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Credit Traps Snag Consumers
by Gerri Detweiler
Nearly 20 years ago I worked for a small consumer advocacy organization in
Washington, DC. Each week we received sacks full of mail from consumers across
the country requesting our list of credit cards with low interest rates and no
annual fees. If you wanted a low interest rate on a credit card back then, you
often had to apply to a bank in Arkansas where interest rates were capped by
state law. Those were the good old days. Now, interest rates range from zero
percent to a high 39 percent. But it's tougher to find (and keep) a good credit
card than ever before. That's because there are many new traps that can snag
unsuspecting consumers. At the top of the list is the "universal default clause"
which allows issuers to monitor you credit report and raise your rate if you are
late on any bill that appears on your credit report.
One major issuer, for example, will hike a 0 percent rate to 24.99 percent if
you slip up! In fact, true "fixed rates" are rare. Many consumers
don't realize
that a "fixed" credit card rate isn't the same as, say, a fixed-rate mortgage.
In most states, card issuers can raise the interest rate on a fixed-rate credit
card with just fifteen days'' written notice. The new rate can typically apply to
existing balances as well as new purchases. Fees are also on the rise. Take late
fees, for example, twenty years ago a late fee on a credit card was still fairly
unusual, and typically wasn't charged unless you were 15 days late with a
payment.
Now you often must get your payment to the issuer by a certain hour in the
morning or you'll be charged a late fee of as much as $39. Go over the limit and
you'll not only pay more interest, but a steep over limit fee as well. Foreign
travelers are often charged a "currency conversion charge" of 1 - 2 percent of
the amount of their purchase. As the result of a class action lawsuit, Visa and
MasterCard were ordered to provide refunds of those fees in certain
circumstances. The problem wasn''t that the fees were illegal, but it was
determined they weren't properly disclosed.
The case is being appealed. Here are some findings from the nonprofit Consumer
Action's annual survey of credit cards (www.consumer-action.org): The vast
majority of surveyed cards have significantly higher penalty rates that are
triggered by one or two late payments in a period of six months to a year.
One-fifth of surveyed issuers have shifted to tiered late payments, which
Consumer Action interprets as a deceptive way of charging higher-than-average
late fees. The number of cards with $35 late fees has more than doubled from
last year.
More than half the cards surveyed require cardholders to pay only 2 percent of
the monthly balance each month - a disturbing trend that dramatically increases
the overall interest paid by cardholders. More than one-third of surveyed
institutions will not provide a firm annual percentage rate (APR) until they
have screened the applicant's credit history. Instead, they give only a
meaningless range of rates before screening, which makes comparison shopping
difficult if not impossible.
Don't get me wrong I am not saying that credit card companies should not make
money. In fact, easy access to credit has helped fuel our economy, especially
when the going gets rough. But many consumers now are literally trapped by
high-cost debt with few options. I've spoken to consumers who feel they have no
choice but to file for bankruptcy because their credit card companies all raised
their interest rates to between twenty and thirty percent, and they simply
cannot manage to pay the balances down.
With all the landmines out there for credit card users today, the best strategy
is still to pay down debt as quickly as possible and limit yourself to a couple
of cards to avoid problems. Sometimes, of course, that's easier said than done!
For more information on ways to avoid credit traps and build great credit, visit
the SuccessDNA Credit Center at SuccessDNA.com
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About the author:
Gerri Detweiler renowned credit expert and best-selling author on credit issues.
She is the author of "Success DNA's Cutting Edge Credit Strategies" and created
the Success DNA "Credit Center" to assist individuals and businesses succeed in
today's tricky but winnable money environment. |
