By now you've probably received a mailing from your credit card company informing you about the changes to your account.
Some of these changes are mandated by the new Credit Card Accountability and Disclosure (CARD) Act. Others aren't, and these are the ones you need to worry about.
Changes required by the CARD act are mostly positive for consumers, but have the result of cutting into lenders' profits. Lenders are trying to make up for those lost profits by implementing changes that will increase the number of fees consumers pay.
For example, some consumers have already received word from their credit card companies that they will have to pay an annual fee for the privilege of carrying the card. Once upon a time, annual fees were commonplace, but were phased out as the industry got more competitive. Unless you read the notice of this new fee, more than likely it took you by surprise.
"I was charged a $39 annual fee this year which I have never been charged since I received the card," Jeanne, a Capital One customer from Las Vegas, told ConsumerAffairs.com. "When I received my on-line statement there was $41.17 due. Explanation was there was $2.17 charged for interest on the balance for three days or whatever. I really don't understand but was told I had to pay fee and interest."
Non-activity fee
If you have a card that you rarely use, you may find that you will be assessed a "non-activity" fee, or the account may be closed unilaterally. Should that happen, it would have a negative impact on your credit score for two reasons; an account closed by the lender and a drop in your available credit.
The Federal Reserve has proposed a new rule that would prevent credit card holders from imposing an inactivity fee, as well as fees for declined transactions and multiple penalties. If approved, those changes would take effect in August.
Credit card companies may also continue the practice of unilaterally lowering customers' credit limits. They are doing this to reduce the overall amount of credit they are extending, since they must maintain sufficient capital reserves. At the same time, the credit card default rate remains high, so lenders are aggressively trying to limit their risk.
But when a credit card company lowers your credit line, it has a negative affect on your credit score. You have less credit available to you and, if you carry balances on your cards, the ratio of debt to available credit rises sharply. And, like Stacey of Otsego, Minn., you could find yourself in a Catch-22.
Catch-22
"Chase has arbitrarily lowered our credit line three times now, each time saying that it is because we are using to large a percentage of our credit line," Stacey told ConsumerAffairs.com. But we are not using the card! The percentage goes up because they are reducing the line."
If your cards are already close to be maxed out, the credit score damage is less than if you have little debt and lots of available credit, according to Sarah Davis, senior vice president at VantageScores, a credit data firm.
So, how should you respond to these changes? Some fed-up consumers might close their accounts, but even that action might have a negative impact on a credit score. Even when you close an account on your own, you are reducing your total amount of available credit.
"If a consumer must close an account, closing the oldest account is the least favorable option because the longer a line of credit is open, the more history a consumer has accumulated," Davis said.
Instead of closing an account, make one or two small purchases on a regular basis and pay the balance off quickly.
Although it views the Credit CARD Act of 2009 as a major win for borrowers, the Center for Responsible Lending warns credit card companies still keep you guessing by finding new ways to make money. Even with federal legislation in place, CRL says card issuers can continue to:
- Saddle you with other, often hard-to-understand charges, such as fees to get a paper statement, for purchases abroad, for having a zero balance or "account management fees" (at least one large bank has done this -- in the amount of $19 per year -- since passage of the Credit CARD Act).
- Close your account or reduce your credit limit without notice for any reason. Contact your card company if this happens to you. Under the new law they must wait 45 days before they can tack on an over-the-limit fee or a penalty rate on a newly lowered credit limit.
- Arbitrarily change any or all terms for credit cards issued to small businesses.
- 9 Raise your interest rate without limit on future purchases as long as they give 45 days notice. If you don't want the higher rate, you have the right to close the account and pay it off over five years.
- 9 Increase your minimum monthly payments, as a percentage of total balance. A major issuer made headlines in the fall of 2009 for doing this.
- Prevent cardholders from bringing disputes before a jury in court, a practice known as mandatory or forced arbitration.
- Charge whatever fee or interest rate they want.
And if it's not clear by now, consumers should realize that every communication they receive from their credit card company is important. It may contain changes to your account that can be costly if you are unaware of them.
