October 2007
Fees, more fees, and little help
WHAT A CARD Capital One's TV ads, featuring humorous barbarians like this fellow, have helped it capture a large share of the credit market.
But our readers with Capital One cards were largely unimpressed by the company.
One reason to shop for a good card is that a bad one can be very bad indeed. And they're getting worse.
Despite congressional hearings chastising issuers for excessive charges, and the introduction of several bills in Congress this year that would clamp down on such practices, fees continue to climb. Penalty fees for late payments have more than doubled in the past 12 years, from an average of $13 in 1995 to $28 this year, with some as high as $39, according to a 2007 credit-card survey by the watchdog group Consumer Action. And after just one late payment, cardholders can get hit with a penalty interest rate as high as 32 percent.
Ann Morris, a reader in Media,Pa., told us she misread her credit-card bill one month, resulting in an underpayment of $200. Her card issuer then slapped her with a finance fee of $100. "This was a one-time mistake. We always pay our bills," she says. "With these kinds of practices it's no wonder so many people are swamped in credit-card debt."
A September 2006 Government Accountability Office study also noted new hidden fees, such as charges for making payments over the phone, which can range from $5 to $15, even when the payments are on time.
In addition, many lenders play tricks when calculating what you owe. Some will keep the interest clock ticking from the time they calculate and mail your bill until they receive your payment. If you've been carrying a balance and try to pay the bill in full, you'll find you still owe interest for that additional period. Then there's the old trap called double-cycle billing, which lets you avoid interest charges only if you have paid your two previous balances in full.
When Citibank announced earlier this year that it would eliminate a nasty practice called universal default, there was some hope among consumer groups that other issuers would follow suit. Universal default allows the issuer to boost your interest rate if you make late payments on other accounts, such as car loans, mortgages, or other credit cards, even if you have a spotless repayment history on that particular card.
But Consumer Action's survey, issued in May, noted that many cards still employed universal default."And if you carefully read the change-in-terms section of most disclosure statements, most say that the issuers can change the terms of the cardholder's agreement at any time for any reason, language that amounts to the same thing as universal default," says Ruth Susswein, deputy director of national priorities for Consumer Action. "There is no other contract in the world that can change its terms at any time."
Our survey also found evidence of the damage that universal default can inflict on cardholders. Fully 28 percent of our readers who were paying the highest interest rates (more than 25 percent) reported that their rate had increased due to a universal-default clause.
Despite congressional hearings chastising issuers for excessive charges, and the introduction of several bills in Congress this year that would clamp down on such practices, fees continue to climb. Penalty fees for late payments have more than doubled in the past 12 years, from an average of $13 in 1995 to $28 this year, with some as high as $39, according to a 2007 credit-card survey by the watchdog group Consumer Action. And after just one late payment, cardholders can get hit with a penalty interest rate as high as 32 percent.
Ann Morris, a reader in Media,Pa., told us she misread her credit-card bill one month, resulting in an underpayment of $200. Her card issuer then slapped her with a finance fee of $100. "This was a one-time mistake. We always pay our bills," she says. "With these kinds of practices it's no wonder so many people are swamped in credit-card debt."
A September 2006 Government Accountability Office study also noted new hidden fees, such as charges for making payments over the phone, which can range from $5 to $15, even when the payments are on time.
In addition, many lenders play tricks when calculating what you owe. Some will keep the interest clock ticking from the time they calculate and mail your bill until they receive your payment. If you've been carrying a balance and try to pay the bill in full, you'll find you still owe interest for that additional period. Then there's the old trap called double-cycle billing, which lets you avoid interest charges only if you have paid your two previous balances in full.
When Citibank announced earlier this year that it would eliminate a nasty practice called universal default, there was some hope among consumer groups that other issuers would follow suit. Universal default allows the issuer to boost your interest rate if you make late payments on other accounts, such as car loans, mortgages, or other credit cards, even if you have a spotless repayment history on that particular card.
But Consumer Action's survey, issued in May, noted that many cards still employed universal default."And if you carefully read the change-in-terms section of most disclosure statements, most say that the issuers can change the terms of the cardholder's agreement at any time for any reason, language that amounts to the same thing as universal default," says Ruth Susswein, deputy director of national priorities for Consumer Action. "There is no other contract in the world that can change its terms at any time."
Our survey also found evidence of the damage that universal default can inflict on cardholders. Fully 28 percent of our readers who were paying the highest interest rates (more than 25 percent) reported that their rate had increased due to a universal-default clause.
