New Credit Card Practices Costing Consumers Millions of Dollars
A study released yesterday by the Center for Responsible Lending gives new
data to show that credit card issuers have instituted a number of “hidden”
price changes since debate first began on credit card reform.
The study entitled “Dodging Reform: As Some Credit Card Abuses are
Outlawed, New Ones Proliferate” says that these practices have affected
over 400 million credit card accounts. The study says that the CARD Act
and other regulations have had some success limiting the costly traps of
yesterday and today, but issuers have found new ways to raise fees and
revenue. It also shows how minor and almost unnoticed changes can
make millions of dollars for issuers.
Here are the practices that were examined in the study:
* “Pick-A-Rate” pricing. This affects variable rate credit cards that are
tied to the prime rate. Rather than having the interest rate on your credit
card rise and fall based on fluctuations in the prime rate, some issuers are
tying your variable rate to the highest prime rate published within a 90 day
time period. Hence, increases in the prime rate would take place
immediately but declines may not be instituted for several months.
The study says this can result in APRs that are 0.3% higher than
traditional pricing and that it is currently costing consumers
$720 million annually. If the practice becomes standard among
all issuers, the cost to consumers may reach $2.5 billion per year.
* Variable rate floors prevent interest rates from going beneath the
starting APR, but those interest rates can go up.
* Changes in the minimum finance charge. If you have only a penny in
finance charges, you can get charged a minimum amount of up to $2.
* How balance amounts are categorized has led to much higher late fees.
The study says that 9 in 10 consumers now pay the highest late fee due
to this compression of balance categories.
* More issuers are now instituting inactivity fees where consumers are
charged a fee for not using their credit card account.
* Growing use of fees by expanding the definition of international
transactions and charging higher balance transfer/cash advance fees.
None of these practices were included in the Federal Reserve 2008 rules or
the CARD Act of 2009 but usage has grown since these regulations were
passed. Consumers can expect more of this to come in 2010 because issuers will continue to
find new ways to make additional revenue.
Here is the link to the study: