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 Last week's blog explored the benefits of the Credit Card Accountability Responsibility and Disclosure Act. This Federal law has great intentions in cleaning up the deceptive and unfair lending practices in the industry, but in reality a lot of loopholes exist that the credit card companies are exploiting to keep their same level of profitability, or even making more money off of us.
1. First off, the bill was passed nine months ago, but due to lobbying pressure from the banking industry, it wasn't enacted until February 22. That means these credit card companies had nine months to do their dirty work of raising your interests rates and expanding their profits before any regulation was enforceable.
2. We found out that banks cannot raise interest rates arbitrarily on current balances unless you default. However there is no cap on the interest rate card companies are allowed to charge for future purchases! That means they can raise interest rates any time, with no warning, as high as they want!
3. The CARD Act limits the penalty fees you can be charged, but there's no regulation against card companies making up new fees going forward and charging whatever they like for them. The average late fee now is $29, but that is expected to rise to $59 soon, and possibly even to $100 soon.
4. Some banks have already started adding annual fees to cards that didn't have them as well. They are charging junk fees for things like paper statements and periods of inactivity and raising fees on balance transfers and cash advances through the roof. We've even heard rumblings of card companies charging for customer service!
5. Remember that we told you card companies can't hike your rates on existing balances? That's true only if you have a fixed-rate card instead of a variable rate card. To exploit this loophole, banks have been switching people over to variable rate cards as fast as they can. Just like mortgage interest rates right now ,variable rates are relatively low because they're tied to indexes like the Prime rate. However within a year or two the Feds are going to be raising rates on a regular basis to curb inflation. That affordable variable card you have now could be a huge financial burden very soon.
6. Even under the CARD Act your card company can lower your credit limit or close your card without giving you any warning. They've been calling card holders and telling them they can switch to an adjustable rate OR ELSE their balance will be suspended and the card will be closed. Not great choices. This can trigger late fees or overdraft fees if you're not aware, and also lower your credit score based on what now appears to be a maxed-out card.
7. Banks cannot charge you over-limit fees unless you authorize over-limit transactions, sort of like over-draft protection on a checking account. They will pressure you to opt in to this service because it allows them to gouge you with fees.
8. Credit card companies are expected to change how minimum payments are calculated. Right now minimum payments are based on a percentage of your annual percentage rate. So if you have a $10,000 balance and they charge you 2% per month, or $200, and they raise that to 5% you would be required to pay $500. The interest rate hasn't risen - what you're expected to pay has risen.
9. Unfortunately the consumers that suffer are often those with good credit and haven't missed payments. They are going to be penalized with higher fees, higher rates, and less awards and bonuses to make up for the profit that is lost from the CARD Act.
10. Other dirty tactics are designed to confuse you and trigger their ability to interpret your payment as late. Under the new regulations there is very little amnesty from astronomical rate increases and fees for consumers who are late on payments, so the bank will try hard to make you late!
11. Banks often fluctuate auto-withdraw and payment due dates so that you'll miss a payment.
They often mandate payment deadlines in the middle of the day so your payment won't post in time.
12. Even though it's a violation of Federal law, banks have been known to not post your payment on the day it's received.
13. They will continue to target uneducated, young, and poor-credit consumers. Some "subprime" credit cards, once you add in the interest, fees, and charges, have Annual Percentage Rates up to 79%!!!!
For more information about managing credit cards or for a copy of the full report contact us:
916-548-6350 info@unityfs.com www.unityfs.com
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