Your Credit Card and what you Don't know

If you have a credit card, (and who doesn’t) you MUST read this entire page

If you have a credit card, (and who doesn’t) you MUST read this entire page. Some of the information will blow away most consumers.  First let me say, everyone should have a credit card for emergency situations.  Used for the right purposes they can be a great tool for consumers.

 

The Source

On Sunday, December 09, 2007, I was watching C-SPAN and they were airing a Senate committee hearing regarding the credit card industry.  The three guest witnesses were the CEO’s of CapitalOne, BankofAmerica, and Discover.  The question and answer session was predominantly about how consumer rates were set and communication with consumers.  Before I proceed to the meat of this hearing, let me say that CapitalOne was generally praised for how they ran their business.

 

An UGLY STORY

One example that came up frequently was of a woman that was a BankofAmerica customer.  She had been a customer for at least four years and had never been late with her payments.  Yet her interest rate jumped from 8% to a whopping 23%.  The reason given by BofA was that she had opened a Department store credit card account.  The lady testified that she had opened that account to take advantage of a 10% discount if she opened a credit card account with that store. 

Are you FREAKING kidding me???  A four year customer that had NEVER been late with a payment has her interest rate TRIPLED because she opened a Department store credit account.

I understand that higher amounts of credit available to one person can increase risk to all creditors.  I get it.  But a tripling of her rate???

Did You Know

A few other items of interest that came out from BankofAmerica and Discover.

Did you know that if you only make the “minimum” payment for three consecutive months, the credit card companies consider you a higher risk and can increase your interest rate.  How does that make sense?  They are the ones that set the minimum payment amount.  Maybe they should also provide a “Safe” payment amount.

Did you know that if you maintain a balance of more than 25% of your approved credit limit for three months, you are considered higher risk and your rate can be increased.  Just for clarity, say your “Approved” credit limit is $10,000, if you maintain a balance of $2501.00 or higher for 3 months you could be subjected to a higher interest rate. 

Did you know that interest rate laws for credit card companies are governed by the State in which the credit card company is incorporated in and NOT by any Federal Laws.  And did you know that most credit card companies are located in states that don’t have any maximum rates.  Which means these companies can charge ANY rate they want.

A Quick RECAP

A consumer could stay within the credit limit set by the credit card company, pay the payment amount (ON TIME) set by the credit card company, and still be penalized with incredibly high interest rates.  I’ve heard of rates reaching 36% for crying out loud.

We have all heard of credit card traps.  But I had no idea the traps were this ugly or could bite this hard.  Make no mistake about, I’m a free market guy and generally believe that free and open markets will govern themselves.    But this situation is just outrageous.  There really need to be some Federal consumer protection laws regarding credit cards.

Here is a link to a listing of U.S. Senators where you can find their contact information and email addresses.

http://www.senate.gov/general/contact_information/senators_cfm.cfm

I’m not trying to start a movement or a campaign, but this really is outrageous and a short email from voters requesting some consumer protection laws on credit card companies might go along way to reigning in this outlandish behavior by the credit card companies.

My thoughts on Credit Cards:

Pay them off.  Never carry a balance except in extreme emergencies.  The best book I have ever found on debt is by Dave Ramsey.  If you are not where you would like to be financially, read the book.  Here is link to where you can purchase it on Amazon.  It will change your life.

 

Good Luck.  In life, just as in Fastpitch Softball, PLAY TO WIN!!!

 

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