The Credit CARD Act passed in May of this year aimed to protect consumers against deceptive and abusive credit card practices. However, credit card companies are masters at playing the game “Heads I win, tails, you lose.” In the months leading up to February 22, 2010, when some of the more important provisions of the new credit card law step in to effect, card issuers have been hard at work to comply with new rules in ways that minimize their effects. And of course, as always, where there is a team of high-paid lawyers, there’s a way.
When it comes to credit card tricks, the new kids on the block are more nimble, swift, and savvy than an urchin pickpocket. Some are old tricks with a new face, some are brand-new. However, they all have one thing in common: they are clever ways to lift your money right out of your pocket, and you will likely never know that you got tricked. Here are three of the newest credit card tricks and traps:
1. The 0% Balance Transfer Deal at 15% APR. That greatest credit card perk of all, the 0% APR balance transfer, is no more. You may think it is, because you still get balance transfer offers in the mail. However look closely, and you’ll see that that 0% balance transfer deal has morphed into a very different creature. Balance transfers offers these days are of shorter duration, typically three to four months, and for most part, they come with a balance transfer fee of 5%.
Do the math. A four-month 0% balance transfer offer with a 5% fee is essentially a loan with an annualized interest rate of 15%. A balance transfer offer with e.g. a 3.99% APR, effectively gives you an annualized interest rate of 3.99% plus 15%, or 18.99%. That is just not a deal.
2. The Old Bait-and-Switch Has New Teeth. Balance transfer offers have always been a great way for card issuers to lure in customers tempted by the prospect of seemingly free money. If everyone paid their low interest balance transfer off before the promotional rate expired, balance transfers would be a terrible business. So why are credit card companies pushing them so aggressively? Because many cardholders are unprepared when the interest free period expires, and end up paying the balance off at the standard purchase rate. That may be manageable if the purchase APR is 12.99%, but not when it’s 24.99% or higher, as it is on many cards after the recent onslaught of interest rates. Don’t get duped.
3. The Credit Back That’s Not. One credit card company recently sent out a letter raising the purchase APR for many of their cardholders to 29.99%. To soften the blow, the company offered cardholders a 10% credit back of the total interest charges on the purchase balance for each month they paid on time. On the face of it, a 10% credit back may sound like a generous cash back offer. Except it’s not. Do the math: 10% credit back on a 29.99% APR essentially just lowers the 29.99% APR by 2.99%, to 26.99%. Credit back or not, that’s still an exorbitant interest rate.
These are just a small sampling of the new tricks—for more, check back on these pages frequently as CreditCardGuide.com will continue reporting on the new, revised terms card issuers introduce in advance of the new Credit CARD Act. Each card issuer has a slightly different approach to how the new rules are implemented, and as a result, it may be harder than ever for cardholders to stay on top of the rules, particularly if you carry several different credit cards.
Ultimately, the best way to protect yourself against confusing credit card terms is to follow the three basic rules of credit card use:
- Always pay off your card in full each month.
- Don’t carry a balance.
- Never make just the 2% minimum payment; make a 100% payment.
If that sounds like three ways of saying the same thing, it’s because it is. Like the basic rule of real estate, location, location, location, the basic rule of credit card use, which will protect you from all the tricks in the world, is just this: Pay your balance off in full every month.
