In all the kerfuffle over the big $700 billion bail out, you may not have noticed that the House of Representatives passed a bill that may be more important to you and your pocket book. We’re talking about HR 5244, a bill of rights for people who use credit cards.
The bill, which now moves to the Senate, would block a lot of those pesky, sneaky things that credit card companies do to jack up your interest rate, or charge you late fees, or slip credit cards into the hands of your college-age children.
And to prove there’s no such thing as too much of a good thing, the Federal Reserve has also introduced a reform bill to deal with consumer rights. It may take a federal scholar to winkle out the differences between these bills, but it is reassuring that the banking industry is against the Federal Reserve bill, calling it, “an unprecedented regulatory intrusion into marketplace pricing and product offerings.” And the credit card industry is against the House and Senate bills.
Basically, if banks and credit card companies are against such moves, regular people should assume they are for them.
Meanwhile, you should protect yourself. As you read your credit card bills, beware of the following terms, listed by Credit Card Reform:
• Universal default The term means is that a credit card company may monitor your credit report and increase your interest rate if they think your credit score is declining, or you are making a big ticket purchase, like a car. This can happen even if you pay their credit card on time.
• Change of terms This is that tiny print that comes on a pamphlet that says, “You do not need to take any action.” Yes you do. Somewhere in there you may see the phrase “We reserve the right to change the terms (including the APRs) at any time for any reason.” But you have the right to call them and complain. If you’ve paid your bills on time, and you were offered a fixed rate, you have a right to keep it.
• Teaser rates This is when a solicitation or advertisement lures you into getting a credit card with an incredibly low APR, or 0 interest for six months. But that low rate can be increased at any time with 15-days notice. And the new rate can be staggering. The low rate can expire suddenly, so you have to keep your eye on your bill, as soon as it arrives, every single month.
• Minimum payment If you make only the minimum payment you are going to be in debt for a very long time. Even if you have a “low” APR of 15 percent, if you owe $1,000 and make the minimum payments, it will take you 8 years and 10 months to pay it off. And that $1,000 will ultimately cost you $1,729.19.
• On-time payment Somehow credit card companies have begun mailing bills much closer to the due date. Then if you are late, you can be hit with a penalty. And the average late payment fee has doubled in the last year.
• Double cycle billing Double-cycle, dual-cycle, or two cycle billing allows you to avoid credit-card charges only if you have paid the last two balances in full. For example, if you have a $1,000 balance due in December, and pay off half of that balance, you’d expect to only be paying interest on the remaining $500 December balance in the next billing cycle. Not so with double-cycle billing! In January, when you pay off the entire balance, you'll also be charged interest on the entire $1,000 December balance, not just the $500 that carried over.
• Cash advance/convenience checks Oh look! Someone has sent you checks that you can use just like checks! You can pay your mortgage! Down payment on a car! Just like real money. Oh no you don’t. Those “convenience” checks they send you have an even higher rate than purchases on your credit card. And getting a cash advance on a credit card is just another way of saying “Overcharge me!” Because again you will be charged at a higher interest rate.
• Penalty interest rates and fees If you pay a bill late, your interest rate can zoom from 9 percent to 30 percent. And if you exceed your credit limit, you can be charged a fee of $39. A recent Government Accountability Office report on credit cards found that of all the active accounts with six of the largest credit card issuers, 35 percent were assessed a late fee in 2005 and 13 percent paid an a over-limit fee. As a divorced woman you must fight to keep your bills paid on time, and you have to reject any idea of going over limit.
• Fees, fees, fees, fees, more fees You will be charged extra fees for paying by phone; you will pay extra fees if you use your credit card abroad. You may be charged a fee to get a year-end summary of your charges. Most of these fees are not disclosed in your cardholder agreement.
• The Old Balance-Transfer Switcheroo You are going to play it smart and transfer your balances from an account with a high APR to one that promises a low APR for six months or a year. All well and good. But once you are past the low-interest period, any payments you make are applied to those low-interest-rate balances, while any new charges you make are at a much higher APR. Also, if you transfer balances over and over, that will lower your credit score, which will raise your interest rate.