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]