Sneaky Credit Card Company Tricks

CBS MoneyWatch.com Sneaky Credit Card Tricks Jill Schlesinger: (Editor-At-Large, CBS Moneywatch.com) Recently credit card companies had been handed a long list of consumer friendly rules to follow but the card companies are already finding sneaky ways around the new rules according to John Ulzheimer, Head of Consumer Education for Credit.com. Hi John thanks for being here. John Ulzheimer: Thank you very much for having me. Jill: So alright we knew this was going to happen the card act is in the effect. Are they really finding new ways to charge, increase fees for consumers? John: Absolutely and look in the credit card industry in all fairness for 2 years prior to the Card Act said we’re going to have to charge more to subsidize the compliance with this act and guess what, they were being truthful absolutely. The Card Act is going to cost the credit card industry somewhere between $50 and $80 Billion that’s with a B dollars per year. That’s enough money that they’re going to have to make that up because it’s so significant and how are they doing it. Well we’re all subsidizing the cost of the Card Act. New annual fees, the average interest rate on the new credit card is up 100 basis points over the same period of time last year which means that debt is now more expensive if we choose to revolve a balance. Jill: Yeah and at the same time when actually interest rates have remained very low so that’s a double whammy right? John: True. Jill: So the other specific ways, this whole weekend charging thing. It seems like the nastiest of ways to make money and now the credit card company extensively are going to have to not do that weekend billing thing where they can squeeze a few extra bucks but what are they doing to avoid the new world? John: Well the issue is as if your due date falls on the day that’s either a holiday or a Saturday or Sunday traditionally days that banks are closed. Now what they’re doing if we’re hearing that they’re keeping just a few branches open just to say that they’re actually open on those weekends so not all 500 branches but maybe a dozen or so just so they can say no, no, no we’re actually open on the weekends so if your payment is not received prior to that due date there’s a late fee. Jill: How do you know if your bank is doing that? John: Well you pick up the phone and you ask them “hey look I see that my due date is on a Sunday, what am I doing here?” And look we have to be very honest about this, consumers who run their bills up to the due date their rolling the dice. Beat the due date by a week and then you’ll have to worry about it. Jill: And so credit card companies cannot arbitrarily increase the rates of they’re charging us but they can do other things right? John: Correct they used to be able to change the rate, anytime the any reason without even notifying you. Jill: Um-hmm. John: Now at the very least they have to give you some sort of notice in advance if they’re going to add an annual fee or they’re going to increase the interest rate they’ve got to notify you 45 days in advance and if you choose to you can actually opt out of the chain so if they’re going to start charging you a 100 dollar annual fee you can say no, no I don’t want the annual fee but they can also say fine we’re closing the account or we’re going to accelerate the payback by increasing your minimum monthly payment so it’s not necessarily or it’s a good thing to opt out of that change because it may now make the payment unaffordable and we’ve actually surveyed this and we found that about 97% of the people are not reading those notices so even thought they’re getting them in the mail that either shred them or trash them and then 45 days later they have now sacrificed their rights under the card act and they end up with the new fear of higher rate. Jill: That was always my fear with the card act anyway so much of it was about disclosure. There’s a lot of things that are disclosed, mutual fund respect this is disclosed a lot but people don’t pay attention to it if you’re still on the hook so we got to have consumers really aware of the information that’s coming. John: I fully agree with you. Jill: Now alright, talk to me a little bit about the kids her are off to college this fall and you know the one nice thing about the Card Act I thought was oh excellent. You’re not going to see these credit companies and that freshman week and getting all the kids signed up and that’s going to end. Has it ended? John: It has not really ended and the rule is this. If you’re under 21 it’s not as easy to get a credit card as it used to be. This generation of kids who started college this fall. This is the first vintage of college students that can’t just go and open up a credit card really with no strings attached, they have to either have a job or a cosigner in order to do so, so here’s what we are hearing is going on instead of the credit card issue is being on campus. They’re just off campus if the local eateries and local watering holes. We’re also hearing that classmates or cosigning for other classmates. Jill: Wow. John: Absolutely so it’s taking a page out of the how do I get my beer, have the guy whose 21 buy it for me, right. We’re also hearing and this is just really terrible that student loans are being considered income. Jill: What? John: Because its paid to the student rather than directly to the school so we’re hearing that that is going to be a possible loophole to this under 21 no capacity provision. Jill: Oh that’s ridiculous. If the IRS doesn’t send you a form it’s not income that’s what I said. John: I fully agree with you that’s right. Jill: So with all the loopholes was the card act worth it. John: You know I’ve got to give the card act a solid C plus. I think my hypothesis was solid but they’re so many loopholes and it’s forcing the credit industry to subsidize it and we’re all paying for it. Initially the folks were paying all of these higher fees and higher rates for high risk credit card issue or credit card users and frankly those are the people who should be paying higher rates. They’re high risk but now we’re all paying for more of the annual fees higher interest rates for everybody. I’m not sure that’s fair, that’s argument for someone else for another day but at the end of the day we’re not fully protected as we were promised we would be and we’re all paying more for our credit. Jill: Before we go the number one tip for credit users, what do they have to absolutely positively do to protect themselves. John: Well I think you have to be very, very honest with that little piece of plastic in your wallet. The issue of that card is not your friend. They are for profit companies. The due dates are not suggestions. They don’t care about your excuse, they don’t care about story. They care about getting paid so be very, very careful when you’re dealing with these guys because they have the ability to wreck your credit for the next 7 years and make everything else that you want much more expensive so take the terms of your promissory note very, very seriously. Jill: Words of Wisdom from John Ulzheimer thank you so much for joining us. John: Thank you for having me. Jill: And thanks for watching.