| Credit Card Poor Consumer Practices |
| By Credit Federal |
Published
09/20/2007
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Financial Tips
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Good Credit Card Rates and Fees or Poor Practices
No doubt, we love credit cards. Otherwise we wouldn't rack up charges again and again, higher and higher, despite increasing rates and fees. Are these increases justified or are credit card companies engaging in poor consumer practices which need to be regulated?
Card interest rates and fees are not the only questionable practices. Many cardholders complain about credit card company customer service, particularly from the bigger banks.
But why are credit card interest rates still out of control, even after congressional hearings? Why do issuers continue to increase rates and fees?
Thus far Congress has done nothing to reduce or limit the exorbitant fees and high penalty interest rates charged to cardholders. And even though the Federal Reserve cut a benchmark interest rate this week, credit card issuers continue to make subtle changes to squeeze a little bit more out of their customers to include late fees, cash advance and default fees.
And, some credit card issuers have figured out another way to generate even more money from late fees by adding a third tier.
The Fed's half-point rate cut will eventually trickle down to borrowers who use variable-rate credit cards, but this won't happen overnight since issuers are much slower to pass along a lower rate than they are to pass along a higher rate.
In any cases, lower base rates will have little or no impact on penalty rates and fees.
One of the most punitive fees created by the credit card industry is called “universal default.” If you make a late payment on any bill or loan reported to the credit bureaus, you could see your interest rate skyrocket to the default rate even if you have a perfect payment record with that card.
Until now, the top default rate was a ridiculously high 30%, but some issuers now charge even higher. And cash advance fees shot up, too, as high as 28%. Additionally there's usually a transaction fee of 3% or more on top of that outrageous interest rate.
Using your credit card to get a $1,500 cash advance could cost you $465 in interest and fees in just one year.
Combat the poor practices
Instead of jumping to another card offer, first call your current credit card company and see if they will do something for you. If you have been a good customer up to this point, they may waive that fee or drop the interest rate a bit.
In its October issue, Consumer Reports surveyed thousands of readers and found that people who call to negotiate a lower interest rate succeed more than half the time, and 79% are able to get a penalty fee removed.
If you have good credit and your card issuer will not work with you, then it's time to shop around for another card. That does not mean jumping at the first preapproved offer you get in the mail. It means comparison shopping. Compare terms and conditions, not just interest rates. Also compare fees and penalties, the grace period, and if the card has a universal default policy.
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