More Changes Credit Card Issuers Should Make to Help Consumers

Yesterday, Chase Card Services announced the expansion of Chase Clear & Simple, a program designed to help Chase customers better understand and manage their accounts. One of the changes made was that Chase eliminated the practice of increasing interest rates for individual cardholders when their credit bureau scores decline. This change is effective on March 1, 2008.

"This is a good practice to eliminate and we applaud Chase for making this change," says Bill Hardekopf, CEO of LowCards.com. "Consumers have been complaining about the
unfairness of increasing credit card rates without reason, even though they maintain a good payment history with their card. It will be interesting to see if this helps consumers in the long run. Like most credit card issuers, the Chase terms and conditions still say they can make changes your account, including APR, at any time for any reason."

This is another change following the Congressional hearings investigating the credit card industry. Earlier this year, Chase dropped its two-cycle billing practice. Citi ended its policy of rate increases at any time for any reason, as well as the practice of universal default rate increases.

Here are some additional changes issuers should make.

1) 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. "Chase
states in their terms and conditions that you authorize them to allocate your payments and credits in a way that is favorable and convenient for them."

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.

2) Make the Terms and Conditions easy to understand. "The issuers need to make all of the card terms and notices easy to understand. The notices about rate or term changes are complicated and include so much information, that you don't actually understand the change being made to your account," says Hardekopf. "Reward offers are also difficult to understand and it takes a calculator and some hard math to
compare different offers. The offer described in the big print may also be a little misleading after you read the small print."

3) More protection for consumers against rate increases. "Credit card issuers say in their terms and conditions that they can increase your rate at any time for any reason. If they decline your request for a lower rate, you can close your account, but there is nothing else you can do about it. The rate increase may spread to your other loans because your other creditors can check your credit report, see the increase as indication of increased risk and increase your rate with other loans as well," says Hardekopf. "All credit issuers should drop the penalizing practice of universal default."