It appears credit card issuers are determined to maintain the high levels of profit they earn from charging fees. A new report released by the Center for Responsible Lending on Thursday shows that they have created or expanded at least eight hidden charges to replace the income they anticipate losing as a result of newly enacted federal legislation and Federal Reserve rules intended to stop credit card abuses.
For example, the report shows that credit card issuers have implemented a tactic it calls "pick-a-rate" -- and it's not the customer who gets to pick. Previously, consumers were charged an interest rate tied to what the prime rate was on last day of their 30-day billing cycle. Under the increasingly prevalent pick-a-rate system, the interest rate is based on the highest prime rate reported at any time during the previous 90-day period -- a practice that costs Americans $720 million a year and could grow to $2.5 billion annually as it spreads. Already, 117 million credit card accounts are being affected by this tactic.
The report also shows how issuers have shifted their penalty-fee structures so that now, nine out of 10 cardholders are charged the highest possible penalty for late payments, $39, even though the average overdue balance is $50. And there are several instances of issuers disguising or adding to miscellaneous fees that weren't covered by recent credit card reforms.
"The Credit CARD Act that Congress passed earlier this year was a big improvement for American families. But our research shows that [the credit card] industry keeps finding clever ways to get around meaningful reform," said Center for Responsible Lending researcher Josh Frank, the report's author. "We need a regulator focused on making financial products fair."
Many of these new fees are linked to clauses buried in the fine print of credit card agreements that issuers have changed since the enactment of the May 2009 Credit CARD Act, which goes into full effect in February 2010. Put simply, fees and charges will be triggered because credit card companies have quietly changed the rules and conditions under which they will impose them. The report estimates that the changes affect more than 400 million consumer accounts, but said most consumers will not be aware that they are being affected unless they read the fine print.
The eight major fee changes are:
Change in formula for calculating variable interest rates which results in rates that average 0.3% higher.
Variable Rate Floors
Variable interest rates can not go down from the starting rate for the account, but they can move up.
Minimum Finance Charges
Consumers with only a penny in charges get charged a minimum finance charge of up to $2.
Compression of Balance Categories in Tiered Late Fees
Issuers apply the highest late fee amounts to smaller balances, resulting in nine out of 10 consumers paying the highest fee.
Issuers charge consumers for not using or closing their account, with fees as high as $36 a year.
International Transaction Fees
Issuers are increasing charges for transactions in foreign currencies, and expanding the definition of foreign transactions to include those in dollars.
Balance Transfer/Cash Advance Fees
Issuers are charging a fee for these transactions, and the amount of the fee (as a percentage of the total) is rising.
Balance Transfer/Cash Advance Fee Floors/Ceilings
Minimum cash advance and balance transfer fee amounts have increased, while maximum fee amounts have disappeared.
Credit card banks have eight new ways to hit you with hidden fees