Increasingly, credit card companies are being accused of predatory marketing and business practices. Marketing risk managers for credit card companies often target the young, the poor, and most vulnerable consumers for their offers. From fine print that is hard to decipher, to customer representatives that are less than helpful, to unfair interest rate increase triggers, here are some of the more questionable practices of credit card companies, as reported in the Testimony of Consumer Action, "Industry Practices of Credit Card Issuers" before the U.S. Senate Committee on Banking, Housing, and Urban Affairs at Banking.senate.gov.
- Terms and conditions that are not made available to potential customers are hard to find by applicants.
- High-pressure sales tactics by new application representatives.
- Penalties that increase interest rates dramatically:
- When you pay your bill late just once
- Universal Default" penalties that increase rates based on the way you handle alternate accounts. What this means is you may have a perfect payment record with all but one of your credit card accounts, but be one day late on another. Because you're one day late on that one account, your interest rate on all of your other accounts could go into "universal default" and seriously hike your interest rates, possibly doubling or tripling them! Credit card companies assert that they are doing this to successfully manage risk, but this cannot be justified. Consumer Action, in its above referenced report cited the case of a woman who complained that one credit card company raised her interest rate from 12.9% to 28.74% because of a late payment to another credit card company that appeared on her husband's credit report. The card in question carried a balance of more than $11,000, and now was, according to the woman filing the report, "impossible" to pay off at the higher rate.
- When do you learn of "Universal Default" rate increases? When you receive your next statement, if you read it carefully!
- Late Payment Penalties in effect for 85% of the credit card issuers note in the above report, with average penalty rates of 22.91%!
- Very High Late Fees and "Tiered" Late Fees. Three major banks charged excessive late fees of $39.00. The average late fee: $27.45. "Tiered" late fees are late fees that vary according to the balance. The lower the balance, the higher the average late fees. Tiered late fees actually target cardholders who maintain lower balances to extract more money from them.
- Due date "cut-off" times. It's not enough to make your payment by the due date, you must have your payment in by the "cut-off" time on the due date. Five minutes late and you might have to pony up an additional $39.00.
- Over limit fees. Many cardholders assume that a transaction that takes you "over the limit" will be denied. Not necessarily. Many companies accept the transaction and then hit you with an over limit fee that won't go away, month after month, until your balance returns under the limit. On some occasions, it is a late fee that actually caused a cardholder to go over the limit.
- Deceptive interest rate quotes. Many banks provide a "meaningless range of rates" instead of a firm rate. This makes it hard to compare credit cards.
- Cash advance fees that are skyrocketing from 2.2% to 3% over the last ten years.
- Card Inactivity Fees. Credit card companies don't like it if you don't use their cards. So, in some cases, you may be hit with a fee as high as fifteen bucks if you haven't used your card for six months, and sometimes even less.
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