IN THE CARDS
Advocacy groups offer advice on credit practices
G. Patrick Kelley
Copley News Service
Congressional scrutiny may be pushing some major banks into changing their credit card practices, but there's still plenty for consumers to watch out for.
Advocacy groups such as the Consumer Federation of America, Consumers Union, and the Better Business Bureau have been pushing for action and warning for years about the difficulty in understanding extra fees and charges.
"What we need is better - not more - disclosure," said Travis Plunkett, legislative director of the Consumer Federation. "Consumers need user-friendly information on important fees and interest rates, including fees and terms that currently aren't disclosed at all."
Plunkett said some practices need to be stopped, such as two-cycle billing, which charges interest on credit-card debt already repaid by the consumer. For example, a cardholder who paid $200 on June 15, leaving a balance of $25, would receive a July bill charging interest on $225 for half of June.
The Government Accountability Office, the nonpartisan audit, evaluation, and investigative arm of Congress, says U.S. consumers now have about 690 million credit cards and the total amount charged on them between 1980 and 2005 has grown from approximately $69 billion to more than $1.8 trillion.
"You can find yourself buried in debt if you aren't careful to avoid the credit card 'gotchas,' " said Michelle Jun, attorney for Consumers Union. "Too many credit cards are designed to get you in debt and keep you there."
Another aim of the advocacy groups is elimination of the universal default. Most consumers know that their interest rate will jump if they're late on a credit card payment, but many cards carry a universal default policy, which bumps the interest rate up when the cardholder has other credit problems, but none with the credit card company.
Last year, Chase announced that it was ending its two-cycle billing policy, and Citigroup announced it would end its universal default policy and its "any time for any reason" rate increases.
Bill Hardekopf, CEO of LowCards.com, a credit card research and rating company, said the changes are an encouraging sign for consumers. It's likely pressure from Congress pushed them into being made.
The banks likely made the changes in hopes that Congress won't mandate changes, but it's unlikely to stop lawmakers, Hardekopf said.
CREDIT CARD TIPS
Numerous factors can impact your credit card balance and how it is calculated. Here are some things to watch for:
- Universal default. Your interest rate can skyrocket if your credit score declines because of your behavior with other creditors, even if you always pay your credit card on time and never miss a payment.
- Change of terms. Read the fine print. Many card companies "reserve the right to change the terms at any time for any reason." A fixed rate is fixed until the bank gives you at least 15 days notice that it isn't.
- Teaser rates. A low rate that attracts new customers but expires suddenly, and you end up paying more. A temptingly low introductory rate can climb to 30 percent or more.
- Minimum payment. If you pay the minimum payment every month, you'll end up paying a lot more than what you charged and you could be on the hook for a very long time.
- On-time payment. Card issuers are mailing statements closer to the due date, giving customers less turnaround time. You can be hit with a late fee even if the payment is mailed on time. The average fee for a late payment has more than doubled in the past decade.
- Cash advance and convenience checks. The interest rates on these are higher than your credit card.
- Penalty interest and fees. Late payments can raise your interest rate. Rather than rejecting charges that exceed your credit card limit, issuers today often let them go through but then charge an "over limit" fee.
Source: Consumers Union
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