Just when you thought new legislation meant plastic was safe. Credit card companies are finding loopholes in the new Credit Card Act of May 2009. Their motive: Making up for lost revenue and side-steeping the reform.
The first part of the law rolled into effect in August, and required banks to give customers more notice before making major changes, like rate hikes, to their accounts. In February 2010, phase two comes into play with issuers being imposed limits on raising rates on existing card balances. Finally, the third phase will take effect in August 2010, when some penalty fees are capped.
Sounds good, right? Not so fast. Analysts caution every law -- even a good one -- is vulnerable. And fueled by the "where there's a will, there's a way" mentality, credit card companies are determined to take as much of your cash as possible.
Here's a few things to avoid.
Because the new laws can only tackle existing fees, credit card issuers are scrambling to dream up new fees they can tack onto your account. Annual fees seems to be an easy target.
Earlier this month, some Bank of America customers received a surprise, and not the good kind. BofA notified them that their once "no-fee" cards were converting to ones with annual fees. BofA spokesperson Betty Reiss said this is part of a "test" that affects 0.5% of all consumer accounts. The fees, ranging from $29 to $99, will be assessed to accounts based on risk and profitability.
More monthly moolah
One way to improve cash flow is demanding more money every month. And by raising monthly payments, issuers not only generate more cash, they increase the odds a customer won't be able to make their monthly payment and will fall delinquent. Resulting in even more fees and interest-earning penalties.
Chase is applying this theory to some of its accounts, raising the minimum rate some customers need to pay from 2% to 5% of the balance. On a $5000 balance, that's a $150-a-month hike.
It no longer pays to be good. Those in-flight upgrades and "free" hotel stays once earned as incentives are fading out of sight. American Express recently scaled back its Blue Card cash-back program, offering customers $1.25% instead of 1.5%. the catch: You've got to pay your bill on time. Otherwise, you won't accrue points without paying a $29 reinstatement fee.
Although it's not officially a "pitfall," WalletPop's Martha White discovered an interesting nugget while researching upcoming articles on the best and worst credit cards. White found that the Discover Motiva card puts a new spin on rewards. It offers customers paying their bill on time for six consecutive months an interest free seventh month as a reward. Not really cash in hand. But at least it's less cash going out.
Don't be surprised if you've got less credit than you did a month or two ago. According to the Center for Responsible Lending, some credit card carrying consumers have seen their limits lowered by as much as 75%. Again, for no apparent reason. Bad news for holiday shoppers hoping to swipe their credit cards at the cash registers on Black Friday.
The new law protects the rates on current balances, but says nothing about those for future purchases. And analysts caution those rates can soar. Lucy Elliot knows firsthand just how high those rates can climb. "The rate on my Visa jumped from 12.99% to 17.99% and I've never missed a payment." When she called to inquire about the hike, Elliot was told she owed too much "across the board" and thus her rate was being "adjusted". "It was re-adjusted 4 months later to 19.99%. It's criminal what they're getting away with."
The bottom line
Do your homework. Monika Ecsedy Nagy, CEO of FinancialFutureCoach.com says consumers should read their statements and disclosures every month. "Even all that fine print." Good advice since that's often where the language for these pitfalls is buried.
Nagy also suggests comparison shopping. "There are still some instances in which consumers can get a good, fair deal." True enough. But she says "you're going to have dig deep to find them."
Gina Roberts-Grey is a freelance writer specializing in consumer issues.