches briefly on the effect of high default interest rates and penalties on the increase in consumer bankruptcy filings, it fails to reach any definitive conclusion in this area. “Some critics of the credit card industry have cited penalty interest and fees as leading to increased financial distress; however, no comprehensive data existed to determine the extent to which these charges were contributing to consumer bankruptcies.”

Sorry, but in my book, ‘absence of evidence’ is not the same thing as ‘evidence of absence’. On a daily basis, I talk to distressed debtors who have literally been pushed over the edge of a financial cliff by abusive interest rates and penalties. Consumers on a tight budget limp along from one month to the next, making the minimum payments. And then something happens to cause them to miss a payment here or there. All of a sudden their 9.9% interest rate jumps to 32%, and $39 late fees get tacked on. In many cases, this is the straw that breaks the camel’s back, leaving the consumer with no choice but to consider bankruptcy or debt settlement.

The report makes recommendations for improving the disclosure statements issued by the credit card banks. As it stands now, you practically need an electron microscope to read the fine print, and it’s nearly impossible to stay awake while reading the turgid legal text to get to the important information. Too much emphasis, the report says, is given to the initial interest rates, and not enough to what happens in the event of default. The report recommends that disclosure statements be revised to emphasize which consumer actions or behaviors will lead to penalty interest rates or additional fees. This will help, but it’s not enough. I think we also need to add a warning like they have on cigarette packs: “WARNING: Use of this product may be hazardous to your long-term financial health.”