New Credit Card Practices Costing Consumers Millions of Dollars

This is a guest post by Bill Hardekopf, CEO of LowCards.com.

A study released yesterday by the Center for Responsible Lending gives new data to show that credit card issuers have instituted a number of “hidden” price changes since debate first began on credit card reform.

The study entitled “Dodging Reform: As Some Credit Card Abusers are Outlawed, New Ones Proliferate” [PDF] says that these practices have affected over 400 million credit card accounts. The study says that the CARD Act and other regulations have had some success in limiting the costly traps of yesterday and today, but issuers have found new ways to raise fees and revenue. It also shows how minor and almost unnoticed changes can make millions of dollars for issuers.

Here are the practices that were examined in the study:

• “Pick-A-Rate” pricing. This affects variable rate credit cards that are tied to the prime rate. Rather than having the interest rate on your credit card rise and fall based on fluctuations in the prime rate, some issuers are typing your variable rate to the highest prime rate published within a 90 day time period. Hence, increases in the prime rate would take place immediately but declines may not be instituted for several months. The study says this can result in APRs that are 0.3% higher than traditional pricing and that it is currently costing consumers $720 million annually. If the practice becomes standard among all issuers, the cost to consumers may reach $2.5 billion per year.

• Variable rate floors prevent interest rates from going beneath the starting APR, but those interest rates can go up.

• Changes in the minimum finance charge. If you have only a penny in finance charges, you can get charged a minimum amount of up to $2.

• How balance amounts are categorized has led to much higher late fees. The study says that 9 in 10 consumers now pay the highest late fee due to the compression of balance categories.

• More issuers are not instituting inactivity fees where consumers are charged a fee for not using their credit card account.

• Growing use of fees by expanding the definition of international transactions and charging higher balance transfer/cash advance fees.

“None of these practices were included in the Federal Reserve 2008 rules or the CARD Act of 2009 but usage has grown since these regulations were passed. Expect more of this to come in 2010 because issuers will continue to find new ways to make additional revenue,” says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook.

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LowCards.com simplifies the confusion of shopping for credit cards. It is a free, independent website that helps consumers easily compare credit cards in a variety of categories such as lowest rates, rewards, rebates, balance transfers and lowest introductory rates. It also gives an unbiased ranking and review for each card. The LowCards.com Complete Credit Card Index is the most objective and comprehensive resource on the Internet which allows consumers to compare rates for all 1260 credit cards offered in this country. Created by Hampton & Associates, the company has been analyzing the credit card industry and supplying objective websites on various consumer expenses for eight years.