New credit card practices could cost consumers billions

Credit card companies continue to look for ways to skirt the new CARD Act. They've found a number of "hidden" price changes not banned by the new law that takes effect in February 2010 and these "hidden" charges could cost consumers billions of dollars, according to the Center for Responsible Lending.

In its study, "Dodging Reform: As Some Credit Card Abuses are Outlawed, New Ones Proliferate," the Center found that these practices have affected more than 400 million credit card accounts. While the CARD Act and other regulations have succeeded in limiting the costly traps of yesterday and today, issuers have found new ways to raise fees and revenue.

Obviously, now that the banks have been bailed out by the government, they feel no obligation to help Main Street. Instead the banks have used minor and almost unnoticed changes to make billions more on the backs of consumers.

Take a close look at your credit card fine print. Here are some of the new practices banks are using to get around the CARD Act:
  • "Pick-A-Rate" pricing. If you have a variable rate credit card that is tied to the prime rate, watch out. 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. This provision alone can result in APRs that are 0.3% higher than traditional pricing 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. These floors prevent interest rates from going beneath the APR you were offered when you got the card, 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.
  • Tiered late fees. How balance amounts are categorized has led to much higher late fees with 87% paying the highest fee possible. The study says that 9 in 10 consumers now pay the highest late fee due to this compression of balance categories.
  • Inactivity fees. More issuers are now instituting inactivity fees where consumers are charged a fee for not using their credit card account.
  • International transaction fees. Credit card companies are expanding the definition of international transactions. If you order online and the company is based overseas you may see new charges for the international transaction.
  • Higher balance transfer/cash advance fees. Most banks are raising fees from 3% to 4% or 5% or higher. This will ultimately cost the consumer millions in upfront charges for transferring a balance or getting a cash advance.
"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. Expect more of this to come in 2010 because issuers will continue to find new ways to make additional revenue," Bill Hardekopf, CEO of and author of The Credit Card Guidebook told me by email.

These new games clearly show why consumers desperately need the new Consumer Financial Protection Agency. The new agency would have the capacity to quickly identify these types of tactics adopted to evade the rules. It could then curb any abuses through enforcement, regulation and education.

Lita Epstein has written more than 25 books including The Complete Idiot's Guide to Improving Your Credit Score."
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