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.
The practices of credit card companies continue to draw lawmakers' attention.
Sen. Chuck Schumer, D-N.Y., earlier this week announced he was supporting legislation that would force the credit card industry to comply with the new laws starting in December, two months ahead of schedule.
Sen. Chris Dodd, D-Conn., meanwhile, has proposed legislation imposing an across-the-board rate freeze on credit card companies.
Scott Talbott, senior vice president for government affairs at the Financial Services Roundtable, a banking, credit card and securities industry lobbying group, defended the industry moving to, in some cases, increased interest rates and/or higher fees by pointing out the realities card issuers are facing on two fronts.
"Rates and fees are in response to increased risk presented by borrowers and by economic conditions in general," Talbott said. "We are talking about the riskiest form of lending. Bottom line: People are free to shop around."
Outrage over credit card industry practices, and in particular BofA practices, literally reached critical mass earlier this autumn when a Red Bluff, Calif., woman named Anne Minch posted a video on YouTube venting her rage and disgust over BofA's decision to hike her rate from around 13 percent to 30 percent.
Speaking forcefully into the camera and aiming her comments at bank honchos, Minch vowed to boycott her payments in protest. The video went viral. Eventually, she got results: BofA agreed to take the rate back down to 13 percent.
Betty Riess, a BofA spokeswoman, explained that while she could not disclose any customers' specific account information, she could confirm that the bank reached out to Minch, and that after getting some additional information regarding her situation the parties "reached a mutually agreeable resolution."
Riess said she could not comment on the Howards' situation, but she said the bank takes a fair and responsible approach to lending, adding that "when we do provide credit to students, we have a strong educational component and provide information about fees and terms up front."
BofA does appear to be trying to offset growing negative perception. Bank executive John Collingwood, BofA's director of federal government relations, earlier this month fired off a letter vowing cooperation to House Financial Services Committee chairman Rep. Barney Frank.
Collingwood's letter, which BofA has made public, stated: "In light of the concerns expressed to us by our customers, Bank of America will not implement any change in terms (risk or economic based) rate re-pricing of consumer credit card accounts between now and the effective date of the CARD Act. We believe that this is responsive to the concerns we have heard and is consistent with other consumer oriented policy changes we have made recently, like giving customers much more control over the risk of incurring overdraft fees and substantially limiting the application of those fees."
John Ulzheimer, president of consumer education for Credit.com, a San Francisco-based provider of credit card data, says the Pew study confirms what his own research has shown. The Web site's surveys of credit card users over the past three months revealed that 45 percent of respondents indicated that card companies had either raised rates, imposed higher fees, increased minimum payment, reduced credit lines or shaved reward programs, up from 33 percent in June.
Apart from shooting an outrage video and hoping it goes viral, how can consumers most effectively fight back against sneaky credit card companies, whether before the new laws go into effect or after?
"There are thousands of smaller providers and credit unions who issue cards and who do not, generally speaking, engage in deception or unfair practices," Ulzheimer said. "The big banks are not the only game in town. People need to shop around."
The Pew study concurred: Credit unions offered significantly lower advertised rates compared to bank credit cards, with penalty fees that were half the cost of comparable bank fees and fewer dangers associated with "unfair or deceptive" practices, researchers found.
And, of course the best way to avoid hidden fees, Ulzheimer added: "Read the fine print."