It can't be fun to be a credit card company right now. Not when cardholder-in-chief Obama calls you on the carpet and says, "The days of anytime, any-reason rate hikes and late fee traps have to end." Not when the House of Representatives passes a bill called the Credit Cardholders Bill of Rights, that would end billing practices consumers have complained about for years. Not when an even tougher bill makes it out of a Senate committee and heads for the full Senate.
And the funny thing is that the administration and Congress are piling on, even though the Federal Reserve already passed new rules in December that would end most of the practices everybody is all riled up about. The thing is, the Fed's new rules don't go into effect until July of next year and Americans are hurting now. Congress was trying to act more quickly than that, but the never-nimble body probably won't be able to pull it off. The House bill would take effect within a year of passage or at the same time as the Fed's new rules, whichever comes first. If the Senate version passes, then House and Senate will still have to hammer out major differences between the two.
Anyway, regardless who gets to take the credit -- the Fed, the House, the Senate or the Administration — credit card reform is now inevitable. One way or another it's going to happen. So you would think card companies would see the fine print on the wall and just start making changes themselves to get it over with. If you think that, you'd be mostly wrong.
A Web site called BillShink.com tracks credit card terms and has been analyzing how many credit card companies are already in compliance with the coming rules. The Web site says many banks are complying with the less onerous rules. They're beginning to give consumers more notice before they increase their interest rate. And they're allowing customers to set a hard limit, rather than letting them go over their limit then charging them a penalty fee for doing so.
But the areas that make them a lot of money? BillShrink says they're mostly ignoring those for now, almost as if they want to run out the door with every last bit of cash before it slams shut. Some examples:
Any Time, Any Reason Rate Increases
Many banks reserve the right to raise your card's interest rate at any time. They can charge you the new, higher rate not only on new charges but on your existing debt as well. BillShrink says no credit card companies have ended this practice yet. Not one.
Lowest Interest First
Often the bank charges you multiple interest rates for different portions of your debt, maybe because you had a low introductory rate at first and then it went up. Most banks apply your payments to the lowest interest items first so that the high interest part of your debt lasts longer and they make more money off you. No credit card companies have stopped doing this yet, according to BillShrink.
This is when you fall behind on one bill, so all your other credit card companies use that as an excuse to raise your rates, even if your payment history with them is perfect. BillShrink says five major card issuers have now ceased this practice: American Express, Capital One, Citi, Discover and Wells Fargo, but that leaves dozens that still do it.
Due Date Trap
To earn late fees, some credit card companies give people only a couple of weeks to pay their bill. The really sneaky ones actually move the due dates around, or say the bill is due in the morning rather than the end of that business day. The new rules will require banks to give people at least three weeks to pay their bill and will mandate that a payment is on time as long as it arrives by 5 p.m. A handful of banks are already complying.
Double Cycle Billing
This is when credit card companies charge interest on a purchase over two months instead of one. Say you made a $100 purchase, but you only paid $90 of it off. Instead of being charged interest on the $10 remaining, the card company takes the opportunity to charge interest on the entire $100, because a portion of it was not paid in full. A few banks--some big, some small-- have stopped double cycle billing. They are: Bank of America, Capital One, Citi, First National Bank of Omaha , First Premier Bank, Pulaski Bank, U.S. Bank and Wells Fargo.