Outside editorial: Taking credit

Posted: Thursday, August 12, 2010

The following editorial first appeared in the Philadelphia Inquirer:

Consumers beware: Credit-card companies already are finding ways around the new law designed to crack down on their tricky fees and hidden charges.

The Credit Card Accountability Act of 2009 was intended to stop lenders' unfair practices, such as jacking up a cardholder's interest rate without warning or shortening billing cycles. For the most part, the law is working.

But credit-card companies have been busy creating new ways to gouge their customers legally. For example, a study by Pew Charitable Trusts found that the median annual fee on bank credit cards rose 18 percent, to $59, from July 2009 to March.

During the same period, credit unions' annual fees for cards jumped 67 percent, to $25. Fees for cash advances and balance transfers went up an average of 33 percent. J.P. Morgan Chase, for example, raised its balance-transfer fee from $2 to $5.

Banks are also flooding the marketplace with offers for so-called "professional" cards, which are like corporate cards but are subject to the same terms as regular consumer credit-cards. The catch is that they're not covered by the new law.

The law was designed to simplify credit-card rules, but transparency is still a problem. Some companies have stopped informing customers about penalty interest rates while still reserving the right to impose them.

Other credit-card companies aren't telling consumers what actions will trigger a penalty rate increase - information cardholders are entitled to by law. Pew found that at least 94 percent of bank cards and 46 percent of credit-union cards call for interest rates to rise as a result of late payments or other infractions. But about half of them don't disclose what the penalty rate is, or how high it can go.

Such actions should be a prime area of interest for President Obama's yet-to-be-named nominee to head the new Bureau of Consumer Financial Protection. The agency was created in legislation to provide tougher regulation of Wall Street.

Despite these reemerging problems, the Pew study found that most of the industry's unfair or deceptive practices have disappeared since the new law took effect. Issuers have eliminated "hair-trigger" penalty-rate increases for minor violations by cardholders.

Fees for going over your card's limit are not charged as often as they were before July 2009. Less than 25 percent of credit cards now charge them, compared with 80 percent before the law took effect.

Staying one step ahead of the credit-card industry is a full-time job. Consumers can still be their own best ally by keeping themselves informed of the terms of their agreements, and guarding against loopholes in the new law.



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