Beware of Credit Card Terms and Conditions
Congress is encouraging credit card issuers to make their terms and conditions easier to read and understand. This is one area where Congress should force action. Terms and conditions are currently so complicated that many consumers just glance through them, if they read through them at all. However, there is important information in these terms and conditions that could be costly for uninformed cardholders.
"We regularly read through the terms and conditions of the cards to help make cardholders aware of the changes and fee increases. We often find a new fee or a subtle adjustment issuers make to increase current rates and fees," says Bill Hardekopf, CEO of LowCards.com. "Issuers are required to make this information public, but they certainly don't make it easy to understand. Nonetheless, consumers have to be aware of the policies of their credit card, or they could pay costly fees and suffer damage to their credit score. We recommend that consumers look closely at the terms and conditions before applying for a card, then look at the fine print of their own cards at least twice a year."
Here are some examples of why consumers should take special note of certain terms and conditions of their credit cards:
* Rates, fees, and terms may change
American Express Cards state (Chase has a similar statement): "The terms of your account, including APRs are subject to change. The APRs for this offer are not guaranteed; APRs may change to higher APRs, fixed APRs may change to variable APRs, or variable APRs may change to fixed APRs. We may change the terms (including APRs) at any time for any reason, in addition to APR increases for failure to comply with the terms of your account. Any changes will be in accordance with your Cardmember Agreement."
"Some issuers make this statement in their terms and conditions. By putting this in the fine print, they have given themselves permission to make any interest rate change to your account that they want and there is nothing that you, the cardholder, can do about it," says Hardekopf.
* Minimum Payment Due may increase
Discover Cards read: "If more than 90% of your New Balance consists of special rate balance transfers, we may, at our discretion, increase your Minimum Payment Due to a maximum of 4% of the New Balance if it would otherwise be less than that."
"The minimum payment due is typically 2%-2.5% of your balance. This looks like Discover is forcing you to quickly pay down your transferred balance at a lower rate, so you have room to charge more at a higher rate. Consumers who don't read this may be surprised that their monthly payment is higher than they expected," says Hardekopf. "However, this can be positive since it forces cardholders to pay off more toward their balance. They will pay off their debt faster, if they don't add new charges."
* Default APR may be applied
American Express Cards read (most issuers have a similar statement): "Your account is reviewed monthly and will be considered in default if minimum payments are not timely paid one time, or seriously in default if minimum payments are not timely paid two or more times, your account is overlimit three or more times, or your payment is returned by your bank or financial institution, in each case during any portion of the 12-month period ending with the Closing Date of the current billing period. If a Default APR is applied, it will apply for a minimum of 12 consecutive billing periods beginning with the current billing period (unless a higher APR is triggered)."
"All cards now have a tough default rate policy. If you are late or make a slip with them or any other creditor, your APR may get changed to the default rate. A missed payment can easily happen to anyone, regardless of your income and payment history. Every person who has a credit card has the potential to miss a payment and get the 30% default rate. You can call and ask them to waive the fee, but this doesn't happen to every person who tries," says Hardekopf.
* Misleading Reward Offers
The Chase Business Card Cash Reward states: "The rewards are based on the following tiered system: 1 point per $1 spent for new purchases up to $2,000 each billing cycle; 5 points per $1 spent for new purchases totaling between $2,000-$2,500 each billing cycle; and 1.25 points per $1 for new purchases totaling over $2,500 each billing cycle."
"This card promotes that you will receive up to 5% cash back, but that 5% is on a very small percentage of your purchases. This offer is misleading because the cashback you would receive could be smaller than expected if you don't read the fine print," says Hardekopf. "This is a good example of reward tiers being extremely confusing and difficult to compare. You have to plug your expected usage into the reward formula for each card to predict what your reward could actually be."
* Balance Transfers charges
Discover Cards read (most issuers have a similar statement): "Balance transfer requests will be processed from the lowest to the highest dollar amount. If a balance transfer transaction would cause you to exceed your account credit limit, you authorize us to process your balance transfers for an amount less than the full amount requested. Making additional transactions may still cause you to exceed your account credit limit."
"If you transfer a balance, credit cards companies will leave room on your credit limit so you can make additional charges. It is your responsibility to know what your limit is and to stay under it to avoid penalties," says Hardekopf. "The risk of transferring a balance is that if less than the full amount is transferred, you are still stuck with a balance on the old card. Then, you have two cards. If you aren't disciplined, you could run up the balance on both and have more debt than when you started."
* Payment Allocation
Citi Cards state (most issuers have a similar statement): "We apply your payments to low APR balances first. You cannot pay off higher APR balances until you pay off lower APR balances. That means your savings from any promotional APR offer will be reduced if you make purchases or cash advances that have higher APRs."
"The payment policy of all credit cards is to apply your payment to the balance with the lowest rate first. This keeps you paying your highest interest rate for as long as possible. New purchases can also reduce your savings from a promotional interest rate." says Hardekopf. "From the consumer's perspective, it would be nice if the payments went to the balances with the highest interest rates first. People could pay off their debt much faster."
* Service Fee for Redeeming Rewards
The Chase Flexible Rewards Platinum Visa Card states: "A service fee of up to $25 will be charged for the use of Reward Headquarters services for redemption of air travel."
"This $25 fee could be quite a surprise for people looking forward to their free airline ticket," says Hardekopf.
"We regularly read through the terms and conditions of the cards to help make cardholders aware of the changes and fee increases. We often find a new fee or a subtle adjustment issuers make to increase current rates and fees," says Bill Hardekopf, CEO of LowCards.com. "Issuers are required to make this information public, but they certainly don't make it easy to understand. Nonetheless, consumers have to be aware of the policies of their credit card, or they could pay costly fees and suffer damage to their credit score. We recommend that consumers look closely at the terms and conditions before applying for a card, then look at the fine print of their own cards at least twice a year."
Here are some examples of why consumers should take special note of certain terms and conditions of their credit cards:
* Rates, fees, and terms may change
American Express Cards state (Chase has a similar statement): "The terms of your account, including APRs are subject to change. The APRs for this offer are not guaranteed; APRs may change to higher APRs, fixed APRs may change to variable APRs, or variable APRs may change to fixed APRs. We may change the terms (including APRs) at any time for any reason, in addition to APR increases for failure to comply with the terms of your account. Any changes will be in accordance with your Cardmember Agreement."
"Some issuers make this statement in their terms and conditions. By putting this in the fine print, they have given themselves permission to make any interest rate change to your account that they want and there is nothing that you, the cardholder, can do about it," says Hardekopf.
* Minimum Payment Due may increase
Discover Cards read: "If more than 90% of your New Balance consists of special rate balance transfers, we may, at our discretion, increase your Minimum Payment Due to a maximum of 4% of the New Balance if it would otherwise be less than that."
"The minimum payment due is typically 2%-2.5% of your balance. This looks like Discover is forcing you to quickly pay down your transferred balance at a lower rate, so you have room to charge more at a higher rate. Consumers who don't read this may be surprised that their monthly payment is higher than they expected," says Hardekopf. "However, this can be positive since it forces cardholders to pay off more toward their balance. They will pay off their debt faster, if they don't add new charges."
* Default APR may be applied
American Express Cards read (most issuers have a similar statement): "Your account is reviewed monthly and will be considered in default if minimum payments are not timely paid one time, or seriously in default if minimum payments are not timely paid two or more times, your account is overlimit three or more times, or your payment is returned by your bank or financial institution, in each case during any portion of the 12-month period ending with the Closing Date of the current billing period. If a Default APR is applied, it will apply for a minimum of 12 consecutive billing periods beginning with the current billing period (unless a higher APR is triggered)."
"All cards now have a tough default rate policy. If you are late or make a slip with them or any other creditor, your APR may get changed to the default rate. A missed payment can easily happen to anyone, regardless of your income and payment history. Every person who has a credit card has the potential to miss a payment and get the 30% default rate. You can call and ask them to waive the fee, but this doesn't happen to every person who tries," says Hardekopf.
* Misleading Reward Offers
The Chase Business Card Cash Reward states: "The rewards are based on the following tiered system: 1 point per $1 spent for new purchases up to $2,000 each billing cycle; 5 points per $1 spent for new purchases totaling between $2,000-$2,500 each billing cycle; and 1.25 points per $1 for new purchases totaling over $2,500 each billing cycle."
"This card promotes that you will receive up to 5% cash back, but that 5% is on a very small percentage of your purchases. This offer is misleading because the cashback you would receive could be smaller than expected if you don't read the fine print," says Hardekopf. "This is a good example of reward tiers being extremely confusing and difficult to compare. You have to plug your expected usage into the reward formula for each card to predict what your reward could actually be."
* Balance Transfers charges
Discover Cards read (most issuers have a similar statement): "Balance transfer requests will be processed from the lowest to the highest dollar amount. If a balance transfer transaction would cause you to exceed your account credit limit, you authorize us to process your balance transfers for an amount less than the full amount requested. Making additional transactions may still cause you to exceed your account credit limit."
"If you transfer a balance, credit cards companies will leave room on your credit limit so you can make additional charges. It is your responsibility to know what your limit is and to stay under it to avoid penalties," says Hardekopf. "The risk of transferring a balance is that if less than the full amount is transferred, you are still stuck with a balance on the old card. Then, you have two cards. If you aren't disciplined, you could run up the balance on both and have more debt than when you started."
* Payment Allocation
Citi Cards state (most issuers have a similar statement): "We apply your payments to low APR balances first. You cannot pay off higher APR balances until you pay off lower APR balances. That means your savings from any promotional APR offer will be reduced if you make purchases or cash advances that have higher APRs."
"The payment policy of all credit cards is to apply your payment to the balance with the lowest rate first. This keeps you paying your highest interest rate for as long as possible. New purchases can also reduce your savings from a promotional interest rate." says Hardekopf. "From the consumer's perspective, it would be nice if the payments went to the balances with the highest interest rates first. People could pay off their debt much faster."
* Service Fee for Redeeming Rewards
The Chase Flexible Rewards Platinum Visa Card states: "A service fee of up to $25 will be charged for the use of Reward Headquarters services for redemption of air travel."
"This $25 fee could be quite a surprise for people looking forward to their free airline ticket," says Hardekopf.
Posted by Lynn at
8:05 PM
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