Additional Changes Congress Should Make in Credit Card Industry
Additional Changes Congress Should Make in Credit Card Industry
Thanks to Congressional hearings, outrageous credit card practices like universal default and two-cycle billing are getting attention and action. While the spotlight and heat are on the credit card companies, there are three additional practices that need attention from Congress and consumers.
1) Stop the practice of convenience checks. Credit card issuers aggressively promote the use of convenience checks, making the checks very easy to use without clearly stating what the user is signing up for. "I get convenience checks all of the time from my credit card company-each month with my statement and again separately in the mail," says Bill Hardekopf, CEO of LowCards.com. "They include a letter that tells of the exciting things you can buy, or the debt you can easily consolidate, by using the checks. However, what they don't tell you is that consumers are assessed an additional fee of 2% to 5% of the transaction just for using these checks.
"They are extremely costly to use, and they are a target for thieves. They can be used by anyone and can cause tremendous problems for your account," says Hardekopf. "There is nothing positive or useful about convenience checks. When you get convenience checks in the mail, shred them immediately."
2) Apply monthly payments to highest rate balances first. "If Congress was really serious about helping consumers, they would change the way credit card issuers apply monthly payments to the outstanding balance. Applying the monthly payment to the balance with the highest interest rates would save cardholders a lot of money on interest charges and help them get out of debt much faster," says Hardekopf.
Currently, the monthly payment is applied to the lowest rate balance first before paying off the balance with the highest interest rate. That means the balance will continue to accrue unpaid interest as long as you use the card to make purchases. This practice keeps you paying on your balance with the highest interest rate until the moment you pay off your total balance.
"Consumers need to understand that they are paying off the balance on their lowest rates first. This is one reason why it may seem like forever to bring down a credit card balance. This is just another way for credit card companies to maximize the amount they receive in interest payments," says Hardekopf.
3) Make the Terms and Conditions easy to understand. "We hope that Congress is able to encourage or force the industry into making the terms and conditions easier to understand. Many lesser-known fees are hidden deep in the fine print," says Hardekopf. For example, American Express charges a fee for the conversion of points into the Frequent Flyer program of a U.S. airline. The maximum fee is $50 and it is charged to the credit card account. Chase charges a $14.95 service fee for the use of travel agency services for mileage redemption.
Thanks to Congressional hearings, outrageous credit card practices like universal default and two-cycle billing are getting attention and action. While the spotlight and heat are on the credit card companies, there are three additional practices that need attention from Congress and consumers.
1) Stop the practice of convenience checks. Credit card issuers aggressively promote the use of convenience checks, making the checks very easy to use without clearly stating what the user is signing up for. "I get convenience checks all of the time from my credit card company-each month with my statement and again separately in the mail," says Bill Hardekopf, CEO of LowCards.com. "They include a letter that tells of the exciting things you can buy, or the debt you can easily consolidate, by using the checks. However, what they don't tell you is that consumers are assessed an additional fee of 2% to 5% of the transaction just for using these checks.
"They are extremely costly to use, and they are a target for thieves. They can be used by anyone and can cause tremendous problems for your account," says Hardekopf. "There is nothing positive or useful about convenience checks. When you get convenience checks in the mail, shred them immediately."
2) Apply monthly payments to highest rate balances first. "If Congress was really serious about helping consumers, they would change the way credit card issuers apply monthly payments to the outstanding balance. Applying the monthly payment to the balance with the highest interest rates would save cardholders a lot of money on interest charges and help them get out of debt much faster," says Hardekopf.
Currently, the monthly payment is applied to the lowest rate balance first before paying off the balance with the highest interest rate. That means the balance will continue to accrue unpaid interest as long as you use the card to make purchases. This practice keeps you paying on your balance with the highest interest rate until the moment you pay off your total balance.
"Consumers need to understand that they are paying off the balance on their lowest rates first. This is one reason why it may seem like forever to bring down a credit card balance. This is just another way for credit card companies to maximize the amount they receive in interest payments," says Hardekopf.
3) Make the Terms and Conditions easy to understand. "We hope that Congress is able to encourage or force the industry into making the terms and conditions easier to understand. Many lesser-known fees are hidden deep in the fine print," says Hardekopf. For example, American Express charges a fee for the conversion of points into the Frequent Flyer program of a U.S. airline. The maximum fee is $50 and it is charged to the credit card account. Chase charges a $14.95 service fee for the use of travel agency services for mileage redemption.
Posted by Lynn at
6:15 AM
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