Alison Howard, a single mom from Atlanta, sent her only son Bryan off to college last year for what she hoped would be a lifelong education. One lasting lesson is now burned into his brain: Beware of banks bearing special credit card offers.
The University of Albany, Ga., student, failing to fully familiarize himself with all the many lines of fine print in the terms of the arrangement, unwittingly racked up hundreds of dollars in penalty fees in just a few months.
In an effort to protect consumers like Bryan Howard from what the Federal Reserve called "unfair or deceptive" practices by banks issuing credit cards, Congress earlier this year passed the Credit CARD Act of 2009.
But such unfair or deceptive practices haven't abated in the lag time between when the law was passed and when it goes into full effect in February -- they are actually on the rise, according to a report released today by the Pew Charitable Trusts.
A full 100 percent of the credit cards offered online by the 12 leading bank card issuers continue to include practices that will be soon be outlawed, once the legislation passed in May takes effect next year, according to a new report by the Pew Health Group's Safe Credit Cards Project.
Pew's findings come as little surprise to Alison and Bryan Howard.
An administrative specialist at the CDC, Howard encouraged her son to open a Bank of America account that included a credit card, debit card and a money market account.
Soon, monthly service fees on the accounts led to a negative balance, then overdraft fees that the 20-year-old student never knew existed in the first place. These penalty fees piled up every time he so much as charged a can of soda.
In the end, penalty fees wound up totaling around $400 in just a few months, even though he had been making more than his minimum monthly payments, and on time no less.
"I honestly despise BofA for the way they treated my son," Howard said. "They didn't need a bailout. They get one every day from their customers."
The report by the Pew Health Group's Safe Credit Cards Project also found that credit card interest rates went up by an average of 20 percent in the first six months of 2009, even as banks' cost of lending declined
"Some of the most harmful practices have actually grown more widespread," said Shelley Hearne, who helped oversee the research project. "Not one of the bank cards reviewed would meet the legal requirements outlined in the Credit CARD Act."
The Pew report examined some 400 consumer credit cards. Some key findings:
99.7 percent of bank card terms allowed issuers to increase interest rates on outstanding balances -- a jump from 93 percent in December.
95 percent of bank card terms permitted issuers to apply payments in a way (allocating payments toward the lowest interest balances and not the highest) the Federal Reserve found likely to cause substantial financial injury to consumers.
90 percent of bank cards had penalty rate hikes, with the vast majority imposed by "hair triggers" of one or two late payments in a year.
"The Federal Reserve must ensure that the rules it is developing will prevent unreasonable or disproportionate penalties, including penalty rate increases, which our data show remain far too common," said Nick Bourke, manager of Pew's Safe Credit Cards Project.