Consumers are facing skyrocketing interest rates, disappearing frequent flier miles and new purchasing fees as credit card companies work to milk their customers’ cash before federal legislation clamps down on them early next year.
New federal legislation will prevent random interest rate and fee increases, but most of the provisions of the Credit Card Accountability, Responsibility and Disclosure Act won’t take effect until February.
» Pay on time
Paying your credit card account on time helps you avoid late fees as well as penalty interest rates applied to your account, and helps you maintain a good credit record. A good credit record leads to a higher credit score, which helps you qualify for lower interest rates. Know the date your payment is due. If your bill is due at an inconvenient time of the month — for example, if it’s due on the 10th and you get paid on the 15th — contact your credit card company to see whether it will change your billing cycle to fit your cash flow.
» Stay below your credit limit
If you go over the credit limit on your card, your card issuer could charge a fee and increase your interest rate. To avoid this, keep a record of your spending or check your balance online. Also, be aware that some merchants (for example, hotel and car rental companies) put a “hold” on your credit card based on their estimate of the amount you will charge. This can reduce your available credit until the final charge is processed.
» Avoid unnecessary fees
Credit card companies not only charge late payment and over-the-limit fees, but also fees for cash advances, transferring balances and having a payment returned. Some companies charge a fee when you pay your bill by phone. Pay attention to the transactions that trigger these fees. If you need a cash advance, withdraw enough so that you don’t have to take a second cash advance — and incur a second fee — later in the month.
» Pay more than the minimum payment
If you can’t pay your balance in full each month, try to pay as much of the total as you can. Over time, you’ll pay less in interest charges — money that you will be able to spend on other things — and you’ll pay off your balance sooner.
» Watch for changes in the terms of your account
Credit card companies can change the terms and conditions of your account. They will send you advance notices about changes in fees, interest rates, billing and other features. By reading these “change in terms” notices, you can decide whether you want to change the way you use the card. For example, if cash advance fees increase, you may decide to use a different card for cash advances. If you have a card with a variable rate or if you have an introductory rate that is ending, be aware that credit card companies are not required to send you a notice about raising your interest rate. Interest rates are listed on your monthly bill. Read your bill carefully and take note of any changes.
Source: Federal Reserve
“Knowing that the credit card act will finally protect consumers from these abuses, the industry has tried to make one last grab for their customers’ pocketbooks — and that’s what’s going on over these past several months,” said Sen. Chris Dodd, the Connecticut Democrat who sponsored the legislation.
Indeed, consumers still hung over from the throes of the credit crunch are feeling the pinch. Dodd’s more recent effort to immediately freeze rates was struck down — leaving shoppers to fend for themselves during the holiday shopping season.
The national average annual percentage rate as of Wednesday was 12.71 percent, up from 12.24 percent six months ago, according to creditcards.com. And interest rates for commercial banks rose from 11.94 percent in the third quarter of 2008 to 13.71 percent in the third quarter, according to the Federal Reserve.
Some companies have raised their rates to 30 percent or higher.
In response, Rep. Louise Slaughter, D-N.Y., said she planned to offer a bill to cap credit card interest rates at 16 percent.
“Watching how credit card companies have exploited people by increasing rates up to 30 percent and more is criminal, and this bill will allow us to put an end to this,” she said.
Citibank credit card holders can avoid the bank’s rate increases — provided they meet a minimum monthly spending requirement of $750.
One seemingly logical solution would be to pay off the bill every month. Think again.
Bank of America said it planned to test annual fees of between $29 and $99, selecting accounts next year based on “risk and profitability.” Because customers who never carry a balance or incur late fees are less profitable for banks, they couldbe the ones hit with the new fees.
Consumer advocates are outraged about these curveballs and have used them to lobby for a new consumer protection agency.
“These types of sleazy business practices are what has brought about the need for credit card reform and what confirms the need for continued oversight and enforcement by a financial watchdog agency,” said Travis Plunkett, legislative director of the Consumer Federation of America.
The fees that merchants pay credit card companies also are coming back to sting consumers.
A report from the Government Accountability Office, Congress’ investigative arm, said consumers were paying higher prices as merchants passed on “interchange” fees to their customers.
Kathy Miller, the owner of the Elmore Store in Elmore, Vt., told the House Financial Services Committee that she and her husband have had to raise prices because credit card companies are raising the fees.
“The fees keep increasing, and there isn’t anything we can do to stop them or even slow them down,” Miller testified.
Small purchases are especially troublesome.
“What happens in a small country store when a customer swipes their card: a pack of 35-cent gum costs us 21 cents. The swipe fee on that sale costs us 21 cents, so I just lost money,” she said. “I should just let them take it.”
Still, there does remain the adage of caveat emptor.
“Primarily, consumers need to know what the rates are going to be,” said Eric Friedman, director of Montgomery County’s Office of Consumer Protection.
Consumer protection measures from the government typically are reactive, or “catch-up” games, he said, as with the foreclosure and credit crises. “The government is now … responding,” he said.
