| Credit Card Fine Print Reform |
| By Credit Federal |
Published
10/1/2007
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Financial News
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Understanding Credit Card Terms and Rules
Credit card fine print may undergo reform if cardholders continue to push federal legislatures.
In attempt to attract cardholders, credit card issuers delicately comply with federal disclosure regulations but while also dimming the bad news in their fine print.
Some of the key areas the fed is focusing on:
"Fixed" should definitely mean "fixed". This year, a major credit card issuer changed its "fixed rate" with nearly no warning.
The Fed is proposing that any issuer advertising a fixed rate must specify how long the rate will remain unchanged. If no time period is specified, the issuer has to keep the rate the same while the plan remains open. Also, issuers should be clear about what triggers rate increases. Many issuers employ fine print filled with vague statements about "changes to your creditworthiness" but aren't precise about what that means. Naturally a late payment generally triggers a higher penalty rate, but how about a late payment to another creditor? Or carrying too high a balance? Or paying only the minimum for too long? Or exceeding your credit limit, even if the issuer approved the charge? Or having "too many" inquiries on your credit reports? The Fed proposes that issuers should be specific about what kind of behavior triggers penalty rates and how long those rates can last.
Rates and fees should be clearly spelled out, so you know how much you're being charged. Your statement should itemize the rates and actual charges for different types of transactions (purchases, balances transfers and cash advances), while providing separate totals for fees and finances charges for the month and for the year to date.
Cardholders should get 45 days' notice of any changes instead of only 15. Righ now, a credit card issuer can change virtually everything about your card for any reason between one billing statement and the next. And given how poorly disclosed many changes are, the first inkling many consumers have that their accounts have changed is a big jump in their required payments.
Again the Fed wants clearer disclosure and more notice. By adding 30 days to the notice requirement, consumers have more time to obtain alternative financing or to change their account usage.
The advance notice would also apply to penalty rates for late payments, meaning an issuer would actually have to alert you, in advance, before jacking your rate. The 45 days can give you enough time to find another card, pay down your balance or locate other financing that could save you from the new forced rates.
Both the House and Senate have held hearings on what needs to be done about credit cards. Actual legislation is likely to be introduced in the House later this month. The four principles are:
- Credit card companies should issue cards on terms individuals can repay.
- Issuers should clearly explain account features, terms and pricing at relevant times.
- Issuers should provide customers notice and choice with respect to changes in terms.
- Issuers should encourage responsible, successful credit use, especially among new credit entrants and customers with special needs.
Also expect a big push to eliminate the following practices:
- Universal default - Whereby your credit card issuer would regularly cruise your credit reports and raise your rates if you were late with another creditor. So an error on your credit report, a misunderstanding over a hospital bill or even a traffic ticket could result in rate increases on your card, even if you were up to date in your payments.
- Deceptive billing cycles - Whereby some credit card issuer use tactics such as a double cycle billing which cause borrowers to essentially pay interest on charges they've already paid off.
- Anytime, any reason repricing - This is where issuers change rates, fees and terms, for basically no reason other than profit.
- Pay to pay - Some issuers charge $15 if you want to make a last minute payment by phone or on the Web.
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