If Dante were alive today, he’d have to add a new dimension to his description of Hell: call it The Smoldering Quicksand of Credit Card Fees. Those consigned to this realm of the after-life would spend eternity struggling to keep their heads above the shifting muck as tiny print and confusing rules ruthlessly and repeatedly suck them beneath the surface.
To end up here you might have been a total deadbeat who rarely - if ever - paid his bills on time, always carried a balance, and continued to run up new charges he knew he’d never re-pay.
On the other hand, you could have been a forgetful senior citizen who was forever misplacing bills. WHAM! $35 late payment fee.
Or, the parent who put the cost of his kid’s braces on his credit card, not realizing how close he was to her credit card limit. WHAM! $39 over-limit fee.
Or, someone who travels for business and assumed her roommate had been paying the electric bill. WHAM! You neglected to pay another creditor’s bill? Your account with us may be current, but we’re raising your interest rate because you are clearly a bigger risk than we thought.
Or, the person who paid (on time) $500 toward last month’s $700 bill, didn’t charge another thing, and discovered that the interest fee on his latest bill is calculated on $450, not $200. WHAM! Our fine print clearly states that interest is charged based on your average balance for this and the prior month.
At last, some of these onerous practices are coming to an end. As you might have heard, the Credit Card Accountability, Responsibility, and Disclosure Act (a.k.a. CARD Act) takes effect next week. It requires greater disclosure about credit card terms and limits or outlaws the penalties and fees credit card issuers can assess.
Starting Feb. 22, your statement must clearly show how long it would take and much it would cost if you only paid the minimum each month.
In addition, a credit card issuer:
-Can no longer retroactively raise your interest rate on existing balances unless one of the following is true:
*You have a card with a variable rate, or
*You are 60 or more days behind in your payments to them (not another creditor)
If you make payments on time for the next 6 months, your rate must be rolled back to the one you had previously
-Has to give you more time to submit your payment by the deadline
*There must be at least 3 weeks from the time your statement is mailed and the date a late fee can be imposed
*The due date must be the same each month. If this falls on a weekend, the date is extended to the next weekday.
-Must apply payments in excess of the minimum to the balance with the highest interest rate first
-Cannot charge an over-limit fee unless you have specifically stated that you want the ability to exceed your credit limit and agreed to be charged for this
-Must give you a 45-day notice before making any significant change to the terms of your account
-Can only base interest charges on the current month’s balance. So-called “double-cycle billing” is banned.
-Can be fined between $500 and $5,000 for each violation of the CARD Act.
But don’t expect banks and credit card firms to sit by and watch their revenue dry up. According to SalesHQ, a division of Monster Worldwide (MWW), over-limit fees alone were expected to hit $3.7 billion in 2009, up 16% from the year before. Adam Levin, co-founder of the website www.credit.com, predicts “there’s no question” credit card issuers will come up with new ways to generate revenue “because they’ve got to make up for the shortfall.”
Levin, the former head of New Jersey’s consumer affairs department, says to be on the lookout for:
-The return of the annual fee.
-Increased foreign transaction fees. For instance, you buy something online from a Canadian company. Even though the transaction is priced in U.S. dollars, your credit card company “will still charge you a fee because you’re dealing with a foreign company.”
-Reward restoration fees. Oops! You know those “points” you lost when your payment was late? You can have them back, but it will cost you.
-Increased inactivity fees. Perhaps the most aggravating of all. Your credit score is 700. You mainly keep a credit card for emergencies. Ka-ching! You’re going to pay for this privilege.
(Levin suggests avoiding this fee by rotating the use of two different cards that you charge a small amount to and pay in full.)
Although it might give you temporary satisfaction, if you’re fed up with the fees and interest rate charged by a particular credit card issuer, think twice about closing your account. Levin points out that canceling a card you’ve had for years will impact the age of your credit history. And reducing the total amount of credit you have available can hurt your credit rating.
If you cancel a card with a high credit limit, “that’s where you can really hurt yourself,” Levin says. You should try to replace it with a new card that has a similar limit. Or, “go to existing cards and see if they’ll raise your available credit.”
As with all change, players on both sides going to be re-evaluating and making adjustments. Levin predicts that “competition will come back into the market and consumers will have more choices.”
Ms. Buckner is a Retirement and Financial Planning Specialist at Franklin Templeton Investments. The views expressed in this article are only those of Ms. Buckner or the individual commentator identified therein, and are not necessarily the views of Franklin Templeton Investments, which has not reviewed, and is not responsible for, the content.
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