Plunging consumer credit spawns deceptive new credit card fees

a mailbox overflowing with junk mail

Consumers are paying down their credit card debt and avoiding new charges, so always open your mail and read the fine print from credit card companies busy creating new ways to gouge their customers. Flickr photo.

Consumer credit dropped in May much further than was forecast, with the decline led by significant drop in credit card debt. Credit card delinquencies fell to their lowest rate since 2002. As Americans save more and borrow less, desperate credit card companies are coming up with new ways to gouge customers. New credit card rules aimed at curbing the usurious behavior of credit card companies may be giving consumers a false sense of security.

Consumer credit drop exceeds forecast

A Federal Reserve report released Thursday showed that consumer credit dropped at an adjusted annual rate of 4.5 percent in May–the fourth consecutive month of declining credit.  Revolving debt, which includes most credit card debt, dropped by 10.5 percent ($7.3 billion) in May, according to the Fed’s report. Non-revolving debt, including car loans, fell by $1.8 billion in May. Business Week reports that economists’ projections in a Bloomberg survey ranged from a decrease of $5.2 billion to an increase of $2 billion in May. Consumer credit has increased only twice since the end of 2008. Consumer spending, which accounts for about 70 percent of the economy and is what America is counting on to revive the economy, will be weak as Americans pay down their debt.

Credit card delinquencies also drop

Credit card delinquencies are declining right along with consumer credit. The American Bankers Association (ABA) reported that late payments for bank credit cards fell in the first quarter to the lowest level in eight years. Market Watch reports that bank card delinquencies–card payments at least 30 days overdue, fell to 3.88 percent of all credit card accounts in the first quarter, compared with 4.39 percent in the fourth quarter of 2009. The credit card delinquency rate, the lowest its been since the first quarter of 2002. The ABA reported also said that overall consumer loan delinquencies declined, but only job creation will bring further improvement.

New credit card rules are to be broken

Credit card companies are seeing revenues decline. But even with new credit card rules designed to protect consumers going into effect next month, credit card companies are trying harder than ever to burn customers with creative new fees. CNNMoney.com reports that banks will be able to get around many of the new rules. For example, new rules cap late fees at $25 and do away with inactivity fees, but now more credit card companies are charging annual fees.

Credit card companies hope you won’t notice

When it comes to the new credit card rules, consumers may think that credit card companies can’t raise interest rates on existing cards anymore. But in reality, they can do anything they want with new balances, as long as they give 45 days notice. If your credit card company sent you a letter that you didn’t open a while back and you see your interest rate skyrocket on your latest charges, that’s what happened. Plus, credit card companies can still cut credit limits and close credit cards without advance notice, which will really hurt a credit score.

Always open credit card company mail

Other credit card companies have recently hiked balance transfer fees, cash advance fees and foreign transaction fees. Gerri Detweiler, personal finance advisor at Credit.com, told CNN that read the mail you get from your credit card company is more important now than ever. Don’t automatically assume its junk mail, because you’re only going to have the 45 days to opt out if you actually read the fine print. And as credit card companies become more desperate, they will not only raise existing fees but create all kinds of new fees.

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