Tuesday, March 18, 2008

Some of the Tricks and Deceptions You'll Find in Creditcard Agreements

You have read about the tricks creditcard issuers play, here is a list of some of them:

  1. Constantly advancing due dates each month and other due date tricks. (Bankrate.com survey found nearly half of all credit card holders missed payments in 2006, the latest info available.)
  2. Double-cycle billing, collecting interest on balances already paid
  3. imposition of repeated fees for one single credit limit violation
  4. Always applying payments to lower interest balances first, regardless of what came first.
  5. Disclosure requirements are used to obfuscate, not to inform.
  6. The typical agreement is over 30 pages of incomprehensible text, to discourage anyone from reading it, or understanding it.
  7. Referencing complex and technical terms referring to interest rate calculations for pages, only to conclude that they reserve to change the terms at any time for any reason.
  8. Bank of America, Capital One, Citibank, and J.P. Morgan Chase have all testified before congress that they will not engage in universal default, yet in Feb. 2008 issue of Money magazine observed the five major issuers (80% of the market) officially practiced it.

The agreements violate basic contract law, yet the courts will still enforce these provisions.

  1. Using universal default and any-time, any-reason re-pricing.
  2. Not giving fair notice of interest rate increases
  3. Refusing to let card applicants read the terms of the agreement before the card is issued, and hiding material terms from the language of the agreement through open ended clauses.
  4. Redefining the ordinary meaning of terms such as "fixed rate" and "prime rate" to deceive cardholders with hidden meanings.
  5. Unlimited ability to change the credit limit without the consent of the customer.

(Most of this data is taken from Elizabeth Warren's Testimony before the House Representatives March 13, 2008.)

Sound reasonable enough to carry a credit card? Think they'll never enforce those terms? Think again. These companies will charge a late fee for a payment that is one day late, default the account under universal default terms, and raise the interest to the default terms. If that puts the account over its credit limit, they charge over limit fees - all for a payment that is credited to the account one day late, sometimes at the negligence of the creditcard company themselves.

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