Consumer Reports Investigation Finds Some Credit Card Issuers Predatory

Thanks to cozy relationships that have developed over the years among lawmakers, federal regulators, and credit card issuers, getting trapped in the jaws of credit card debt has become alarmingly easy. A Consumer Reports investigation in the November 2005 issue of the magazine — http://www.ConsumerReports.org?source=CR22 — finds that credit cards have become much more treacherous for consumers. The investigation reveals that credit card issuers have imposed interest rates in excess of 30 percent on consumers whose only offense might be a late payment to another creditor. The report also exposes other practices by issuers of credit cards that pose hazards for consumers, including:

• Battered card holders with fees and penalties that now often hit $39.

• Reduced grace periods when new purchases are free of interest.

• Lobbied successfully to weaken protections for cardholders.

• Increased fees for tardiness and for going over the credit limit.

• Reduced minimum payments, thereby increasing the debt.

Unfortunately for consumers, there have been no limits on interest rates for years, so a temptingly low 1.9 percent APR can morph into double-digit territory at the whim of the credit card company. Or worse, it can climb beyond 30 percent when a consumer does nothing more than sign up for a new credit card, inquire about a car loan, or make a single late payment to any creditor.

“Consumers are sometimes offered a 0 percent introductory rate, but they may not realize that it only applies to transferred balances,” says Marlys Harris, finance editor at Consumer Reports. “Then they pile up purchases which accrue interest at, say, 18 percent a year.”

Even consumers among the 45 percent of cardholders who pay balances in full each month are not off the hook either. As interest rates rise, issuers of credit cards are seeking ways to eke out income from them by charging additional fees for services or penalties for dormancy.

Unfortunately, there is little help for consumers. About 45 percent of credit card issuers force customers to submit disputes to arbitration. Regulators aren’t likely to be of much help either. The majority of credit card issuers are overseen by a government agency funded by the industry.

For now, the greatest power that consumers have is their own hands. In addition to supporting consumer-friendly issuers, Consumer Reports suggests the following tips:

• Choose carefully. Start by reading the table of the 10 most consumer-friendly credit cards in the November 2005 issue of Consumer Reports.

• Examine the offers. Scan the Schumer box, named for Sen. Charles Schumer, D-NY, who sponsored a law mandating disclosure of all rates in a type size that consumers can read.

• Negotiate better terms. If the credit card imposes a late fee or a rate hike, ask for a waiver.

• Pay on time. Mail payments are soon as they arrive.

• Complain. Register a complaint with your state attorney general. Contact information is available at http://www.naag.org.

The 10 Most Consumer-Friendly Credit Cards
CardWeb.com, a leading source of data on the credit card industry, analyzed 10,200 offers to identify those with the lowest cost in a group that provided the best terms, based on CR’s criteria. None of the 10 cards has a universal default clause, two-cycle billing, or balance transfer fee, all of which can jack up finance charges.

The following lists Cards, followed by their Bank, Intro APR, Go-to APR, and Cash Adv. Fee, respectively:

Platinum MasterCard: Town North, None, v. 7.99 pct., 2 pct.

Visa Platinum: First Tennessee, f. 3.90 pct., v. 8.40, 3

Visa Gold: Pulaski, f. 0.00, v. 8.50, None

Visa Platinum Rewards: Simmons First National, None, f. 8.95, 3

Target Visa: Target National, None, f. 9.90, 3

All credit cards have a grace period of at least 25 days and have no annual fees. The information is current as of August 1, 2005. An “f” indicates that the credit card has a fixed rate; “v,” a variable rate. Rates are the lowest offered to customers who meet issuers’ credit-score standards. The “go-to APR” takes effect at the end of the promotional period.

The complete list of the 10 credit cards is available free of charge for 1-month on: http://www.ConsumerReports.org?source=CR23 from October 4 to November 4, 2005.

The November 2005 issue of Consumer Reports goes on sale Tuesday, October 4th wherever magazines are sold.