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NEWS Change Service Requested 221 Main Street, Suite 480 • San Francisco, California 94105 • www.consumer-action.org • Spring 2007 2007 Survey Universal default: Unforgiving policies for even Gone or just hiding out? minor rule infractions ne of the most egregious hinge on how the term universal anti-consumer credit card default is defined. lmost every credit card agree- advance notice explaining why. But Opractices—universal default ment includes “take it or if you are hit with a penalty rate hike —still appears to be alive and well Universal default Aleave it” terms that favor the or other punitive change in terms, and living in another section of your Consumer Action defines univer- lender. Among the terms that are there is no requirement to notify you cardholder agreement. sal default as an increase in rates shoved down cardholders’ throats in advance of your next statement. In early 2007, most major issuers based on the way are penalty rates. From 1995-2007 the average late deny that they employ “universal customers handle If you pay your fee has more than doubled from default” policies to hike interest other credit ac- Survey at a glance credit card bill $13 to $28—and fees are as high as late even one $39 per incident. If that’s not bad rates based solely on the way cus- counts. A univer- Issuers: 20 Cards: 83 tomers handle their other credit sal default change time—often by enough, then you get socked with accounts such as car , mortgages in terms based Average APR: 14.53% even one day— a penalty rate. This year’s penalty and accounts. on credit infor- you can get hit rates run as high as 32.24%—on aver- Variable Cards: 69* with a painfully age they are 24.51%. Late payments However, Consumer Action finds mation must be Average Variable APR: 15.25% that many banks still use credit re- “adverse”—the Average Variable Rate Range: large late fee result in higher penalty rates with port information as a reason to make change costs 8.25%-25.24% and your interest 85% issuers—an increase from the adverse account changes under their cardholders more rate skyrockets 2005 finding of 79%. “change in terms” provisions. Knee- money. Fixed Rate Cards: 15 to penalty rate Average Fixed APR: 11.34% Penalty rates jerk interest rate hikes based on Consumer status. Fixed Interest Rate Range: Depending on Penalty rates are much higher credit reports are unfair because of Action draws a 7.90%-15.49% the issuer, you interest rates triggered when you pay the very real probability that credit clear distinction * One card counts as fixed and variable. reports contain errors. between negative may be in inter- your credit card bill late—even once. In recent months, major credit card changes in terms est rate purga- Shrinking grace periods are contrib- issuers have made public statements based on a credit report and “penalty tory for a long uting to the painful problem because before Congress and to the news rate” hikes triggered by a cardhold- time—maybe for as long as you keep you get less time to pay. media that they do not impose “uni- er’s late payments, bounced payment that card. Your credit card’s is If you are turned down for credit, versal default” on cardholders. When See ‘Penalties,’ page 6 you drill down, the statements often See ‘Change in terms,’ page 7 the law requires that you receive

Lowest rate credit cards About the credit card survey Variable Rates he 2007 Credit Card Survey www.consumer-action.org and click was conducted between Oct. on “CA News.” APR Annual fee Bank (card name) and web site T9, 2006 and March 2, 2007. With the exception of variable 7.90% None Capital One (Platinum Prestige) Consumer Action examined 83 cards rates, APRs haven’t changed much www.capitalone.com from 20 banks, including the top 10 since Consumer Action conducted 8.25% $19 Wells Fargo (Prime Rate Card) U.S. credit card issuers. its last survey in 2005. www.wellsfargo.com Consumer Action prohibits the Purchase APRs 9.25% None First Command Bank (Platinum) use of its name or any reference to www.firstcommandbank.com its surveys in advertising or for any The average purchase interest 9.99% None Washington Mutual (Platinum) other commercial purpose. rate on all surveyed cards is 14.53% www.wamu.com The issuers surveyed are Amalgam- —about 2 percentage points higher 10.15% None EverBank (EverCard Platinum) ated Bank of Chicago, American Ex- than our 2005 finding and attribut- www.everbank.com press, Arkansas National Bank, Bank able to the sharp increase in the of America, BB&T Bank, Capital Prime Rate in the past two years. Fixed Rates One, Chase, Citi, Commerce Bank, (The Prime Rate was 6% during the 2005 survey and 8.25% during the APR Annual fee Bank (card name) and web site Discover, EverBank, First Command Bank, Franklin Templeton Bank current survey.) 7.90% None Bank of America (Various cards) & Trust, GE Money Bank, HSBC, The range of purchase interest www.bankofamerica.com Metropolitan National Bank, Pulaski rates for all cards is 7.9% (Bank of 7.92% $50* Arkansas National Bank Bank & Trust, US Bank, Washington America, certain fixed rates cards) to www.anbfinancial.com Mutual and Wells Fargo. 25.24% (top tiered rate charged by 7.99% $35-$50 Pulaski Bank & Trust (Standard & Gold) The survey contains 69 variable Metropolitan National Bank). This www.pulaskibank.com rate cards and 15 fixed rate cards. spread has actually narrowed by 2.6 9.90% None Capital One (Platinum Max) (One card from HSBC is issued with percentage points since 2005, when www.capitalone.com either a variable or fixed rate, de- Consumer Action found a range of 9.99% None Bank of America (Various cards) pending on the applicant.) 6%-24.94%. www.bankofamerica.com For a complete list of surveyed This year, the 15 fixed rate cards *Annual fee waived with no-minimum-balance ANB account. cards and interest rates, go to See ‘About the survey,’ page 4 terest rates vary according to the card Consumer Action Buyer beware when and the applicant’s . www.consumer-action.org To get the deal, you must make the transfer with your application. If you Consumer Action is a non-profit pay late, the rate may increase. 501(c)(3) advocacy and education transferring a card balance This year, we found 11 cards with organization founded in 1971. CA low interest rates (1.90%-9.99%) on publishes surveys and distributes ore issuers than ever are us- to a card with a 0% multilingual educational materials in balance transfers that waive the bal- printed form and on the Internet. ing 0% interest to lure your for the first three months, you would ance transfer fees for new cardhold- business away from other save the $104 in interest. However, Referrals and advice M ers. (To see offers, go to www.consumer- banks. The offers are everywhere: paying a $75 balance transfer fee action.org, click on CA News, and select CA will provide nonlegal advice and “0% on balance transfers through would reduce your savings to $29. the 2007 Credit Card Survey.) referrals on consumer problems. 6/1/08.” “Pay 0% interest when you In general, the longer the introduc- When accepting an introductory Chinese, English and Spanish are transfer a balance.” tory rate and the larger your balance, spoken. credit card offer, be aware that your If you want to pay down a balance the more you’ll save by transferring (415) 777-9635 • (213) 624-8327 payments will be applied to the low- while saving some interest, you can’t a balance. If you transferred $10,000 est interest portion of your balance— [email protected] do much better than that. Or can from a 17% interest card to a card like the 0% transfer—and not to you? with a 12-month 0% introductory San Francisco higher interest parts of your balance, In Consumer Action’s most recent rate, in the first year you could real- such as purchases and cash advances. 221 Main St., Suite 480 Credit Card Survey, 45 out of 83 of ize an impressive savings of more San Francisco, CA 94105 (Some introductory rates are good the cards surveyed had a 0% balance than $1,500 in interest. But a pos- for purchases, balance transfers and (415) 777-9648 transfer offer. (That’s a 38% increase sible $300 balance transfer fee would E-mail: [email protected] credit card checks.) since 2005.) The 0% deals last from eat up 20% of those savings. Such “payment allocation” prac- Ken McEldowney three to 12 months. “If you are going to pay all this Executive Director tices are widespread in the industry. The real deal is always in the fine money for a fee, make sure to get a A recent Government Accountability Michael Heffer print. In this case, 0% sounds like year-long introductory rate,” advises Business Manager Office (GAO) study found that the free money but many banks charge Consumer Action’s Ruth Susswein. vast majority of card issuers apply Kathy Li a balance transfer fee, even if you “And better yet, find an offer that your payment to the balance with Director, San Francisco Office transfer a balance during the applica- waives the transfer fee.” the lowest interest rate. This practice Mikael Wagner allows your higher rate balances to Director of Training and Outreach compound faster, potentially costing Nani Susanti you more money. Project Manager Balance transfer tips Balance transfer fees Candace Acevedo, Jamie Woo Before transferring balances to a new card based on a low promo- Community Outreach Managers tional rate, ask: Seventy five percent of the banks Joseph Ridout surveyed charge a percentage based Consumer Services Manager • How long does the lower promotional rate apply? fee when cardholders transfer a Angela Kwan • Is there a balance transfer fee, and if so, how much will it cost? balance. Some banks will waive Web Manager Will you waive the balance transfer fee for new cardholders? this fee for a time for new cardhold- ers—typically for 30-90 days. Con- Hazel Kong • Will my new cover the amount I want to transfer? How sumer Action’s survey found waivers Office Manager long can I wait before transferring a balance and still avoid a fee? on cards from , Cui Yan Xie • What’s covered by the promo rate? Just my transferred balance, Project Associate Bank of America, Citi, Discover and or do I get a break on purchases and convenience checks, too? HSBC. But there are no hard and Audrey Ward fast rules—read the fine print and Project Assistant • Under what circumstances could I lose the promo rate before it is due to end? What rate would then apply? call to ask before transferring a bal- Ricardo Perez ance. Mail Room Operations Balance transfer fees ranged from Ruth Gilbert, Schelly Gartner 2% of the amount transferred at tion process. It can cost 3% of the It can be difficult to transfer large Consumer Advice Counselors Arkansas National Bank, to 3% at amount you transfer to move credit balances unless you have excellent Kinny Li, Tasneem Pitalwala the majority (13) of surveyed banks. card debt to another card. Consumer credit. If your new issuer doesn’t ac- Administrative Assistants Five banks had no fees (BB&T, Action found that fewer than half cept the entire balance transfer, you Miao Li, Philip Mak, Dennis Wong Capital One, First Command Bank, (43%) of the cards with balance could be left with a balance on the Support Franklin Templeton Bank & Trust transfer promotions would waive the old card, too. and Pulaski Bank and Trust). Los Angeles fee. But it’s worth asking issuers to To make balance transfer deals 523 West Sixth St., Suite 1105 remove the fee to earn your busi- work in your favor: Limits on fees ness. (See chart below for some fee-free • Choose a card that waives the Los Angeles, CA 90014 Among surveyed banks with bal- (213) 624-4631 0% balance transfer offers.) balance transfer fee, or limits it. ance transfer fees, six have no caps Some issuers cap the fee at $50 or • Pay a hefty chunk of the balance Cher McIntyre on fees. Maximum fees range from $75, but in many instances there is each month during the interest-free California Legislative Director $30 (Amalgamated Bank of Chicago) no limit on the fee. We found that period. Nelson Santiago, Linda Williams to $250 (Citi Platinum Select card). 32% of balance transfer offers have • Select a new card with a low fixed Community Outreach Managers Minimum balance transfer fees are no cap on the fee. That means that rate after the promo ends. (Training and Outreach Department) far more common and range from someone transferring a $10,000 bal- Cardholders with large balances Guo Guang Zhuo $2.50 (Amalgamated Bank of Chi- ance could pay a $300 fee! and good credit might want to con- Support cago) to $5 at 14 of the 20 surveyed Does the deal work out in a card- sider American Express’s low inter- banks. Washington, DC holder’s favor? It depends. est rates (1.90%-9.99%) on balance The cost of transferring $10,000 af- On a $2,500 balance on a 17% transfers that remain in effect until P.O. Box 1762 ter any introductory fee waiver ends Washington, DC 20013 interest credit card, paying a 3% you pay off the balance. The offers ranges from $30 (Amalgamated Bank (202) 544-3088 monthly minimum payment for have no balance transfer fees for new of Chicago) to $300 (AmEx, Bank three months would leave you with a cardholders. Linda Sherry of America, Citi, Commerce Bank, Director, National Priorities balance of $2,383 and incur interest AmEx is the only surveyed issuer HSBC, Metropolitan Bank). ■ (Editor, Consumer Action News) of $104. If you transferred the $2,500 with “life of the balance” offers. In- Ruth Susswein Deputy Director, National Priorities Sol Carbonell, Jennifer Daw Zero interest balance transfer offers with no transfer fees Holloway All offers shown below apply only to balance transfers made on new cards. Check all details before applying. Associates, National Priorities Healthy Children Issuer/web site Card names Length of offer Organizing Project Citi Driver’s Edge Platinum, Home Rebate, Phillips 66-Conoco Six months 221 Main St., Suite 480 www.citicards.com 76, Associated Bank Platinum, Universal Platinum San Francisco, CA 94105 (415) 777-9648, Ext. 307 Discover Miles Card 12 months Web site: www.healthychildrensf.org www.discovercard.com Neil Gendel HSBC No Annual Fee Platinum Six months Director http://us.hsbc.com Consumer Action News is printed by Metropolitan National Bank Cash Rewards Platinum Six months the Alonzo Printing Company, using www.metbank.com recycled paper and soy-based ink. © Consumer Action 2007 Pulaski Bank & Trust Classic Six months www.pulaskibank.com

Page 2 • Spring 2007 • Consumer Action News Consumer Action News • Spring 2007 • Page 3 doubled—and late fees are as high as Only five banks (Arkansas National $39 per incident. Bank, Capital One, Commerce Bank, Big issuers charge big time Of 83 cards surveyed, 79 (95.18%) Franklin Templeton and Pulaski have late payment fees. This year’s Bank & Trust) extend a leniency pe- average fee of $28.02 is about 2% riod after the due date. Depending for on-time phone payments higher than our 2005 finding of on institution, these banks grant le- $27.46. Fees range from $15 to $39. niency of three days or more before a Payment related fees/policies are painful Four surveyed cards have no late late fee is applied. fees: First Command Bank’s Clas- Non-business due dates onsumer Action’s survey re- payments made by phone or online sic and Platinum, American Express veals that some issuers charge at the last minute, but still before Clear and Cap One No Hassle Miles. Many people have asked Con- Ccardholders hefty fees to the due date. It was in 2003 that Consumer Ac- sumer Action about their rights when make on-time payments by phone. If your bank returns your payment tion first noted tiered late fees tied to it comes to due dates that fall on “It is inexcusable to charge people to the credit card company because the balance. Tiered late fees result Sundays or holidays, a very com- a fee to pay their credit card bills you do not have the funds in your in disproportionately higher late fees mon occurrence. Consumer Action on time,” said Ruth bank account to for cardholders with lower balances. attempted to answer the question by This penalizes people with smaller asking customer service representa- Susswein, deputy Due dates that fall on cover the payment, balances more than those with high tives, “Will I be charged a late fee if director of national Sundays or holidays 81 (98%) of the priorities. surveyed banks will balances, who might legitimately the due date falls on a weekend or are very common—and Thirteen out of charge you a fee. be considered a greater risk if they holiday?” Of 20 banks, seven repre- 20 surveyed banks they can result in The average default. sentatives answered “yes,” five “no,” charged a fee for unjustified late fees. bounced check fee Fourteen issuers (70%) use tiered seven “don’t know,” and on one payments made by at these banks is late fees tied to the cardholder’s bal- card it was impossible get a straight phone. The fees $32.78. Bounced ance—up from 40% in 2005. answer. ranged from $3 at Amalgamated check fees range from no fee (Ameri- The average tiered late fee is A Pittsburgh, PA, man wrote to us Bank) to $15 (HSBC), although Citi can Express Clear Card) to $39 on 31 $27.84, with a range of $26.33- in March to complain that Bank of and WaMu charge only a nickel less cards. $32.00. The average flat late fee is America had sent his bill with a due at $14.95. The lowest fee found by Consumer $28.92, with a range of $25 to $39 on date of Monday, Feb. 19, which was The average fee charged by these Action is $20 at First Command cards with fees. a legal holiday. He wrote: “They banks is $9.23. Bank. In addition, Consumer Ac- would not accept online payments Cut-off times Bank of America ($14.95) and Wells tion discovered that many banks will on Feb. 17, 18, or 19. They accept Fargo ($10) charge when you pay charge a comparable fee if you write How late does your payment need payments only Monday through Fri- by phone with funds from another a credit card convenience check that to be before you get hit with a late day, not including holidays. The due bank. causes your credit card to go over fee? To avoid a late fee, some banks date is then Feb. 16 if you do not None of the banks charged people limit or if you ask to stop payment require that your payment arrive be- want to get hit with late fees.” who pay online, however several on a credit card check. fore a certain hour on the due date. “Charging people a late fee when banks had fees for “expedited” pay- These times vary widely. BB&T the due date falls on a non-business ments. These banks are Chase, with Late payment fees Bank will not credit your payment day is patently unfair,” said Suss- a $14.95 fee; HSBC, $15, and Ev- In 1995 Consumer Action found after 2 p.m. ET on the due date, wein. “If the mail is not delivered on erbank, $29. Bank of America has a an average late fee of $13, with no Chase requires payments by 4 p.m. your due date, how can you avoid a charge of $14.95 for expedited phone company charging more than $18. In ET, and Citi has changed its 2 p.m. late fee? This policy is an excuse to payments. These are “convenience” 2007 the average fee has more than cut off to 5 p.m. ET. charge unjustified late fees.” ■

Of the 83 cards surveyed, 74 (89%) have higher APRs for cash advances. Sweeping credit Credit card cash advances: (That’s up 14% from 2005.) The average purchase rate on these card reform bill 74 cards is 14.91%—the average n May 15, Senator Carl Levin The new payday ? cash rate of 23.09% is 8.2 percentage O(D-Michigan) introduced broad points higher than the purchase rate. legislation to curb abusive credit card t can be costly to use your credit • Balance transfers Sixty-eight cards (82%) feature lending practices. card to get some cash. And did • Purchases variable rates and 14 The “Stop Unfair Practices in Iyou know that using a credit card • Cash advances are fixed. Credit Cards Act” would forbid prac- check is the same as taking a cash When you send a monthly payment On 18 cards, the cash advance APR tices recently exposed by Levin in advance? to your credit card, it is applied to was expressed as a range—the final hearings of the Permanent Subcom- When you use your credit card to the balances with the lowest APRs rate is dependent on the individual mittee on Investigations that allow withdraw cash or write a credit card first. For instance, your payment will applicant’s credit history. credit card issuers to assess unjustifi- check, the transac- Among the 82 cards able fees and interest rate charges. tion is subject to an Cash Minimum Finance that allow cash ad- The bill, which has the broad upfront fee of 2%-4% Cash advance advance fee fee Cash APR charges vances, cash advance support of many national consumer of the cash advance fees range from 0% of $100 3% $10 24.24% — organizations including Consumer and, in most cases, a the amount advanced Action, would ban: higher rate of inter- One month (American Express • Retroactive interest charges. — $10 $2.02 $12.02 est. Cash advances costs Clear Card, and all The bill would prohibit the wide- are not subject to a First Command Bank Annualized 144.00% spread practice of charging higher grace period—inter- — — — finance charge APR and Pulaski Bank interest rates on balances incurred est starts to accrue & Trust cards), to before a rate increase went into ef- immediately on the 5% (HSBC Orchard fect. day you take the cash pay off the 1.99% balance trans- Bank Gold Card). The average cash • Outrageous interest rate hikes. advance. fer before it touches the 23% cash advance fee is 3.07% of the amount It would limit “penalty” interest advance balance. This means your advanced. Payday loan rates? rate increases to 7 percent above the more costly balances grow faster be- previous rate if the consumer fails, If you take a $100 cash advance cause the 23% balance is not being Few caps found for instance, to make a payment on for only one month, it can cost you reduced at all, while interest contin- Cash advance fees are capped on time. $12.02 in fees and interest. Annual- ues to compound daily. just 8% of cards with these fees. The • Repeat over limit fees. Over ized, that’s about 144% interest. (See Banks say that cash advances are average maximum fee is $35 with limit fees could only be charged chart with this story.) a risky business—they cost more to a range of $20 (Arkansas National once, unless additional charges Consumer Action’s Ken McEld- process and frequent users are more Bank) to $50 (HSBC). increase balances above the account owney said, “Credit card issuers are likely to default. Caps, or maximum charges, which limit. approaching payday loan rates.” (Remember, on cash advances, in- are growing rare, protect consum- • Fees for paying a bill. Credit terest begins to accrue immediately ers from higher fees, but minimum Payment allocation card companies could not charge a —even if you do not carry a balance.) charges are often higher than a strict fee to allow consumers to pay a bill A little known credit card industry percentage-based fee. by telephone, on the internet or by practice called payment allocation APRs of 28% Minimum charges apply on 78 of mail. also adds to the potential cost of a The highest cash APR we found is the surveyed cards. These minimum • Interest charges for on-time cash advance. You may think of your 28.24% on several Chase “standard” fees range from $2.50 (Amalgamated payment. It would prohibit two credit card balance as one single rate cards. Bank of Chicago) to $15 (HSBC), cycle billing, residual interest and amount—your credit card company The average cash advance rate is with an average minimum fee of other practices that result in interest sees it as a pie cut into segments. 21.65% on all cards, with a range of $7.08. ■ rate charges on balances that have Your balance may be subject to sev- 7.92% (Arkansas National Bank) to been paid on time. ■ eral interest rates: 28.24% (Chase).

Page 2 • Spring 2007 • Consumer Action News Consumer Action News • Spring 2007 • Page 3 Residual interest example Watch your back (billing) Here is an example of how the billing practice works: You purchase a $3,000 TV using your 17% APR credit card and decide to pay off the balance in three pay- Residual interest and two-cycle billing ments. You have a zero balance when you purchase the TV and you make no new purchases while you pay off the balance. Your payments are received and can cost you more in finance charges credited on the due date.

ometimes called trailing inter- you paid in full the previous month? Interest Principal Current Month Payment est, residual interest is a decep- If you were carrying a balance for charges paid balance Stive method of calculating more than two months, residual up until the day interest is charged right up until the 1 $3,000 full payment is received. day your payment is actually receiv- Consumer Action discovered ed.” 2 $1,025.11 $37.50 $987.61 $2,012.39 that nine of the 20 banks surveyed Consumer Action believes residual 3 $1,025.11 $25.15 $999.96 $1,012.43 employ the practice. They include: interest is an unfair and deceptive Bank of America, Capital One, practice. Sherry points out that a 4 $1,025.09 $12.66 $1,012.43 $0.00 Chase, Citi, Commerce Bank, Ever- cardholder who checked online to 5 $7.59* $7.59 bank, Franklin Templeton Bank & make sure the full payment had Trust, HSBC and Pulaski Bank & been received would see a zero bal- * This interest charge is figured on a balance of $1,012.43 for 20 days (the time be- Trust. ance, because trailing interest isn’t tween the close of your billing cycle and the day your final payment of $1,025.09 was Two-cycle billing is a method of added until the close of the subse- credited). This example was prepared using an online calculator at Bankrate.com. computing finance charges on your quent billing cycle. credit card account. Two-cycle inter- “Some people might not even open est policies calculate interest based their next credit card bill, because rather than on the $50 still owed. ing. With double-cycle billing…con- on two billing cycles, instead of the they expect a zero balance,” said sumers are charged interest on debt more prevalent practice of determin- Sherry. This could set off late fees Chase drops two-cycle that has already been repaid. This is ing interest only on the immediate and other penalties on the account. As the survey period ended, Chase a dishonest way to make a few bucks billing cycle. announced shortly before a January at the expense of a responsible and Two- cycle billing means that you Two-cycle billing Senate Banking Committee hear- unwitting consumer.” pay interest on a portion of the same Consumer Action’s survey found ing on credit card practices that it Levin warned that, “If credit card balance you paid last month, costing three banks using two-cycle billing, would no long use two-cycle billing. companies do not take the initiative you more. Discover, Chase and Washington Washington Mutual uses a two-cycle to clean up their act, I will introduce Mutual. billing method which applies inter- legislation to ban these abuses.” (See Residual interest Typically, two-cycle billing applies est back to the date of each purchase page 3 for a description of the bill Levin Residual interest is difficult to only when you go from paying your made in the previous cycle. introduced on May 15.) understand and disclosures about the account in full to revolving a balance, The Government Accountability Since the majority of credit card practice in cardholder agreements or when your account goes from hav- Office (GAO) released a report in issuers do not use two-cycle billing, are not standardized. (See the chart ing a zero or credit balance to revolv- September 2006 at the behest of it can be easy to avoid it. Check your with this article for an example of how ing a new balance. Senator Carl Levin (D-MI) who statement to see if it exists on your residual interest works.) As an example, a cardholder begins heads the Permanent Subcommittee card, and if so, look for a new card. “Most people realize you lose your a billing cycle with a zero balance, on Investigations. Two-cycle billing You can easily check which cards grace period if you are carrying a charges $500 and makes an on-time was among the practices condemned use two-cycle billing because this balance from month-to-month,” said payment of $450. Under double- in the report. information is contained in the man- Sherry, “but who knew you could cycle billing, the cardholder would Senator Levin stated that he found datory disclosure box on credit card lose your grace period even when be charged interest on the full $500, two-cycle billing “particularly gall- offers. ■

have no minimum age when issuing Manning says that children’s credit cards for use by minors is not names, addresses and other informa- A baby with a credit card? a responsible policy,” said Consumer tion can turn up in the databases Action's Linda Sherry. “What use used by issuers to market credit Many authorized user accounts have no does a small child have for a credit cards and he charges that kids as card? young as 16 can get cards without minimum age requirement She noted that being an authorized parental permission. user does not always result in a good Consumer Action is interested in ost U.S. credit card compa- have no age limit. This year Con- credit history. Parents who start off hearing about any cases in which nies do not provide indi- sumer Action added a new question with good intentions may default, or young people under 18 have been Mvidual credit card accounts to its survey in order to determine pay bills late, and saddle their child issued primary credit card ac- to minors, because children are not bank policies for authorized users. with a bad credit history. counts. Sherry invites anyone who able to enter into legal contracts. Par- The answers revealed that 75% of can provide proof that this has ents who want their minor children surveyed issuers had no minimum Real cards for teens? happened to send her an email at to have a credit card can get them age requirement for authorized us- According to Dr. Robert Manning, [email protected]. a card that is linked to the parent’s ers. author of Credit Card Nation, “Card “We hear that people under 18 account. The minor holding an ad- American Express will not issue companies encourage fantasies of are being issued credit cards under ditional card is called an authorized authorized cards to young people easy money because students are their own recognizance,” said Sherry. user. until they reach age 15; First Com- so profitable. Teens have financial “We’d like to know if companies are Typically, authorized users are mand Bank’s minimum age is 16, naïveté, high material expectations, acting irresponsibly so that we can relatives or friends of the primary and Arkansas National Bank, GE responsiveness to relatively low-cost blow the whistle.” cardholder. For example, a parent Money Bank and Pulaski Bank & marketing campaigns, high poten- While the companies would not might add a son or daughter to a card Trust require authorized users to be tial earnings, and future demand for legally be able to collect on the debt, account to provide to credit or at least 18. . Not surprisingly, they could ruin the young person’s for use in emergencies. “The authorized user relationship companies are approving credit lines credit, or apply enough pressure Some card issuers have a minimum can be a good way to teach young for students at progressively earlier to get his or her parents to pay the age for authorized users, while others people about the use of credit, but to ages, including high school seniors.” debt. ■

did not have annual fees. published sources such as “take The last credit card survey con- About the survey Annual fees on 23 cards (28%) one” applications, web offers and ducted by Consumer Action was ranged from $19 (Bank of America, solicitations received by staff mem- released in May 2005. Continued from page 1 BB&T and Wells Fargo) to $90 bers, volunteers and other consum- average 11.34%—almost flat since (Bank of America US Airways Signa- ers. During step two, surveyors call Survey history the 2005 finding of 11.15%—and ture and US Bank Northwest Air- the companies posing as consumers Consumer Action has conducted its the 69 variable rate cards averaged lines Signature). The average annual who are interested in applying for a credit card surveys almost annually 15.25%. In 2005 the average variable fee on these cards is $44.74—a 3% card. Surveyors call as many times as since the mid-1980s, which gives it interest rate was 12.96%, which cor- increase from 2005, when the aver- needed to obtain at least two dupli- a historical perspective on trends in responds to the two-year, 2.25 point age annual fee was $43.27. cative answers. the industry. However, given the na- increase in the Prime Rate. Sylvia Sherry, Monica Steinisch, ture of the credit card business, with Methodology Martha Widing and Jennifer Daw frequent mergers and acquisitions Annual fees Consumer Action’s survey data Holloway worked under the supervi- and its tendency to offer “new and The majority (60, or 72%) of sur- was collected using an intake form sion of Janice Kohn. Linda Sherry improved” cards on a regular basis, veyed cards had no annual fee—a containing 95 questions. As a first of Consumer Action directed the 5% increase from 2005 when 67% step, surveyors cull information from survey. See ‘About survey,’ page 5

Page 4 • Spring 2007 • Consumer Action News Consumer Action News • Spring 2007 • Page 5 Watch out for hidden costs. Know where to shop. Most Rewards cards Some rewards cards, such as the rewards cards stipulate that your JetBlue card from American Express, “everyday” purchases are at places offer double miles for paying your in- like grocery stores and drug stores, It pays to know your limits come taxes with your card. But you’ll not discount or department stores. have to pay a hefty “convenience So if you shop at Wal-Mart or Kmart, By Jennifer Daw Holloway your airline miles when you want fee” to a third party that processes you won’t earn points for those pur- because of blackout dates or limited the transaction for the government— chases. Some cash back cards offer redit card companies are of- rewards seats. Airlines often desig- and that could cost more than your extra cash back for “everyday” pur- fering just about every type nate only a handful of rewards seats reward. chases, such as the Chase Freedom Cof reward you can imagine. on each flight, and they can fill up Avoid annual fees. A yearly fee Points card, where you can earn 3% Need a new digital camera? Rack up quickly. And most airline rewards can cancel part of your reward. Many cash back. But after you spend $600 some points on your rewards card cards won’t let you use your miles for rewards cards now come with no an- per month in “everyday” purchases, and it can be yours. Want cash back? package vacation deals. nual fees. you’ll get only 1% back. ■ Some companies pay you to use their cards. But will the rewards cost you more than they are worth? Before you fill A sampling of the more robust rewards found in our survey out an application for a rewards card, be sure you know the program’s Consumer Action found that 62 of the 83 cards it surveyed offer some sort of reward. Since card issuers frequently limits. Your rewards may become market new cards, these offers may no longer be available. Check issuer web sites (or your mailbox) for new offers. supremely unrewarding if you don’t Always read the fine print so that you are aware of any limitations on rewards—and remember, all offers can be follow the rules. changed. Approximately 85% of American households have at least one rewards Issuer Card name Rewards or other incentives card. In its new survey of 83 credit cards, Consumer Action found that American Express Blue Cash Once yearly purchases reach $6,500, you can earn 5% cash back. www.americanexpress.com Before that time, earn 0.50%-1% cash back on purchases. 62 cards offered rewards of one sort or another. American Express Clear Cardholders are sent a $25 AmEx gift card for every $2,500 in pur- Many people make many everyday chases charged to the card. Merchandise rebates are also available. purchases using rewards cards. They seek to earn a solid return, such as Bank of America Dodge Rewards Earn points toward the purchase or lease of a new, used or certified 1% or 2% cash back. www.bankofamerica.com pre-owned Dodge, Chrysler or Jeep vehicle and for parts or service But rewards cards can have higher at dealerships. interest rates than regular credit cards; so carrying a balance may Bank of America Money Return 10% cash back on interest payments each year. quickly outweigh your reward. Platinum Plus Morever, if you pay late, you may Capital One No Hassle Miles Airline travel miles. Redeem miles on any airline. One mile per $1 in lose the rewards you earned in the www.capitalone.com Platinum Rewards purchases. (May offer two miles per $1 for a limited time.) 15,000 current billing cycle. miles = $150 ticket; 35,000 miles, up to a $350 ticket, etc. These are some important things to consider if you’re eyeing a rewards Chase Chase Freedom Three points per $1 at certain retailers; otherwise one point per $1. card: www.chase.com your reward anytime to earn cash back instead of points. Know the limits. Many rewards cards cap the number of points or Chase Chase PerfectCard Earn 3% rebate on eligible gas purchases (6% for the first 90 days); miles you can earn. For example, (code: 64DY) 1% rebate on other purchases. the Bank of America Elite Rewards Chase Free Cash Rewards Cash back reward. Get a $25 check or gift certificate for every World card limits your points to Platinum (code: $2,500 in purchases/interest. 7,500 per month. Most air travel 64D8) rewards cards limit the number of miles you can earn. Citi Driver’s Edge Merchandise rebates. Earn 6% rebates on purchases at supermar- Use it or lose it. Most rewards www.citicards.com Platinum kets, drugstores and gas stations for 12 months; afterwards, 3%; earn 1% rebates on other purchases. have an expiration date—usually between three and five years. To maintain your rewards you must Discover Gas Card Cash back. 5% on gas, vehicle, mechanic or auto store purchases; www.discovercard.com up to 1% on non-auto purchases. keep your card active by redeeming points or miles or by continuing to Wells Fargo Cash Back Cash back reward. Earn a reward of 0.25%-1% of each purchase, make transactions with the card. www.wellsfargo.com depending on your monthly use. You must spend at least $450 per Travel rewards cards can be month to get the full 1% reward. tricky. You might not be able to use

Many credit card issuers add “no About survey class action” provisions to their Arbitration clauses prevalent arbitration clauses. They do this Continued from page 4 to prevent class action lawsuits, in it is not always possible to provide By using your card, you may be giving up which litigation is brought on behalf direct apples-to-apples comparison of multiple plaintiffs affected by the of data from one year to the next. your right to settle disputes in court same practices. Whenever possible, Consumer Ac- Class action settlements and tion includes this information in its onsumer Action’s new survey gamated Bank of Chicago) and one awards on behalf of plaintiffs can published results. finds that the top 10 card card (the AARP card from Chase) do mean that millions, even billions, Due to space considerations, we Cissuers all require binding not require arbitration. of dollars are returned to consumers cannot include details about every arbitration. The Chase AARP card doesn’t who were harmed by the question- surveyed card in the newsletter. If your card is subject to arbitration, have a binding mandatory arbitra- able practices. To find a complete list of all cards, you cannot take a to court— tion because the powerful associa- If your cardholder agreement contact information, interest rates disputes must be settled by a private tion of people 50-plus specifically contains this type of provision, it and late, over limit and cash advance panel of arbiters usually chosen by negotiated a contract that excludes means that you can’t take individual fees, visit Consumer Action’s web the company. In most cases, deci- the provision. Cards issued by credit disputes to court and that you agree site at www.consumer-action.org sions are binding—this means you unions and some small banks do not not to join any class action lawsuits and click on “CA News” on the top have no right of appeal. have binding mandatory arbitration against the company. Several state navigation bar. You may also find our Sixty-three (75%) of surveyed cards clauses. judges, including California judges, surveys using the “Select Publica- require that cardholders settle dis- The prestigious National Con- have ruled that class action bans are tion Category” pull-down menu putes in these private forums. This sumer Law Center called these unconscionable because they unfair- on the right. Pull down to “Pricing figure may be even higher—Con- clauses “the single biggest threat to ly restrict a consumer’s right to sue. Surveys.” sumer Action received 12 “don’t consumer rights in recent years, a de For more information on how bind- In addition, a full set of raw data knows” and on three cards it was facto rewrite of the Constitution that ing mandatory arbitration negatively will eventually be available from impossible for surveyors to get a undermines a broad range of con- affects consumer rights, visit the this page. If you have questions clear answer. Of the issuers who gave sumer protections painstakingly built “Give Me Back My Rights” coalition about the survey, email the Editor at a clear answer, only one bank (Amal- into law.” web site (www.stopbma.org.) ■ [email protected]. ■

Page 4 • Spring 2007 • Consumer Action News Consumer Action News • Spring 2007 • Page 5 Change of terms provisions at the top 10 credit card issuers f the top 10 U.S. credit card issuers, Consumer Action found that nine credit report information or the consumer’s record with other creditors. Capital Ohad change of terms clauses in solicitation materials that allowed changes One says it may change APRs or fees, etc. for “competitive or general eco- to existing cardholders’ account terms. Of the nine, only two (American nomic reasons,” and reserves the right to check credit history to determine the Express and Wells Fargo) do not mention a right to change terms because of level of increase, “if any.”

Name Initial change in terms disclosures Date of disclosure Chase Rates, fees, and terms may change: We reserve the right to change the account terms (including the APRs) © 2007 JPMorgan Chase & Co. at any time for any reason, in addition to APR increases that may occur for failure to comply with the terms Freedom Card. Downloaded on of your account. For example, we may change the terms based on information in your credit report, such as April 5, 2007. The disclosure the number of other credit card accounts you have and their balances. The APRs for this offer are not guar- contained this sentence: The in- anteed; APRs may change to higher APRs, fixed APRs may change to variable APRs, or variable APRs may formation about the costs of the change to fixed APRs. ... We may consider the following factors to determine the default rate: the length of card described in this form is ac- time your Account has been open; the existence, seriousness and timing of defaults; other indications of curate as of 07/05/2006. your Account usage and performance; and information about your other relationships with us, any of our re- lated companies or from consumer credit reports.

Bank of America As required by law, rates, fees, and other costs of this credit card offer are disclosed here. All account terms ©2007 Bank of America Corpo- are governed by the Credit Card Agreement sent with the card. Account and Agreement terms are not guar- ration. Downloaded on April 5, anteed for any period of time; all terms, including the APRs and fees, may change in accordance with the 2007. The disclosure contained Agreement and applicable law. We may change them based on information in your credit report, market this sentence: The information conditions, business strategies, or for any reason. contained in this advertisement was accurate as of 4/1/2007. Citi Rates, fees, and terms may change: We have the right to change the rates, fees, and terms at any time, Copyright © 2007 Citigroup. for any reason, in accordance with the cardmember agreement and applicable law. These reasons may be Downloaded on April 5, 2007. based on information in your credit report, such as your failure to make payments to another creditor when due, amounts owed to other creditors, the number of credit accounts outstanding, or the number of credit inquiries. These reasons may also include competitive or market-related factors. If we make a change for any of these reasons, you will receive advance notice and a right to opt out in accordance with applicable law. American The terms of your account, including APRs, are subject to change. The APRs for this offer are not guaran- The information in this application Express teed; APRs may change to higher APRs, fixed APRs may change to variable APRs, or variable APRs may is accurate through 3/31/2007. change to fixed APRs. We may change the terms (including APRs) at any time for any reason, in addition to Downloaded on March 5, 2007 APR increases for failure to comply with the terms of your account.

Capital One Other Reasons Your Terms Could Change: We reserve the right to change the terms of your account, in- The information about the costs cluding APRs and fees, at any time for other reasons, including changes to competitive or general eco- of the cards described is accurate nomic conditions. How Your Credit History Could Affect Your APRs: We do not ... increase your APRs as of 04/01/07. Downloaded on solely because you fail to make a payment on a loan with another lender or your credit history contains March 5, 2007. other negative information. If we ever consider increasing your APRs for any reason disclosed in the above paragraph(s), we may review your credit history to determine (a) that we should not increase your APRs, or (b) the level of the increase, if any.

Discover No change in terms clause is included in its initial disclosures of terms and conditions online. Not applicable. HSBC We have the right to change your APRs, fees and other terms at any time, for any reason including, but not © HSBC Card Services Inc. 2004- limited to, any change in your credit history, credit obligations, Account performance, use of your credit lines 2007. Downloaded on March 5, with us or any creditor, or our financal return. Any changes will be in accordance with your Cardmember 2007. Agreement and applicable law. These cards are issued by HSBC Bank Nevada, N.A. and serviced by its af- filiates, HSBC Card Services Inc. and/or HSBC Card Services (II) Inc.

Wamu We may change the APRs, fees, and other terms of your account at any time in accordance with applicable The information above is accurate law and the Account Agreement, which we will send you when your account is opened. Factors we may as of October 2006 and is subject consider in determining whether and how to change your terms include the frequency and severity of de- to change. Downloaded on March faults and other indications of risk on accounts with Washington Mutual and/or other creditors. 5, 2007.

Wells Application Agreement: You agree to be bound by the terms and conditions of the Customer Agreement This information about the cost of and Disclosure Statement, which will be sent to you, and understand that the terms of your account may be the credit card account described changed at any time, subject to applicable law. in this application is accurate as of March 2007. Downloaded from online application on March 5, 2007. US Bank Your APR may increase if you fail to make timely payments to another creditor as reflected in your credit re- This information is accurate as of port. All Account terms are governed by the Cardmember agreement sent with the card. Account and Card- 04/2007 and may change. Down- member Agreement terms are not guaranteed for any period of time, we may change all terms, including loaded on April 5, 2007. APRs and fees, in accordance with the Cardmember Agreement and applicable law.

Three surveyed issuers had tiered Penalties penalty rate policies—the first late payment triggers one increase and Credit limits are not set in stone Continued from page 1 the second results in an even higher ost cardholders find that their card issuers provide automatic the number of days in which finance punitive rate. credit limit increases on a regular basis. But this upward spiral (interest) charges do not accrue if Five issuers would raise rates after M does not always last forever—issuers also reduce credit when card- you do not carry a balance. The grace two late payments—either two con- holders exhibit certain risky behavior. period dictates the number of days secutive, two per year or two in six Fifteen surveyed banks (75%) said they employ this practice. Repre- between the close of each billing months. sentatives from three banks said they did not know if their employers cycle and your due date. Consumer Many card companies also impose used such a practice, while two banks (Capital One and Pulaski Bank Action’s survey found that among penalty interest rates when cardhold- & Trust) said credit limits were reduced only in response to a cardhold- the top 10 credit card issuers, the ers bounce a payment check or go er’s request. average grace period is now 22 days. over their credit limit. The 15 banks might reduce credit limits under these circumstances: The average among these issuers • Poor credit history or lower credit score. has shrunk by more than three days Reversing the rate • Not paying on time or going over limit. since 1995. All banks require the cardholder • Bouncing a payment check. Only three surveyed banks did not to ask for a reduction in the penalty • You become a risk. have a penalty rate (Amalgamated rate—it is not automatic. Fifteen • Your performance on the account warrants a reduction. Bank of Chicago, Arkansas National banks (75%) said they would lower • Higher debt-to-income ratio. Bank and First Command Bank). the interest rate again if the card- holder maintained a good payment Late payment triggers record. Only Everbank said it would months; one “when current;” one, decision would vary by cardholder. Five issuers (Bank of America, Citi, not. (At four banks, representatives 6-9 months, and one, 3-6 months. When asked if it was possible to get GE Money Bank, HSBC and Wash- answered “don’t know.”) Three banks (Metropolitan Na- back to the original APR, 10 banks ington Mutual) said that a payment Among the 15 banks, six would tional, US Bank and Wells Fargo) said yes and four, no. Representa- not received by a certain hour, i.e. 4 consider lowering the penalty rate said the rate might be reduced to the tives at six banks were unable to p.m., on the due date would trigger a after six months of on-time pay- original APR before the penalty rate answer the question. ■ penalty rate hike. ments; two, 12 months; two, five was imposed. Most banks said the

Page 6 • Spring 2007 • Consumer Action News Consumer Action News • Spring 2007 • Page 7 cardholders to send in more than the monthly minimum payment, which Minimum payment standards, warnings can reduce their debt and overall interest dramatically. Consumer Action also supports two would strengthen cardholders’ rights bills in Congress that would require everal years ago, federal bank a standardized method of calculating believes that alerting cardholders to a personalized minimum payment regulators directed credit the monthly minimum payment. It the effects of making only minimum requirement, Senator Daniel Akaka’s Scards issuers to make sure would also be helpful if the methods payments should become a core Credit Card Minimum Payment that minimum payments on credit used to calculate the balance were credit card disclosure requirement. Warning Act (S 1176) and Rep. Da- cards are large enough to reduce the disclosed to applicants in advance. We asked the Fed to provide each vid Price’s Credit Card Repayment cardholder’s balance and not just Historically, required minimum cardholder with a personalized dis- Act (HR 1510). cover finance charges payments generally closure of the time it will take to pay To write to your lawmaker in sup- or fees. averaged about 5% off a balance when making only the port of these bills, go to Consumer Consumer Action’s Action’s web site (www.consumer- Regulators sug- new survey found a of the outstand- minimum payment. gested, but did not ing balance, but A personalized notice specific to action.org). On the right side of the require, that credit confusing patchwork in the last decade an individual cardholder’s situation home page, click on Take@ction card companies of minimum payment minimum payment has great potential in prompting under Advocacy. ■ make customers pay calculation methods. requirements had at least 1% of the fallen to 2%. The outstanding principal decrease meant Figuring your monthly minimum payment balance every month, plus all inter- that cardholders had lower monthly est, finance charges and over-the- payments but it took much longer to limit fees. repay balances and cost sizably more American Express Greater of: (1) 2% of balance, or (2) $15, or (3) all finance Consumer Action’s new survey in interest. charges plus $15. found a confusing patchwork of min- Credit card disclosures are sub- Bank of America 1% of balance plus all finance charges and fees; or, 5% imum payment calculation methods. ject to the Truth-in-Lending Act of balance if no fees or finance charges apply. “The way the minimum payment is and Regulation Z, and the Federal Capital One calculated is not disclosed up front Reserve Board has oversight of these Greater of 3% of balance or $10. so people can’t compare offers based rules. In late 2004, the Fed began re- Chase Greater of $10; 2% of new balance; or sum of 1% of new on this information,” said Consumer viewing Regulation Z requirements balance including all new interest and fees. Action’s Linda Sherry. “This infor- concerning the format and content Citi mation should be disclosed in solici- of open-end credit disclosures and (1) past due and over limit amounts added to the greater of $20 or 1/48th of balance. (2) past due and over limit tations and other materials that are substantive protections provided to amounts added to the greater of new interest and late available to potential applicants.” consumers. Its revisions are expected fees; $20, or 1/48th of new balance. (3) past due and over Among the top 10 issuers, Con- this year. limit amounts added to the greater of $20; 1% of balance sumer Action found nine methods plus interest and late fees, or 1.5% of balance. On ac- for figuring the minimum monthly Payment warnings counts with APRs above 19.99%, add $5. payment a cardholder must pay. (See In March 2005, Consumer Action’s Discover chart with this story.) reply comments stated that the Fed 2% of balance plus outstanding fees. Citi’s policy is the most confus- should require that potential custom- HSBC Bank USA Greater of 1% of the balance plus new interest and fees, ing—the issuer has at least three ers as well as existing cardholders or $15. ways of calculating minimum pay- be clearly informed about how the US Bank, Wells ments. Citi cardholders must check minimum payment is arrived at. We Fargo 1% the balance new interest and fees, or $20. their monthly billing statements to suggested that the disclosure appear know which one applies. on solicitations as well as account Washington Mutual Varies by account. Typically includes a certain percent- Consumer Action believes it would statements. age of the balance plus all new interest, late and over benefit consumers if all banks used In addition, Consumer Action limit fees.

the legal boilerplate that gives is- will not voluntarily increase the rates What can you do if your terms are Change in terms suers the right to change APRs and and fees of the account until the changed? In most cases, not much. other key terms at will—at any time, card expires and a new card is issued If you reject the change, usually you Continued from page 1 for any reason. (typically two years). Now, the only will be asked to close the card and In early March, Consumer Action reason the rates and fees will in- pay off the balance in full. checks or over limit transactions – on visited the web sites of the top 10 crease before the card expires is if a Consumer Action found that a that card issuer’s account. U.S. card issuers to review change of customer pays Citi late, exceeds the few of the surveyed banks (Capital All of the top ten U.S. card issuers, terms disclosures. Only one (Discov- credit limit or pays with a check that One, Chase and Citi) offer the right and most other issuers, have “de- er) did not include a change of terms bounces. [Rates linked to the] prime to “opt out” of the change. Opt out fault,” or penalty rates and terms for notice. American Express and Wells rate would change only as the prime means that you can reject the change cardholders who miss payments or Fargo feature change of terms provi- rate moves up or down.” and, under certain circumstances, otherwise fail to honor the compa- sions but do not include any refer- “This is meaningful change for Citi pay off the remaining balance under ny’s contract (cardholder agreement). ence to credit reports or scores as a cardholders,” said Sherry. “We hope the old terms, even though the ac- All top 10 issuers state that they may reason to change the terms of the other banks decide to follow Citi’s count is closed and you can’t use the increase interest rates if cardhold- cardholder agreement. (See the chart lead and get rid of unilateral change card. Citi allows you to continue to ers pay late. Most also will impose on page 6 for change in terms disclosures in terms provisions.” use your credit card (under the old penalty rates for exceeding the credit for the top 10 issuers.) terms) until the card expires. limit or bouncing a payment check. “Very few card companies will Notification Customer service representatives at admit to the universally decried Your cardholder agreement, the Federal ‘opt out’ law? 20 surveyed banks were asked: “Do practice of universal default,” said legal document that arrives along “Many consumers believe that opt- you raise my interest rate because Linda Sherry, Director of National with your credit card, is a binding out is protected by federal law,” said of my credit record with other credit Priorities at Consumer Action. “But contract. By signing, validating and Sherry. “While a few states require cards or lenders?” At the time of the it’s compelling that nine out of the using a new card, you are agreeing it, there is no national rule. Basi- survey it appeared that Chase, Citi, top 10 issuers reserve the right to to the terms. But most banks reserve cally, national credit card issuers set Commerce Bank, Discover, Ever- change the terms of your cardholder the right to change your terms at any the rules and you have to live with Bank, Franklin Templeton Bank agreement at any time, for any rea- time, for any reason. them.” & Trust, GE Money Bank, HSBC, son, including in many cases, explicit Federal law requires that advance Rep. Mark Udall (D-CO) has Metropolitan National Bank and US references to credit information.” notice of material changes in terms introduced a bill to protect consum- Bank would raise cardholder APRs Citi, the third largest card issuer, be mailed or delivered to you at ers from abusive practices—and give based on information from credit just this year promised to remove least 15 days prior to the effective them the right to reject an adverse reports and credit scores. unilateral change of terms provisions date. However, there is no require- change in terms without having to (As our surveying wrapped up, Citi from its cardholder agreements. On ment for advance notification if the pay off the balance immediately. HR announced it will drop universal March 1, the issuer stated: change is the result of something the 1461 would help control anti-con- default.) “Citi is also eliminating ‘any time cardholder is perceived to have done sumer credit card practices such as Change of terms for any reason’ increases to the rates wrong—including paying late, going universal default and would require and fees of its customers’ accounts. over credit limit, bouncing a pay- greater disclosure to consumers Consumer Action advises cardhold- Traditionally, credit card issuers ment check or allowing your credit about interest rate hikes and fees. ers to look beyond the default rates have taken the position that they history to deteriorate. You can support this bill and oth- disclosures, to clauses in the fine can increase the rates and fees of a Of the 20 banks surveyed, most ers like it by visiting our web site print of solicitations and cardholder cardholder’s account at any time for provide notification of change of (www.consumer-action.org) and agreements commonly labeled any reason...” terms in a letter, bill stuffer or state- clicking on Take@ction on the right change of terms provisions. This is “As a result of the new policy, Citi ment message. side under “Advocacy.” ■

Page 6 • Spring 2007 • Consumer Action News Consumer Action News • Spring 2007 • Page 7 to “pay to pay” your bill over the Lawmakers eye ‘embarrassing’ credit card phone. Levin also groused about grace periods that only apply to people who do not carry balances industry practices at several hearings and the fact that added fees and interest charges push many cardhold- By Ruth Susswein At the hearing, Chase publicly payments to other companies and ers to exceed their credit limits—for apologized to one cardholder it creditors. which they are then charged an over redit card issuers have been buried in debt by charging him 47 Citi also said it will no longer limit fee. on the hot seat in Congress separate over limit fees on the same reserve the right to change card- At the Jan. 25 hearing, Senate this spring. Since the 110th original balance. His holder terms at any time, but would Banking Committee Chair Chris C Dodd (D-CT) warned issuers that he Congress opened in January under had tripled even though he made wait until the card’s expiration date Democratic control, there have been steady payments and no new charg- to change terms except when card- was “putting the credit card industry three Congressional hearings focused es. (See “Congress spotlights unfairness holders pay late, bounce a payment on notice” to clean up some of its on credit card industry practices. In of over limit fees” below.) check or go over limit. “embarrassing” practices if it wanted January, the Senate Banking Com- A Bank of America executive to avoid legislation that would force mittee held the first, followed by a Issuer concessions admitted that credit card disclosure it comply. January’s credit card hear- Senate Permanent Subcommittee on Chase, which at an earlier Senate statements are “impossible for the ing focused on penalty fees, includ- Investigations hearing in March and hearing this year had agreed to stop average person to understand.” ing hair-trigger late fees, and unfair a House Subcommittee on Financial using a decep- Subcommittee billing and marketing practices. Harvard University Professor Eliza- Services and Consumer Credit hear- tive interest rate No one has to be an engineer Chair Senator method called beth Warren testified that the credit ing in April. to buy a toaster...it’s time for Carl Levin (D- two-cycle billing, Michigan) said he card market is laced with “tricks and CA testimony said it will not a national safety standard for welcomed these traps” and called for a national safety Consumer Action’s Director of charge for more credit cards as well. reforms. But he standard. National Priorities Linda Sherry tes- than three over — Elizabeth Warren, said strongly that Warren, who has written studies tified at the April 26 House hearing limit fees in a Harvard University he was unim- and books on Americans and debt, about hidden terms and conditions row. pressed with the argued that consumers couldn’t tell a that credit card issuers divulge only A few days card chiefs’ justi- safe card from a dangerous one. after a consumer applies for credit. before the hearing, another top 10 fications for the punitive practices. “No one has to be an engineer to She highlighted the unfairness of issuer, Citi, announced that it would buy a toaster…or a crash expert to a common anti-consumer practice: eliminate the use of “universal Unfair ‘pay to pay’ buy a car,” she said. “It’s time for changing the terms of the credit card default”—raising your interest rate Levin scolded some card com- safety requirements for credit cards ■ contract in mid stream, even when because a credit review reveals late panies for charging a $5 to $15 fee as well.” a cardholder has a spotless record with that company. “Consumer Ac- tion regularly hears from consumers who see their interest rates spike to Hurricane-hit using more than 30% APR because they Congress spotlights unfairness of carry higher balances on other cards repeat nature of over limit fees credit to pay bills or have too many new accounts,” Sherry told Congress. ver limit fees can be assessed every month until your balance is wo years after Hurricanes Ka- Ttrina and Rita ravaged thou- Legislation? Obrought under limit. The unfair nature of over limit fees was exam- ined at a hearing of the Senate Homeland Security and Governmental sands of homes, most Gulf area hom- “Cardholders have no way of Affairs’ investigative subcommittee on March 7. eowners continue to wait for rebuild- knowing what the terms on a credit At the March 7 hearing, a consumer witness, Wesley Wannemacher of ing dollars promised by government card will actually be until the card Lima, Ohio, recounted how he was hit with over limit fees 47 times on officials and private insurers. While arrives in the mail,” said Sherry. his Chase card when he went over his $3,000 limit by $200. His $3,200 they wait, homeowners still must Subcommittee Chair Carolyn balance skyrocketed to $10,700 with interest and penalty fees. find a way to make ends meet. Maloney (D-NY) warned that “if At the hearing, Chase CEO Richard Srednicki apologized publicly to To learn how these homeowners industry fails to make meaningful Wannemacher. “In this case, we simply blew it,” he said. Wannemacher are faring debt-wise, Consumer Ac- changes” to some of its worst prac- used a new Chase card in 2001 and 2002 to pay for his wedding. tion invited Gulf Area community- tices, legislation may be the solution. According to a chart shown at the Senate hearing, on $3,200 in pur- based organizations working directly No credit card company execu- chases Wannemacher was charged $4,900 in interest, 47 over limit with hurricane affected homeowners tives testified at the House hear- charges totaling $1,500 and late fees of $1,100. On his February 2007 to participate in a survey. ing—a representative of the Ameri- statement, the total charges were $10,700. Wannemacher paid off $6,300 Eighteen community groups, rep- can Bankers Association appeared of this balance. resenting thousands of homeowners instead. Just days before the Senate hearing in March, Chase contacted him from Alabama, Louisiana and Mis- On March 7, the Senate Permanent to say it would waive the remaining $4,400 balance. Wannemacher told sissippi responded with information Subcommittee on Investigations lawmakers that he did not believe this was a coincidence. about how homeowners are coping questioned CEOs from three of the In its current survey, Consumer Action found 79 cards (94%) with over with their debts. nation’s leading credit card compa- limit fees. Over limit fees range from $20 (Amalgamated Bank of Chi- About two thirds of the respon- nies about their practices. The card cago) to $39 (Capital One, Citi, Chase, Bank of America, Discover, GE dents said homeowners are using chiefs tried to defend some of their Money Bank). The average over limit fee is $29.69. credit cards as one method of paying companies’ most punitive practices, Sixty cards have a flat over limit fee, ranging from $20 to $39. Nine- monthly bills. Just over half (55%) such as penalty interest rates, hid- teen cards have tiered fees tied to cardholder balances. The average say that Gulf homeowners are mak- den fees and moving-target rules over limit fee on the tiered rate cards is $25.72. ■ ing at least the minimum payment that only change to benefit the card on their credit cards each month. issuer. About 38% “sometimes” make the minimum payment. According to the providers, the majority of homeowners who can’t afford to pay the monthly minimum  are ignoring their debts. Others Join Consumer Action are filing for bankruptcy. Some are Consumer Action depends on the financial support of individuals. CA members receive a subscription to CA News. New borrowing from friends and rela- members also receive How to Complain. In addition, members have the satisfaction of supporting our advocacy efforts in tives, and some are turning to costly California and nationally, a free hotline and the distribution of more than one million free educational brochures a year. payday loans. Nearly three quarters (72%) of $25, Regular Membership. those surveyed say homeowners are $35, Regular Membership (first class mailing). $15, Senior or Student Membership. still waiting for federal funds. Sixty- $10, Low Income Membership. one percent of homeowners say $50, Corporate Subscription (first class mailing, and all CA press releases). they’ve had no state assistance for Donation to CA’s Publication’s Fund, supporting the free distribution of CA materials to consumers. rebuilding, and two-thirds have had no help from private insurance. Name Address For a list of free resources designed City State ZIP to help hurricane affected homeown- ers prevent foreclosure, go to our E-mail address web site (www.consumer-action.org) and enter “Disaster Relief Resourc- Mail to: Consumer Action, 221 Main St., Suite 480, San Francisco, CA 94105. Donations are tax-deductible. es” in the search field. 05/07 — Ruth Susswein

Page 8 • Spring 2007 • Consumer Action News