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Most of the detrimental changes credit card companies implemented to make up for lost profits as a result of the Credit Card ACT went into effect before the bulk of the 2009 Credit CARD Act passed. For instance, creditors increased interest rates, lowered credit limits, and made all sorts of changes to their policies without giving customers 45 days warning.
In general, the Credit CARD Act has helped protect customers. But there are a few loopholes credit card companies are using to their advantage to increase profits.
Interest Rate Increases
Most so-called loopholes in the Credit CARD Act are in the area of interest rate increases. Under the law, credit card companies must give you 45 days notice before changing the terms on your credit card account (including raising interest rates).
Additionally, new rates can only apply to new balances — not existing balances. Sounds good, right? Unfortunately, the rates can apply to existing balances under the following circumstances.
- Your account is in default (60 days late or more)
- An introductory period ends — although introductory rates must be six months or longer under the new law
- You were active duty in the military and now are not
- You have a variable APR and have had the card longer than 12 months
This last one is definitely one to watch out for, since most credit cards today have a variable APR. If you’ve had a card longer than a year, keep an eye out for interest rate increases, because you’ll be paying the higher interest rate on your entire balance.
This is also a good reason not to rack up a lot of debt on a card with a low (or zero percent) introductory interest rate. If you transfer a balance to a card with zero percent for the first six months, commit yourself to paying off the balance before the six months ends to avoid high interest rates.
APR Increased? Want to Opt Out?
Under the Credit CARD Act, banks are no longer permitted to hit you with over-the-limit fees without your permission.
To circumvent this, banks are requesting your permission to “opt-in” to an overdraft program. The marketing material makes it sound good… They will “cover” your purchases even if you don’t have available credit. The fees you’ll be charged are only mentioned in the fine print.
I’ve gotten at least four letters from Chase that sounds as if this change is really bad — my credit card could be declined if I don’t have credit available on my card for the purchase, or if I don’t have money in my account to make a debit card purchase.
No matter how cleverly worded the marketing material is, don’t opt in or you’ll be subject to fees when the credit card issuer approves the transaction even if you don’t have credit available. The banks aren’t doing you any favors — if a transaction is declined, consider that an important message about your finances.
Payment Method Fees
Under the Credit CARD Act, credit care issuers can no longer charge you for any method of payment, including phone or online payments.
The exception? If you are expediting a payment to avoid a late fee, expect to pay.
Whatever fees your credit card issuer decides to charge, they cannot be more than 25% of your initial credit limit. This is particularly designed to protect secured credit card holders, who often pay high annual fees and even application fees.
However, if you make a late payment (more than 60 days late) there is no cap on the fees your credit card issuer can charge. You can be sure they will be hefty, as credit card companies are looking to make up for revenue lost due to the Credit CARD Act.
To offset the money banks are losing as a result of the Credit CARD Act, keep your eye open for additional policy changes. For instance, Chase recently hit me with “usage fees” for having too many withdrawals from my savings account. Excuse me — isn’t that my money I’m taking out?
Other credit card issuers are decreasing credit limits (with the requisite 45 days notice) or adding “non-use” fees if your card lies dormant in your wallet for too long. (And “too long” to the credit card companies might mean one billing cycle).
The way to protect yourself against these practices is to read every piece of mail or email you receive from credit card issuers — even the fine print. Especially the fine print.