Americans have long struggled with credit card debt and current numbers agree. Nearly 56 percent of Americans carry a monthly unpaid balance.
The average damage for households with credit card debt is $16,000. Three banks -- Chase, Citibank and Bank of America -- control over 60 percent of all credit card debt. Yadda, yadda, yadda. The list goes on.
There's an old joke that says, "What do you call 100 lawyers on the bottom of the ocean?" The answer seems trite today ("A good start"). But replace lawyer with credit card executives or policy makers and the joke takes on a personal, more potent tone.
Last year, Uncle Sam attempted to come to the rescue. The government recognized enough fault on the side of major credit card companies to step in and pass the The Credit CARD Act, a measure meant to prevent black-masked credit card robbery.
The latest round of regulations takes effect August 22 and should help relieve some end-of-the-month stress (as in, "what will they hit me with next?"). But inevitably, credit card companies will continue to imagine new tricks to make money. Here are some of the most important new rules with explanations of how credit card companies plan to get around them. (If these fees and charges don't get you hot enough under the collar, see our post, "11 Most Exasperating Consumer Fees.")
Remember to carefully check your statement for any of these terms, charges or unstated penalties.
1. New Rule: Reasonable Penalty Fees
Previously, your provider could charge up to $39 dollars for a late payment, whether your minimum payment owed was $20 or $100. Now, the maximum penalty is $25. There are two caveats: A company can charge up to $35 if you've been late on a payment within the past six months, or there is evidence your tardiness hurt it enough to justify a higher fee.
All this depends on your minimum payment. Your credit card company can't charge a late fee higher than your monthly payment, meaning if your minimum is $25, you won't be penalized more than $25.
How They're Getting Around It: Higher APR In Return For Lower Payments
It's still early, but experts predict this will probably result in sneakier business practices. Say you have a low credit score, can't make payments on time or think your monthly rate is too high. When you call the bank asking for a more lenient monthly payment, chances are they'll only do so if you agree to a higher APR. In the end, you'll most likely end up paying more, just over a longer period of time.
The people this rule was designed to help -- those who miss one or two payments a year -- will mostly benefit. For the chronically late, however, there are bigger fish to fry. If you find yourself faced with a fee or APR hike, know the exact amount. The Safe Credit Cards Project by PEW Charitable Trusts discovered over half of all companies don't reveal the penalty interest rate on late payments.
2. New Rule: No Inactivity Fee
Banks that made a habit of hitting you below the belt for saving cash can no longer charge you for not using your credit card. Penalties used to range from $50 to $100.
How They're Getting Around It: Annual Fees
Annual fees are definitely not new, but they'll be tied to your purchase activity. Use your card enough and the bank will waive the fee. (How kind). Get lax and they'll charge.
It might be hard to avoid this one altogether, but it's wise to keep an eye on annual fee terms. If a bank promises to drop the fee after a certain number of purchases, know how many purchases you need to make and for what amount. Otherwise, you'll be charged an "inactivity" (ahem...sorry, annual) fee. The bureaucratic wordplay is straight from the Vogon's of "Hitchhiker's Guide to the Galaxy" fame.
3. New Rule: Bi-annual Re-evaluation of Rate Increases
When your credit card provider decides to increase your APR -- say, if you have a history of penalty fees -- they now have to re-evaluate the decision every six months and, "if appropriate," reduce the rate within 45 days.
How They're Getting Around It: Taking Advantage of Unclear Terms
The wording on this rule is so vague, it's hard to pin down exactly what is "appropriate" enough to lower your rate, or even what percentage is considered a reduction. The rule does away with formerly arbitrary increases, some of which were made with zero notification, but it's wishy-washy enough to pose a problem. Unfortunately, most banks can still charge as high as 29-percent APR if they wish.
Make payments in full every month. This defies the very appeal (and money-making logic) of credit cards, but it's something you'll hear from every expert. Just because Citibank has to re-evaluate a fee increase every couple months doesn't make it any easier to get on your feet. Half a year is a long time to sit at 25-percent APR or higher.
Still not convinced? Try "The Real Damage" credit card tool to see exactly how much a $150 dollar splurge costs with minimum payments and a generous 15-percent APR. (FYI: It's $337.50.)
4. New Rule: One-Fee Limit
Credit card companies have been slyly applying multiple fees to single slip-ups for a while, but now they'll have to follow the same rules as everyone else and not double-down. Think about it: Would Major League Baseball scorekeepers give a shortstop two errors for one muffed ball?
How They're Getting Around It: Reward Recovery Fee
To make up for lost revenue, some companies will pull reward points along with cash from your account for a missed payment. Common sense calls this a penalty, aka "a fee." You can call to plead your case and might succeed, but at a price. Yep, that's right. Companies often charge a fee for returning points -- around $30 bucks -- completely negating the new rule.
Closely read your contract before signing and ask if there are any extra, obscure fees attached to the agreement. (A verbal, non-mention of an obscure fee, however, is not considered binding.)
These fees come in a variety of forms: Pulling points and restricting your limit are just two. Many companies charge up to $50 for redeeming points in the first place. Again -- and it can't be said often enough -- a simple solution is to never miss payments and always pay them in full.
5. New Rule: No Unauthorized Over-the-Limit Transactions
This rule took effect over six months ago, but it deserves another mention because credit card companies have already devised ways to combat it. Unless you say, "Yes, please, overdraw my account AND slap me with a $50 charge," your card will be declined if you max out. Embarrassing at the time, yes, but much nicer to your wallet.
How They're Getting Around It: Interest-Based Penalties
Rather than hit you head-on with cash fees, credit card companies are relying on interest to make up the difference.
Be on the lookout for interest charges on balance transfers, foreign transactions and cash advances. Some banks apply an exorbitant 25 percent for cash-advance requests and some exact between 2 percent and 3 percent for each charge made to your card while abroad -- even if you paid in U.S. dollars.
Tell your card issuer you don't want to allow over-the-limit activity and carefully review every charge for interest. It's as simple as that.
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