Credit card companies & reforms
Posted on January 7, 2008
Filed Under Credit Card News | Leave a Comment
Last month, congressional hearings about excessive fees charged by credit card issuers resumed in Washington.
The topic attracted attention during the summer when the hearings started but was overshadowed by the subprime market’s plight. The issue is back in the spotlight and the scrutiny could spur relief for credit card users.
Recently, Chase Bank, one of the top five credit card issuers, announced that it will stop its practice of increasing cardholders’ interest rates if their credit scores decline, starting March 1.
This is an important step, because so many actions could hurt your all-important credit score. For example, it might decline if you have too many credit-check inquiries, close an old account, increase your debt too much or pay a bill late.
Consumer groups are hoping that Chase’s move will trigger a ripple effect.
This is actually the second major step Chase has taken to tame its rates and fees.
During congressional hearings in the summer, Wesley Wannemacher of Ohio testified that he racked up $7,500 in interest, late-payment and over-the-limit fees on original debt of $3,200. In response, Chase said it will stop charging over-the-limit fees on balances that remain too high for more than 90 days. Chase also dropped its two-cycle billing practice, which resulted in additional interest charges.
Citigroup, another major credit card issuer, also made changes after the summer hearings. The company stopped the practice of ”universal default” rate increases–when it raises cardholders’ rates if they have a late payment on another company’s credit card. The company also promised not to adjust a cardholder’s original interest rate until the card expires—typically about two years.
Both companies say they will adjust customers’ rates based on their payment histories with them. So if you are late with a payment or go over your credit limit, you can still expect your rate to go up.
More help may be coming.
Last month’s hearings led two senators to introduce the ”Stop Unfair Practices in Credit Cards Act,” which would protect consumers against some of the credit card companies’ punitive practices.
And the Federal Reserve is asking companies to give customers 45 days’ notice before they raise rates, up from the current 15 days.
More positive steps would include applying monthly payments to the highest-rate balances first and making terms and conditions easier to understand.
Here are some other ways that credit card companies boost profits that consumers should be aware of:
Cutting the introductory interest rate period from 12 months to 6 months.
Slightly increasing annual interest rates.
Increasing the interest rate on cash advances.
Ending the cap on balance-transfer fees.
Shortening the grace period on monthly balances.
If your credit card companies do things that sting, you can call and ask them to make changes.
If they are smart, they will follow what their competitors are doing. If not, it might be time for you to shop around for a new credit card.
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