With Christmas around the corner (at least according to big box retailers and your local Hallmark store) the time to think about how to pay for Christmas presents is upon us. Of course, the new credit card regulations go into effect next year, which means that banks are doing everything they can to maximize profits today. This week, Pleading Ignorance looks at some of the ways the banks are maximizing their profits—so you have all the information before you decide to pay for Christmas with plastic…
The Credit CARD (Card Accountability, Responsibility and Disclosure—picture the brainstorm on that one: “ok, got the “C”, “A”, “R”—what about the “D”, anyone?”) Act goes into effect in February 2010. The reason for the Act is simple—make credit card issuers more accountable for their actions and prevent them from taking advantage of consumers. That means limits on increasing interest rates, limits on offering cards to people under the age of 21, longer wait times before late payment interest rate hikes and no more automatic overlimit allowances on the card. Sounds pretty straightforward, right?
Wrong! Because the Act doesn’t go into effect until February, some of the banks are—surprise, surprise—doing everything they can to maximize their profits now, so that later, when the Act is in full force, they don’t feel like they’re losing out on money.
So, what does this potentially mean for you? Here, 5 possible pitfalls to be on the lookout for this holiday season…
The Credit CARD Act restricts how much credit card issuers can raise interest rates. Good news for the future, but bad news for now because the lenders are doing their best to raise the interest rates while they still can. Technically, the interest rate provision, limiting lenders to raising rates only after the card holder has been given 45 days’ notice, is already in effect. However, if the card holder uses the card more than 14 days after the interest hike notice is sent, the higher rates can apply to those charges. So that means you could already be paying higher interest rates than you thought. Fantastic, isn’t it?
Some banks are taking further advantage of the situation by increasing their cash advance and balance transfer fees. There may also be fees and interest charges for using balance transfer checks. Oh, and the standard APR for transactions could change to a variable rate.
Some card issuers are even charging customers for NOT carrying enough of a balance. According to one report, Citi has announced a $90 a year fee unless cardholders put at least $2,400 in purchases on their credit cards. So, not only do you pay a fee for using the card, you may well have to pay a fee for not using the card enough!
Some customers are discovering that their credit limits have been slashed. Worse, some are discovering it AFTER they receive a bill with an overlimit fee on it.
That’s right, even consumers who pay their balance on time are reportedly being told that their accounts are cancelled. Why so? The litany of reasons from the banks seems to include things like: the account has been inactive for too long; the account has too much owing on it; the consumer has too many cards with too much debt accumulated; the consumer is too much of a risk…
…the bank may close your credit card account. That’s right, no new purchases on your credit card if you disagree with any of the changes they are making to your account. Heartwarming, isn’t it? And just in time for Christmas spending.
Of course, not every credit card holder will be subjected to these tactics—but, we do hear enough reports of individuals who were basically blindsided by a change in terms for their credit cards. And right now, as we close in on the 3-months-to-go period before the Credit CARD Act goes into effect, the credit card companies have every incentive to position themselves in the best way before the restrictions of the Act are imposed. And that may leave you in a bad position as you head off to the mall this holiday season, plastic in hand.