Tactics Credit Card Companies Use to Cheat Their Customers (continued)
Universal default -- When you apply for a credit card, you are asked to agree to all the terms and provisions in the credit card agreement before you will be issued a credit card. One of the provisions in that credit card agreement is commonly referred to as the "universal default" provision. Universal default means that the credit card issuer reserves the right to raise the interest rate on your credit card if you ever make a late payment or default on any debt owed to any of the companies to whom you owe money, be it a mortgage company, an auto finance company, or another credit card company. To enforce this provision, credit card companies pull their customers' credit reports on a regular basis looking for negative information that will activate the universal default provision. It doesn't matter if a late payment notation they find on a credit report is an error, or if a customer had some sort of medical emergency that resulted in paying bills late one month, the credit card company will raise the credit card interest rate on these customers by a significant amount if they find any negative information on customers' credit reports. Why the credit card companies do this is a mystery, since raising their customers' credit card interest rates to an unbelievbable 28% often drives these customers in to defaulting on the debt completely or filing bankruptcy.
Best way to fight back: Don't carry a big balance on a credit card and always pay it off each month. That way, it doesn't matter if the interest rate is 3% or 300%, by paying your balance in full each month, the credit card company doesn't get any interest income from you.
NOTE: Universal default was outlawed by the Card Act. Credit card companies cannot raise the interest rate unless the cardholder has defaulted on the debt or missed several payments.
False Marketing Campaigns -- Most consumers don't realize that the zero percent or low interest rate credit cards they see advertised on the Internet, in magazines and on the television are reserved only for those with excellent FICO credit scores that are 750 or higher. Since many Americans have FICO credit scores below 750, odds are you won't qualify for a premium credit card. And, if you do qualify, you probably don't need their low interest rate credit card anyway because you pay your balances off in full each month. The credit card companies are being very deceptive in this advertising because they know that most of the people who apply for the credit card are not going to qualify for the low interest rate. Instead, they lure you in with the offer of a great credit card and end up offering you one much less attractive with less desirable terms. This is called bait and switch. It's supposed to be against the law, but the FTC chooses not to go after the credit card industry.
Marketing credit cards to college students -- If you are one of the few people who can't seem to get a credit card or can't get one with a decent credit limit, consider enrolling in college. Your local community college will do just fine -- take a class or two, but remember, when you enroll at the college, check the box on the application that allows them to sell your personal information to any Tom, Dick or Harry who asks for it. That way, you will be besieged with credit card offers from the big credit card banks who love to give big credit limits to college students, most of whom don't even have jobs or an income any where near high enough to qualify for the credit cards with a $5,000 limit. A scary percentage of college students leave college owing one or two credit card companies a great deal of money, with no means to pay it back. Sadly, dozens of young people commit suicide each year as a result of massive credit card debt they can't pay off. The credit card companies don't care about that. They pretend to care by creating little booklets for young people that warns them how to use credit wisely, but they encourage these students to run up big debt on trips, shopping sprees and the like with zero percent introductory offers and minimum monthly payments so low it will take 500 years to pay the credit card off if you just paid the minimum. All this because they're willing to bet that the parents are going to pay the credit cards off if Junior can't.
NOTE: The Card prevents credit card companies from marketing or issuing credit cards to college students in most circumstances. Now, anyone under the age of 21 must get a co-signor (usually a parent) in order to get a credit card, unless the student can prove she has a job and supports herself without the assistance of a parent or guardian.
Ignoring Your Billing Dispute -- Every day hundreds of people open their credit card statements and find some sort of error or omission. Perhaps there is a charge they didn't make or they were credited for making only a $10.00 payment instead of the actual $100.00 they sent in. And these people phone the credit card company and are assured that the error will be fixed. But then, the next monthly statement arrives and the billing error still hasn't been corrected. A second phone call is made and the person is once again assured that the error will be corrected, but the third monthly statement arrives and the error still isn't corrected. A third phone call is made and the person is told that she has forfeited her right to have the error corrected because she did not comply with the Fair Credit Billing Act and notify the credit card company in writing of the mistake within 60 days, as this law requires. Of course, the credit card company did warn you of this since they are required by federal law to provide you this information in print along with your statement (it is usually on the back of your statement). But most people don't read that statement or know about the law and certainly don't want to take the time to write a letter.
How to fight back: Always communicate with credit card companies, your bank, your phone company, etc., in writing, particularly when you are trying to get a billing error corrected and they fail to correct the error immediately. If the matter involves protecting your legal rights in any way, send the correspondence certified mail, return receipt requested. With most creditors, federal law gives you 60 days to notify them of a billing error IN WRITING. If you don't do it within 60 days in writing, you forfeit your right to have the billing error corrected. Many credit card companies and other creditors won't tell you this on purpose, particularly if the billing error is in their favor, so that they have the legal right to "steal your money". See Resolving Billing Disputes with Creditors
Credit Card Cancellation Fee -- This is a relatively new tactic used by only a few credit card companies, but expect it to be used by many credit card issuers in the future. Imagine cancelling your credit card because you have been slapped with a bogus $39 late or over-the-limit fee, only to find out you will also be charged another $59 for closing your account! One instance of this happening made national news: Customers of Advanta became so angry over unscrupulous billing practices that hundreds of them began closing their accounts. Advanta responded by immediately adopting the policy of charging a $25 to anyone who cancelled their card to keep their revenues up.
Note: The Card Act law has resulted in credit card companies using this type of technique even more. They now charge for all sorts of things, such as not using your credit card enough, increasing fees for using your credit card overseas, etc.
Has the Card Act helped consumers overall? Yes and no. Yes, people no longer have to fear having their credit card interest raised from 7% to 28% overnight for no reason at all; however, credit card companies are finding ways around the law to keep their profits just as high as they were before the law was passed. Now, instead of mistreating just a portion of their customers, they are mistreating all of them, charging fees they never charged before, closing accounts, refusing to issue new credit, charging people a fee for not using their credit cards enough. No matter what laws are passed, the credit card industry is always going to find a way around them, including offering consumers business credit cards even when they don't operate a business. Why? Because the Card Act doesn't apply to business credit cards.
And remember, although this article is very critical of the credit card industry, credit cards are actually very important in establishing and maintaining a credit rating. If you don't have a credit card (and you should have two credit cards), you're hurting your credit score and you're likely paying significantly more than you should for all types of insurance, and on your mortgage and car loans. And besides, you need a credit card to rent a car, stay in a decent hotel, and for use in an emergency. They're convenient and save you from carrying around a lot of cash.
We aren't recommending you give up using credit cards. Continue to use credit cards, but the only way to win with them is to (1) get a credit card with no annual fee; (2) use it monthly but pay the balance in full each month; and (3) never take cash advances or use your credit card to buy things you can't afford. The credit card company doesn't get any money from you if you do these things. If you pay off your balance in full every month, it doesn't matter what interest rate they charge you, because you never have to pay it.
Credit Cards
Tactics Credit Card Issuers Use to Cheat You
