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New Study Cites 'unfair and deceptive' Credit Card Practices

Ylan Mui

A new report from the Pew Charitable Trusts details the extent of some of the “unfair and deceptive practices” by credit card companies.

The year-long study by Pew was led by the former CEO of a credit card company and involved more than 20 credit card providers and consumer groups. It looked at credit cards offered online by the 12 largest issuers, which control more than 88 percent of outstanding debt in the country, and covers roughly 400 cards. Here are some highlights from the report:

* 93 percent of cards allowed the credit card company to raise your interest rate at any time by altering the account agreement.
* 87 percent of cards could raise the rate on all of your balances even if you are not 30 days past due. The average penalty rate was 27.99 percent.
* In one year, credit card companies raised rates on about 70 million accounts — about a quarter of all open accounts. That has resulted in about $10 billion in additional fees and charges.

In December, new federal regulations were issued that impose sweeping changes in the credit card industry, limiting these so-called “unfair and deceptive practices.” But those rules don’t take effect until 2010, so this week both the House and the Senate are looking at legislation that would enact similar rules before then. Maryland is also considering a bill that would ban such practices in the state.

But credit card companies — and even the Federal Reserve — say it simply is not possible to overhaul the industry before the 2010 deadline.

We have a love-hate relationship with credit cards. They allow us to enjoy a new flat-panel TV as soon as we want it — and even get a few airline miles in the process! But we all cringe at the interest rates if that TV turned out to be more than we could really afford.

These are some of the most important financial issues facing consumers today, particularly at a time when money is tight all around. Folks are being forced to live off their credit cards when they get laid off and others say they are being overwhelmed by penalty rates and fees.

What do you think should happen and what has been your experience with your credit card company? How flexible, or not, have they been?

By Ylan Mui  |  March 31, 2009; 12:46 PM ET
Categories:  Ylan Q. Mui  
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After hearing tons of stories about credit cards raising interest rates, not to mention lowering credit lines, I wasn't surprised when I got a notice that my credit card was raising my interest rate one point. Since I had already decided to transfer the balance to another card with 0% interest for 12 months so I could pay it off faster, I wasn't concerned. What actually surprised me was when I got my next statement(the transfer had not taken effect yet) my interest had actually been LOWERED by one percent.

Posted by: milesdy | March 31, 2009 4:04 PM | Report abuse

Unless something is done to restore faith in the credit card companies, people would be best to consider them lenders in the same category as loan sharks and pay day loan firms...that is to say, lenders that prudent people would just not use...not even in a layoff...not even to put food on the table.

You can certainly use your card to purchase things but only if you can pay it off in full. They are just not reliable lenders if they can unilaterally change the terms and add fees at will. Who would accept this behaviour from an issuer of auto, school or home loans?

An unsecured line of credit from the bank or credit union might be harder to obtain, but once you have it, the terms are set and the fees are clear.

Posted by: Alice1231 | March 31, 2009 4:54 PM | Report abuse

My only experience with a dud card company (Bank of America) - I wrote the wrong amount on a check which left a tiny balance - ($1.39 more or less). I had been a good customer for 25 years but they raised by interest rate on the $1.39 to 111%. When I called to complain and read them the bill they told me I was wrong. Wrong reading, wrong seeing, who knows? So I canceled my card. I still get more free cards in the mail then I want so I don't need to do business with idiots. And they must really think that we are idiots.

Posted by: tiredtaxpayer1 | March 31, 2009 5:07 PM | Report abuse

I have only two credit cards and use one of them not at all. The other has been paid off every single month for the five or six years that I have had it, and I have never had even one late payment on it. The rest of my credit history keeps my credit score in the very highest range.

Six weeks ago, I received a notice saying that the interest on my card was being raised to almost 20% "because of the current economic conditions." When I called to question the change, I was actually read a script that apologized but then said the same as the letter, that changes had to be made because of the economy. I call it a script because I received, almost word for word, the same response from two different service reps and the first supervisor I was finally able to talk to. After a "manager" again began to offer the same speech, I gave up.

I use this card because I am able to earn travel reward points without an annual fee, but I am amazed that interest rates this high are now being placed on those of us with solid credit histories. I can only cringe when I think of what someone who actually carries a balance every month must be paying.

Posted by: hsl2000 | March 31, 2009 9:03 PM | Report abuse

We've been paying off all our credit cards, only have some 0% left which we can remove immediately by using savings. We are in our sixties, looking old age in the face. Our plan is to get rid of all but one card. Should either of us be hospitalized the other one will immediately cancel that card. Our local hospital otherwise will insist we put the bill on our credit card, something we are not willing to do. Once it's on your card it becomes "consumer debt," on a par with "you foolish people, you bought too many electronic goodies so now you can suffer." They've jiggered the bankruptcy laws now so you still have to pay off credit cards. Fair enough if it really *was* encountered via making foolish purchases but we'll be darned if we're going to allow anyone to paper over the truth if we get driven to the poorhouse because of a medical crisis.

Posted by: quacker | April 2, 2009 10:37 AM | Report abuse

A good topic for a future article might be a discussion of what "average" finance charges, fees, and rates should be. And tips/skills to use to contact the companies to reduce them.

Also, perhaps a listing of credit cards considered good, and those considered bad deals.

Finally, comparing the benefits of a high-fee card vs. the credit rating benefits of an established credit card. To cancel or not.


Posted by: rpike | April 2, 2009 10:50 AM | Report abuse

Also, perhaps a listing of credit cards considered good, and those considered bad deals.

Finally, comparing the benefits of a high-fee card vs. the credit rating benefits of an established credit card. To cancel or not.


Posted by: rpike

rpike, try that's were I went when I was shopping for a new card to transfer my last cc balance.

Posted by: milesdy | April 2, 2009 11:10 AM | Report abuse

Most aggravating to me: I finish paying off the balance one month, say January, and in February, I get a bill for January's interest. Even my credit union card pulls this one.

I suspect hsl2000's interest was raised precisely because he/she has been collecting points without paying any interest or fees. The credit card company is making up for the lack of profit by being ready to pounce as soon as hsl2000 is late with a payment.

Posted by: magicdomino | April 2, 2009 11:40 AM | Report abuse

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