Beware Credit Card Users--It Is All In the Fine Print
Not reading the fine print of the credit cards you use is a sure
invitation to have your blood sucked. Now a days millions of
people are using credit cards to make purchases. If you pay for
anything with a credit card, then beware that the 9% interest
rate you thought you were locked into could actually go as high
as 30%, and you might not know it until you get slapped with the
"Penalty interest rate" and "universal default" are provisions
included by banks in their credit card offers which they claim
are necessary to offset risks. These provisions are legal as
long as issuers can say they warned you. The rates and fees in
these provisions are all out of proportion to the risks. Issuers
have used better ways in the past to protect themselves. For
example, they used to cut customers off after they reached their
credit limits, which I think was a good thing for the user.
Now they let you keep spending so they can charge you over-limit
fees (as much as $29 per billing period) and permanently higher
rates. This can be devastating for the budget of many users. So
be careful! Always read and understand the fine print before it
is too late.
Never pay your credit card bills late even by an hour as your
interest rate can be increased permanently. In May 2004,
according to the testimony by credit card issuers before the
Senate banking committee, $14.8 billion (or 11% of their
revenue) were collected on penalty rates, which averaged about
24% this year according to the Consumer Action. To make things
worse for the user the new rates can be applied retroactively to
purchases already made. Companies usually specify an exact time
by which payments must be received. If they don't specify it,
you should contact them to find out.
Be aware that even if your mortgage or other payment is late
(under the "universal default") credit card issuers can raise
your rates because you are now classified as high risk. One bank
was found charging a 35% universal default rate by Consumer
Having too many inquiries into your credit history can also turn
on the universal default rate and you may be charged a fee thus
lowering your credit rating.
Credit card issuers made $7.7 billion on penalty fees in 2003.
There is no legal cap on banks' interest rates. And the Supreme
Court in 1996 prevented states from setting limits on late fees.
Legislations are underway to ban the "universal default"
interest rates based on alleged missteps with another issuer,
ensure that penalty fees match issuers' costs and ban over-limit
fees. Whether this actually happens or not time will tell. But
until then you have to be extra careful and read all of the fine
print because it is all in there.