With credit reform, credit card offers are getting more deceptive

a big pile of mail

Credit reform restrictions on deceptive lending have triggered an explosion of credit card offers loaded with fine print intended to trick consumers into paying penalties and interest. Flickr photo.

Credit card reform doesn’t mean consumers can relax and feel protected. Now more than ever people need to be wary. The credit card reform act of 2009 is cutting into some of the more underhanded credit card scams from financial institutions. So now those institutions are just trying harder to sign people up for credit card debt than they ever have. And they’re looking for more ways to make money with new fees, shorter grace periods and higher late fees. Credit card users need to read the fine print on applications and read statements carefully when they receive them.

Credit card offers exploding

Credit card companies are as hard to control as noxious weeds. Even with a terrible economy, the credit card reform act of 2009 has credit card company marketing efforts in overdrive. According to Synovate Mail Monitor, which tracks direct-mail offers, credit card spiels to U.S. households increased 29 percent during the first quarter of 2010. Some credit card companies more than doubled their efforts. Some of the largest ones are downright predatory in the fees they come up with to charge customers more.

Credit card scams

Issuers have many creative credit card scams. Many say they price late fees for risk. But a new report from the Center for Responsible Lending shows that late fees have nothing to do with the credit card company’s potential loss. The report said late fees aren’t pegged to the risk a borrower might default on their credit card debt. Instead, nine of the top 10 characteristics of credit card companies who charge high late fees are other unfair or deceptive practices. One tactic is imposing a much higher interest rate if a customer pays just a day late. Another tactic is to set the payment deadline for early morning on the due date.

Credit card late fees, and more

Credit card late fees are just the tip of the iceberg. USA Today reports that other tricks to watch out for include balance transfer fees, shorter introductory offer periods, and the fine print about annual fees on rewards cards.

Balance-transfer fees: Credit card companies offer 0 percent introductory rates to transfer balances to a new card. But increasingly, they’re charging fees of up to 5% on the amount transferred, with no cap. That means transferring a balance of $20,000 could cost up to $1,000.

Shorter introductory offers: Some credit card companies offer 0 percent interest for up to 18 months, but a six months is becoming much more common. The credit card reform bill prohibits credit card companies from offering introductory rates for less than six months. Card holders must be realistic about whether they can pay off the balance before the offer expires. Plus, if the payment is a day late, credit card companies will cancel the introductory rate.

Annual fees: More rewards cards are coming with annual fees, especially airline credit cards. These companies are making airline mile calculations a lot more complicated. A free airline ticket may seem worth the annual fee, but accumulating enough miles to buy a ticket could take years. It’s very difficult for average leisure travelers to justify the cost of a mileage card. Some rewards cards will withhold rewards because of a late payment and demand a reinstatement fee to reclaim the rewards.

Everything costs more with credit cards

Credit card offers are exploding because of the credit card reform act of 2009. But assuming more credit card debt in a poor economy is a bad idea. Smartmoney.com reports that when the economy is struggling, the value of goods and services falls relative to the value of money. That situation puts people with a lot of credit card debt between a rock and a hard place. As the price of everything from automobiles to airfare falls, so does their value when they’re purchased with credit cards. When a product is charged on a credit card, the ultimate price paid for it rises as the product loses value, and that doesn’t include interest.

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