The Addition of Universal Default Clauses To Cardholder Agreements
and Increases In Credit Card Fees Often Go Unnoticed
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The Addition of Universal Default Clauses To Cardholder Agreements
and Increases In Credit Card Fees Often Go Unnoticed

San Diego, CA - Hardly a month goes by when credit card holders receive their monthly billing notices, there are some subtle changes being made to their accounts and announced on one third of a page to fit the envelope. In small type issuers explain the changes in the terms and conditions of the cardholder agreements. Hardly any cardholder reads these notices and the issuers know it, so there is another clause, which states that the cardholder's use of the card, after receiving notice of the proposed changes, is indication of agreement to same.

The Federal Deposit Insurance Corporation (FDIC) issued a consumer alert about theses changes going on in the industry. The FDIC's alert reads:

"Credit cards offer great convenience to consumers, but that convenience comes at a price. In recent years, card issuers have raised or added new fees for their products and services. While these costs are described in the mailings and card agreements (contracts) consumers receive from card companies, too many people forget about these fees or aren't aware of them until after they've run up a sizable bill. FDIC Consumer News asked Janet Kincaid, a credit card specialist with the FDIC in Kansas City, for examples of fees that are becoming more common or more costly, yet still go unnoticed by many cardholders:

Monthly maintenance fees. Rather than charge an annual fee, some lenders impose a monthly fee, often from $6 to $12 a month, whether you use the card that month or not. "Many people don't blink twice over $6 a month - it doesn't seem so bad," Kincaid says. "But if they stopped to think that they're paying $72 a year just to be able to carry a card, they'd realize they could have done better by paying a lower annual fee."

Balance transfer fees. You've probably received mail from a credit card issuer trumpeting a "can't-beat-this" low Annual Percentage Rate (APR) of, say, 2.9 percent on any balance you transfer to that card from a competitor's card. But, there also could be a fee for the balance transfer that could outweigh the benefit of the low interest rate. In addition, there may be no grace period on the balance you transfer. "Interest often begins accruing the moment the balance transfer is completed," Kincaid explains. "Even if you paid off the balance by the due date, you may still incur interest charges."

Suppose you transfer a $100 balance at a special 2.9 percent APR to a card that otherwise charges a 15 percent APR, and you already have a $200 balance on that card from your previous purchases. Then let's say you send in a $50 card payment at the end of the month. It's important to know how that $50 payment will be applied. Will the payment go to reduce the "old" high-rate $200 balance or the "new" low-rate $100 balance you transferred? "The card issuer can decide how to allocate your payment, and unless you know the card issuer's policy by calling the company or checking your card agreement, you can assume the procedures will benefit the card issuer," Kincaid says.

Cash advance fees. When you use your credit card to get cash from an ATM, that's considered a loan, and you will incur interest charges immediately, without a grace period. But in addition, you may be charged a transaction fee by both the financial institution that holds your credit card and by the bank that owns the ATM you're using. The fee can either be a flat dollar amount or a percentage (perhaps three percent) of the cash advance. The fee can make a simple cash withdrawal fairly expensive. (See the related story about ATM fees.)

Fees for late payments. If you mail in your payment too close to the due date and miss the deadline, you could face a late-payment fee. These fees have increased in recent years from about $15 to as much as $29. You may face other penalties, such as having your interest rate raised or your card canceled. Here's another alternative to mailing a payment late: Consider calling your card company to authorize it to "debit" (deduct) your payment directly from your bank account before the deadline. "This convenience will cost you more than a postage stamp, usually as much as $10," says Kincaid, "but it's usually a better, cheaper option than paying late and incurring a penalty."

Fees for sending in less than the minimum monthly payment. Suppose you're expected to pay at least $50 for a card payment but you only have $25 available, so you send it in anyway. "Yes, you've made a payment," Kincaid says, "but anything less than the minimum can be considered a late payment, subject to a late-payment fee." Again, those fees have increased to as much as $29 at many institutions. And, because an insufficient payment is considered a late payment, you could be subject to other penalties, such as having your interest rate raised or your card canceled." (end FDIC)
Summary:

ICFE recommends consumers carefully read and understand the entire credit card offer before commit to anything. Next, monitor monthly billings or other mailings for notices of fee increases or rule changes by credit card issuers.
New rules from the Federal Reserve Board also will make it easier to see and understand key information about the card's costs on the applications and solicitations.

Example: Card companies will soon have to clearly disclose the APR for purchases charged to a credit card and other changes, like adding Universal Default, in 18-point type.
 

 
 

About the ICFE:

The Institute of Consumer Financial Education (ICFE) was founded in 1982 by the late Loren Dunton (creator of the Certified Financial Planner (CFP) designation).  The ICFE is dedicated to helping consumers of all ages to improve their spending, increase savings and use credit more wisely. 
The ICFE is an award winning, nonprofit, consumer education organization that has helped millions of people through its education programs and Resources. It publishes the Do-It-Yourself Credit File correction Guide, which is updated annually. The ICFE has distributed over one million Credit/Debit Card Warning Labels and Credit/Debit Card Sleeves world wide.

The ICFE became an official partner with the Department of Defense/Financial Readiness Campaign in June of 2004.The ICFE was an active partner in the California Student Debt Resource Awareness Project (CASDRAP) which resulted in a new web site: (studentdebthelp.org).  CASDRAP disbanded in 2010, shortly after the web site project was completed.  In 2011 the ICFE assumed the single sponsorship of the (studentdebthelp.org) web site and is now responsible for its content and operation.

The ICFE is also an on-line help for consumers who spend too much.  ICFE's spending help was featured in PARADE Magazine in the Intelligence Report section. The money helps and tips are from the ICFE's Money Instruction Book, our course in personal finance.

Visit the ICFE's other web sites at: www.financial-education-icfe.org and studentdebthelp.org.  Both sites helps consumers and students with mending spending, learning about the proper use of credit, budget and expense guidelines, how to set up and implement a spending-plan and also how to access financial education courses and how to teach children about money. Other ICFE services include: Ask Mr. G,  a free eNews, and an online resource center for students, parents and educators, plus financial education learning tools and a book store.

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