As credit card companies increase their marketing campaigns to boost profits, more and more diffrent credit card offers are coming at you fast and furious. The average household receives 8 credit card offers each month, and students, who often have no regular income, are encouraged several times a week by posters, flyers, and on-campus marketers to apply for credit cards.
At the same time, credit card companies are charging interest rates as high as 40% per year. Consumers are subject to a host of unfair and deceptive terms and conditions and encouraged by to make low minimum payments so that the companies can earn more money in the form of interest.
As a result, the average credit card debt for Americans who carry balances reached an all-time high of $5,610 in 2000, an increase of one-third since 1995. As consumers struggle, credit card companies are making bigger profits than ever. Between 1995 and 1999, full credit goes to aggressive marketing and misleading practices, companies' profits 3 time more, jumping from $7.3 billion to $20 billion.
Way to Credit Card Traps
- Late Fees :-
Credit card companies are reaping more profit from late fee income than ever before, for three reasons:
- the average late fee more than doubled between 1992 and 2000, from $12.53 to $27.61,
- companies have decreased the amount of time between when they mail a bill and when payment is due, and
- nearly two-thirds of companies have eliminated leniency periods, (the time after a payment's due date before a late fee is assessed).
- Higher Over-the-Limit Fees In 2000 :-
Only one card charged a fee of less than $20 to consumers who had exceeded their credit limits. The highest fee was $35. In contrast, a 1995 survey found only one bank that charged a fee of $20 or more. Many companies assess this fee to cardholders who exceed their limits by as little as $1.
- Hidden Transaction Fees :-
Fees for cash advances, balance transfers, and the purchase of lottery tickets significantly raise the cost of these transactions. But the terms governing these transactions are buried in the fine print where consumers can easily miss them.
Minimum fees :-
It is also stated only in the fine print, allow credit card companies to guarantee themselves high fee income regardless of the transaction amount. For example, if a Card has a transaction fee of 3% and a minimum of $10, a card-holder who receives a $50 cash advance will be charged the minimum, $10, which amounts to an actual transaction fee of 20%.
- Increasing Annual Percentage Rate (APR) :-
Increases in the average penalty APR—a higher interest rate triggered by a late or missed payment—is nearly 8% higher than the average regular (non-penalty, non-introductory) APR. In 1998, by contrast, penalty APRs were an average of 4.5% higher than regular APRs.
- Declining Grace Periods :-
While grace periods (the time during which a transaction does not accrue interest) historically were a full month long, they now average 23 days. Some cards have no grace periods at all.
- Introductory APRs :-
57% of card offers advertised a low introductory APR. The average introductory APR was 4.13% and lasted an average of 6.8 months. But credit card companies use low, short-term introductory APRs to mask regular APRs that are an average of 264% higher. These sharp rate increases are not prominently disclosed.
- Low Minimum Payments :-
Low minimum monthly payments are designed to attract consumers, but they encourage cardholders to pay more in finance charges as the length of time required to pay off a balance increases significantly. Credit card companies have decreased minimum payments in recent years from the historic industry standard of 5% to a current standard of 2% to 3%.
- "Fixed" APR :-
Despite so-called "fixed" interest rates can be raised with as little as 15 days notice to cardholders.
- Tiered Pricing :-
This new, anti-consumer practice is catching on quickly with credit card companies. In an offer, the company quotes a meaninglessly-wide range of possible APRs: Providian's Aria card, for example, quotes a range of 7.99% to 20.24%. The company then assigns an APR to each applicant once the card is issued, based on the applicant's credit history. Consumers are thus being denied the right to know the terms of a credit card before they accept an offer.
How To Avoid Traps
- Shop around before accepting a credit card offer.
- Read the fine print.
- Carry only one or two major credit cards, and avoid using the full available credit line.
- Pay off all balances in full every billing period
- Reduce the number of direct mail credit card solicitations you receive by calling 1-888-5-OPTOUT. This will remove your name from pre-screening lists at the three major credit bureaus.
- Seek credit counseling as soon as financial problems arise.
- Check your credit reports at least once a year for errors
- If you believe you are the victim of unfair interest rate charges, late fees or other penalties, or deceptive marketing, and the credit card company fails to address your complaint, file complaints with your state Attorney General's office and the national Office of the Comptroller of the Currency:
- visit: www.occ.treas.gov/customer.htm
- call: 1-800-613-6743, (M-F 9am-3:30pm CST)
- e-mail: Customer.Assistance@occ.treas.gov
- fax: 1-713-336-4301 or;
- mail: Customer Assistance Group 1301 McKinney Street, Suite 3710 Houston, Texas 77010.