6 Credit Card Fee Traps To Avoid

Despite the passage of the Credit Card Accountability Responsibility and Disclosure Act (“Credit CARD Act”), there are still fee traps out there waiting to snare you.

1) Banks Can Still Charge Whatever They Want
There’s nothing in the law that caps interest rates or fees. There’s no reason to believe that these fee amounts won’t grow.

2) Raising Interest Rates Before The Deadline
Starting in February, regulations will be imposed that limit the circumstances under which credit card companies can raise your rates. So, naturally, they’re raising them now so you’ll be locked in when the law takes effect. If we were cynical, we would assume that they might do this after the holidays, but before the February deadline. Not that they will, but if your rates haven’t gone up yet, don’t assume that they won’t.

3) Variable Interest Rates
More banks are offering cards that are tied to an adjustable “index rate,” (a prime borrowing rate as published in The Wall Street Journal, for example) Depending on your circumstances, your card’s APR will be a certain number of percentage points above that prime rate. The prime rate is low now, but it might not always be.

4) Missing Payments And Ending Up With A Higher Rate
If you’re late on your payments, the card issuer might raise your rate. The CARD act offers you some protection against this, but you need to follow the rules. You have to start making on-time payments immediately after the penalty rate takes effect. If you don’t, the provision in the act that would force your bank to give you your old interest rate back after 6 months will no longer apply.

5) Surcharges On Transactions
Surcharges for cash advances, balance transfers, and whatnot are not addressed by the CARD act.

6) Meet the “Inactivity Fee”
Bank of America recently surprised some of their customers with a new annual fee that could only be avoided by canceling the account, and Fifth Third bank introduced a new $19 “inactivity fee” for customers who didn’t use their cards for 12 months. CNNMoney also says that Citibank has a fee for some customers who charge less than $2,500 per year. Never underestimate the business community’s ability to innovate around regulation.

More fee traps can be found in this excellent Frontline article. You can read more about how the credit card industry is reacting to the CARD act in this report from the Pew Charitable Trusts. And, of course, our own Consumer Reports National Research Center has some interesting things to say about their Credit Card Survey.

5 evil things credit card companies can (still) do [CNNMoney]
Tricks and Traps of the Card Game [Frontline]
Still Waiting: ‘Unfair or Deceptive’ Credit Card Practices Continue as Americans Wait for New Reforms to Take Effect [Pew Charitable Trusts]

Comments

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  1. SPENCERG says:

    In speaking of the CARD Act, I was recently contacted by Capital One concerning the CARD Act and was told that, in accordance with the Act, Congress will shut down my ability to make emergency purchases with my Credit Card while also accruing overcharge fees (gasp!). They offered me a discounted Overcharge Fee of $29 instead of the standard $39, if I opted out of the CARD Act regulations.

    I politely declined. I’d rather not waive all my rights for something I never do anyway.

    But I thought it was interesting that they brought up emergency situations like getting gas for my vehicle, etc., as if trying to prey on fear, uncertainty, and doubt about the near future.

    • tbax929 says:

      Yeah, they offered me the same thing. I told them to go pound sand. I’m paying off the card and closing it.

    • bitmover says:

      Woo, FUD-marketing! Klassy.

      This makes me glad I declined Capital One’s terms back in May when they raised my 4.99% fixed card to 13.9% variable. (They cited “the challenging economic climate” as one of their excuses.) I could have accepted the terms without a problem as I pay the entire balance off old-school AMEX style every month, but it’s the principle of the whole thing. I dislike Capital One treating a customer who never missed a payment and has excellent creditworthiness like trash.

  2. JRules says:

    I just got hit by that fith third bank inactivity fee… They sent me a letter about it ages ago I just completely forgot about it.

  3. SkokieGuy says:

    Question #1: Is it just me or does anyone else find that credit card statements are someone not arriving with the same regularity?

    I still receive snail mail statements and it seems that at least 2 a year per CC account somehow never arrive. Of course this is merely coincidence, not an intentional effort by the CC companies to generate a CARD act approved reason to jack rates.

    And yes, all my other mail all arrives fine.

    Question #2:
    Since most credit card statements come in an un postmarked envelope (sent by bulk mail) exactly how will compliance with the CARD act requirement about when statements must mail in relation to due date be enforced? How can a violation be determined?

    Question #3:
    Is it true that major credit card companies have “death panels” and want to kill my grandma?

    • Areia says:

      Question #3: Yes, but you will be able to avoid Mandatory Grandmother Termination by paying a monthly Family Maintenance Fee of just $29.99!

  4. Judah says:

    Two months ago I canceled my Citibank card that I’d had for 12 years because they attempted to impose the $2500 minimum charge fee. I called them and told them to cancel me because I did not agree to pay an annual fee. When the poor woman on the phone tried to talk me into another program or stop me from cancellation, I simply talked over her, repeating “I don’t keep credit cards with annual fees.” They canceled my account rather than keep me as a customer by retracting the $2500/year minimum purchase requirement. While I admit some years I didn’t charge much, other years I had my balanced maxed months in a row. I find it interesting that I’d spent only a few hundred with them in the current year, and they attempted to impose the yearly fee in October, with only a couple months to go before the fee ‘deadline’. For me, who pays off CC bills each month, what determines which card I use for major purchases is the current ‘rewards’ program. Citibank doesn’t have a very good rewards program, so I guess their minimum activity fee is a replacement for that.

  5. MaytagRepairman says:

    I thought I was golden with my credit union’s fixed 6.9% so I let the balance get up there a bit but I recently discovered in January they are switching over to a variable rate.

    • blogger X says:

      Not all credit unions are as good as gold as some people believe. The one I had started acting like BoA with the posting charges before deposits posted, dropping free overdraft protection(you used to get six a month free, now $5 for every one), charging you “teller fees” if you didn’t withdrawl $500(yes, $500) from a teller, and they started offering payday loans!

      • TouchMyMonkey says:

        I stick to credit unions that are affiliated with the Armed Forces Financial Network (AFFN). They don’t let just anybody on base, you know. I’m sure if my credit union tried any of that shit, they’d get called on the carpet by the two-star at Fort Drum PDQ. Soldiers are organized, and they don’t like getting screwed. I can also use my ATM card at any other financial institution also affiliated with AFFN with no fees.

        Anybody have a different story to tell about credit unions on military bases?

    • wcnghj says:

      It isn’t the CUs fault. The silly card act basically prohibits fixed rates.

  6. theblackdog says:

    It’s the variable interest rates that are likely to get me at this point, that and the rule change that USAA did to me several months ago. They also do prime + some percentage for their interest rate, but they sent me a change in terms that said my rate cannot be any lower than 9.9% (it was 6.9% prior to the change due to the prime rate being very low) so there it sits at 9.9%, and will probably shoot up in the future.

  7. Scoobatz says:

    Plain and simple. Credit card companies can do whatever the hell they want to without good justification. I recently received a notice that the rate on my Target store card will jump from 9% to 23% APR on January 1st. Why? No reason. I’ve never missed a payment, never paid late, never left a balance from one month to the next. I’ve had this card for more than 2 years and paid the balance off in full each month. My reward? A higher interest rate.

    • Red Cat Linux says:

      It used to be that the “good” banks didn’t do this, but now it seems universal. I gave up my Target Visa when it got jacked up to 13%. When they asked why, I told them it was the interest rate.

      Then Capital One yoinked theirs from 8% fixed up to 19% variable. I closed that card too. I’m now down to two credit cards: BoA which is normally paid off, and Chase. Both of them abandoned their fixed % rates I had signed up with and in spite of the wording of the nasty-gram telling me that they were setting the variable rates to 20% and 13% respectively, and not to bother whining since they didn’t care, I was able to call both and have the rates dialed back to single digits.

      Chase was the stinker though, since I used to have a fixed 6% on that, and normally had a balance on it and now I’m at 9% variable.

      If this is what it’s come to, I will game the system as much as I can. Annual calls to the card company requesting rate dial-backs if they go up, and card surfing for low introductory rates.

      • lordargent says:

        I don’t even know what the interest rate is on my card anymore, because I basically just use it because to buy stuff on the net (then transfer the money to pay for the purchase right afterward).

        But I did notice that the bank increased my limit a few years ago (to about 40x more than I have ever charged to the card). But last year, they dropped that limit back down (to about 20x more than I have ever charged to the card).

        I don’t run a business, so I have no clue what they expect me to do with that much credit :P

    • stinerman says:

      I got a letter saying much the same from one of mine. If you actually read the entire thing, it may be refreshingly honest. Mine said that they were raising the APR because the profitability on my account was too low.

      My profitability will continue to be low since I always pay off my balance on that one.

    • Ted3 says:

      Sure..the card comanies can do what ever the want,and so can I. I paid off my balances and cancelled the accounts. Good riddance, cc companies!

  8. HogwartsProfessor says:

    HA! I knew it.

    Evil bastards.

  9. Eyebrows McGee (now with double the baby!) says:

    I actually don’t have a HUGE problem with that inactivity fee as long as it’s disclosed nice and big and prominent on the first page of the info with my limit and interest rate, and not in the fine print. $19 isn’t outrageous as a yearly account maintenance fee on an account I haven’t use and so haven’t generated them any income on. All things being equal, I’d pick an account WITHOUT a inactivity fee, of course, but as long as I’m well aware of it, it’s easy enough to avoid by charging a lunch or something.

    I also don’t totally mind the “minimum yearly activity” requirement, but, again, it needs to be disclosed prominently and upfront and they need to let you know when you hit it. I would even consider getting a card with a minimum activity threshhold, as long as the rewards were good. But disclosure is very, very key, so that I can shop around. And changing it on people who already have the card is uncool.

  10. Ronin Democrat says:

    here are some things to do.
    review your cards and get rid of the ones with ridiculous fees or rates
    use the calendar in your computer to remind you to get on of your free credit reports every 4 months
    use same calendar to remind you to use an inactive card
    use a secure file to note card numbers, expiration dates and csid info.
    stop worrying about your credit score based on canceling cards. you may take a hit in your score but you’ll make out better financially.
    think about upcoming major purchases and what you have to do to keep or improve your score -don’t cancel a long held card 60 days before a car purchase for example-
    simply put use your month of birth as a fine time to remember to use ever card at least once that month.
    every 2 years apply for a new card this way if you have to cancel a card if has less effect -canceling 1 card when you only have 2 is worse than cancelling 1 card when you have 5-.
    never travel with just a bank card or only 1 credit card.
    always strive to pay the minimum plus the accrued interest for that month no matter how hard money is to come by.
    know you are not responsible for your parents or siblings debt for any reason unless you were a cosigner or shared an account -don’t be guilted into paying, the card company takes out insurance for that-
    pay yourself first with every paycheck.
    use a single card for a month for every purchase to really see how you spend money by reviewing the statement -$6 jamba juice everyday????-

  11. Grafh says:

    Since we are on this topic, can I ask for your opinions.

    My fist credit card that I received was a Chase card (didn’t know they had so many problems when I got it), and there is still a balance on it.

    Should I close it? I know the APR is going to go only up next year, and I would like to pay it off without paying through the teeth.

    • emgalvin1 says:

      You can’t close a card with a balance on it. Well, you can, but it lowers your debt to credit ratio for that card to zero, and it shows the balance and the maxed-out, or over-limit amount. This is very detrimental to your credit. Pay off the card, and keep a zero balance. Or if you choose after that point, close the card.

  12. H3ion says:

    For those whose credit cards are tied to the prime rate, that rate was 21.5% in December 1980 and hovered around that rate for a while. If your rate is a not unexpected 5% over prime, that would be one heck of an interest rate to have to pay.

    Agree with Eyebrows, an annual fee for inactivity is not unreasonable nor is a requirement that you spend at least some dollar amount. The credit card banks may be the devil’s spawn but they are in business to make money and an inactive card gets them nothing.

  13. Allibird says:

    Maybe someone can help me with this question…

    What’s the best way to handle a card whose terms have changed, but is so old that’s a major foundation of your credit?

    They are raising the rate on my Citibank card (not a lot, but enough to piss me off on principle). I don’t carry much of a balance, so I would go ahead and pay the thing and cancel the account, except that the account is 10 years old. If I cancel, a huge part of my credit history is erased. I have excellent credit, and I don’t want to take this hit, but I’d love to cancel the card and switch to one with a better rewards program.

    What’s the best thing to do, deal with the new terms, or cancel the card and rebuild the credit?

    • H3ion says:

      I’d keep the card but pay it off in full each month. That way, the interest rate won’t matter. If it’s an important part of your credit history, use it sparingly, like a gasoline fillup each month, but unless they start charging an annual fee, the cost to you is zero if you pay it all off.

    • wcnghj says:

      Just pay it off and keep it.

  14. Shoelace says:

    My CC company has started sending me separate mailings, in addition to my statement, with more checks they want me to use at a come-on rate of 0.99% on ‘qualified’ balances. There’s lots of small print, some so light it’s barely readable. Hmmm….no grace period and 4% transaction fee, non-promotional use subject to variable APR, variable APR may be increased to default rate (we’re over 27% here) if they feel like it, minimum transaction fees, minimum finance charges, etc.

    I haven’t used one of their f-ing checks in all the time (over 15 years) I’ve had their f-ing card and have no intention to. I’ve asked to not get these checks with every statement. I’m now getting them in addition to every statement. I have to destroy them each time.

    Hate.

  15. Sure I could agree with you, but then we'd BOTH be wrong. says:

    How about this – If you’re behind on a payment with a bank’s credit card, and you also happen to have a checking account with the same bank…

    Are they allowed to hold the checking account hostage until you pay? (As in, restricted access or even closing your checking account altogether)

    • azntg says:

      Many financial institutions (banks and credit unions) do have cross-collateralization OR “right of offset” policies, usually buried in the fine print in the terms and conditions of the deposit account.

      So I’d check for that if I were you.

      • askmrlee says:

        Bank of America skimmed people’s checking accounts to pay for their mortgages. The only problem was that people received direct deposit on their social security too. The Social Security deposits are not supposed to be off-set, but of course they were.

        Funny how Ally Bank adverts claim they don’t burden you with egregious rules, but when I opened a CD with them, I got a large booklet of terms and conditions (printed in larger than fine print). One paragraph mentioned that they could offset any debts you may have with Ally against any deposit accounts. They don’t currently offer credit cards or loans, but what if they did? hm….

        So lesson learned, NEVER have a checking account from the same company as your bank if you think you’ll have problems paying your bill IN FULL every month.

  16. sonneillon says:

    Discover dropped my interest rate a percent.

  17. bananaboat says:

    Yep, one of my Citibank reward cards sent a letter yesterday. Tied to prime with a minimum 24% interest on purchases and 28% on cash. Not a concern since I don’t carry a balance and only have the cards for the rewards cash.

  18. Jevia says:

    I recently canceled my card with Merrick Bank because they jacked the interest rate up to 29%, plus wanted to increase my annual fee to $48 charged in “convenient low amount” of $4.00 a month. I never kept a balance on this card, so the interest rate increase didn’t bother me, and I didn’t mind too much paying the old $25 annual fee for the credit availability, and only had to make the one payment. No way was I going to sit by for a nearly double fee (the credit limit wasn’t that critical to me and it was a relatively new card) and have to pay it over 12 months a year.

  19. catastrophegirl chooses not to fly says:

    speaking of traps, this article reminded me that it’s statement processing day for my chase amazon visa so i went to make sure it all went ok….
    seems they would like me to charge more – in april 2009 they raised my limit by $300 without asking me.
    and they just raised it again.
    still a tiny limit – it was my credit building card when i had zero credit history so it’s only $1200 now at the new limit.
    or maybe they just want me to be able to load up on the holiday gift giving?
    i’m not upset… it makes my credit utilization pattern look better!

    • tonberryqueen says:

      I’m 24, have had one card since the age of 16 or 17, and another since the age of 20. Both have raised my limit a few times over the years, and definitely haven’t notified me. I’ve just logged into my account and noted the change.

      I’m guessing that there’s some fine print if I looked at the agreements that would say that they can raise and lower the limit at their discretion without notifying me.

  20. Winteridge2 says:

    Just don’t ever charge anything that you cannot pay IN FULL when the bill comes!