You have to hand it to the credit card companies. They didn't become the giant profit-churning machines they are today by being stupid. No sooner had the ink dried on the Credit Card Accountability Responsibility and Disclosure Act limiting certain fees did those crafty card companies come up with new and devious ways of charging us even more.
Put a limit on how you can raise interest rates at 29.99%. Okay, then that's the new default rate for anyone who doesn't have a stellar credit rating.
Tack a cap on certain fees. No problem, Bank of America, Discover, Citigroup and J Morgan Chase among others, have simply raised minimum payments on certain customers' accounts in order to increase late penalties. How does that work you ask? Well, apparently the banks have determined that a sudden jump in the minimum payment can increase the likelihood that borrowers will be late on payments. Pretty sneaky, right?
Meanwhile, others are jacking up credit-protection insurance programs and charging customers for coverage without even asking permission.
Want to hear more? A few are aggressively pushing people into prepaid cards that are exempt from the new rules but carry sky-high fees.
Computer says 'no'
Have you tried to get a lower interest rate lately? It used to standard for loyal customers to get their interest rates lowered just by calling to complain. It's not so easy any more. In fact, with the new card rules you would think the issuer's hands are tied. "Sorry, I tried to get you a better rate, but the computer wouldn't let it go through,â€ was the bank rep's explanation. So now it's "the computer'sâ€ fault.
When asked why my default rate had ballooned to 29.99% a bank representative said it was due to the new financial environment. Translation, the new credit card limits said we could so we did.
Some of the new fees are even worse than the high interest rates. Discover and HSBC are pushing insurance that promises to make minimum payments for borrowers who lose their job, and then imposing the fees without borrowers' permission. J.P. Morgan Chase and Bank of America have raised minimum payments on credit cards, perhaps in order to increase late-fee charges.
It doesn't stop there. Cards have revived their annual fees; shortened billing cycles; levied new charges on cards with low credit limits; increased balance-transfer fees, cash-advance and foreign-exchange fees; and they've begun to push what's known as "professional cards." These cards are not subject to the restrictions of the Card Act.
The Federal Reserve tried to do something last month when it announced proposals to ban hefty activation fees and prevent issuers from raising interest rates on promotional card offers until a borrower is more than 60 days late.
The Card Act was expected to hurt bank profits and that lenders could lose an estimated $11 billion in fee income next year alone. This new action is intended to offset that loss. So who gets to pay? We do of course.
Profits from debit cards were also impacted. Earlier this year, the Senate passed a law ordering the Federal Reserve to limit "interchange fees." Those are fees banks charge to merchants each time a card is swiped. Last year, banks collected $22.8 billion in such fees on debit-card transactions, according to CardHub.com, a consumer information site.
So how do the banks react? J.P. Morgan Chase says it's moving away from debit cards. Starting in February, it won't issue debit reward cards to new customers.
So what can we do? Consumer advocates say we should be on guard from the start. Before signing up for a new card offer, find out whether services like payment protection are automatically included. Once you use a card, check statements each month for any billing changes. If you notice a higher minimum payment or a new fee, contact the card issuer immediately.