Sweeping 2009 reforms take aim at the industry's most abusive practices, including abrupt interest rate changes and late-payment fees. But credit-card companies keep coming up with new ways to charge customers.
RATE FLOORSUnder the new rules, companies will find it difficult to jack up fixed-interest rates at will. That's why issuers are moving consumers into variable-rate cards, which are tied to an interest-rate index. But borrowers may not benefit when the index drops since companies are limiting how low card rates can go. In October consumer advocate attorney Lauren Bowne saw the 5.9% promotional rate on her Wells Fargo (WFC) card switched to a variable one with a minimum rate of 19.1%. As of July, 5 of the 12 largest banks that issue cards, including Wells, had floors under rates, says Pew Charitable Trusts, a nonprofit. Wells says floors under variable rates have been standard practice for at least three years.
PICK A RATEAlmost 120 million accounts may be affected by a change that will allow issuers—when setting the variable rate on a card—to pick the highest rate in the past three months from the interest-rate index it tracks. Previously, companies used the rate on the last day of the billing cycle. The result is that borrowers pay an average interest rate that is 0.3 percentage points higher than before. The card industry could generate $720 million a year from this shift, estimates the Center for Responsible Lending, a consumer advocacy group.
LOWER FEE THRESHOLDSPolicymakers took a swipe at late charges by requiring a 21-day grace period for consumers to pay their bills. When cardholders don't make their payments by that deadline, they're likely to get smacked by bigger fees than in the past. Generally the charge goes up with the size of the balance. Five years ago issuers levied the largest fee on balances of $1,000 or higher. Now, it kicks in at around $250. Some 87% of cardholders pay the highest amount, according to the Center for Responsible Lending.
UNLIMITED FEESBorrowers that move balances from one credit card to another with a low introductory rate may pay more for the privilege. Bank of America (BAC) recently upped its fee to as much as 4% of the balance, from 3%; at JPMorgan Chase (JPM), the charge can be as high as 5%. And while companies used to cap the total amount that customers would pay for abalance transfer—at, say, $50—fewer companies are doing so anymore. Roughly 68% of balance-transfer deals in the second quarter of 2009 had no limits on fees, compared with 44% the previous year, says Mintel Comperemedia, a firm that tracks marketing trends.
INACTIVITY FEESWhile consumers try to cut back on spending, they're increasingly penalized for not pulling out their plastic. More issuers are hitting cardholders with fees for not using their cards or closing accounts that have balances. The annual charge can run as high as $36, according to the Center for Responsible Lending. In June, Fifth Third Bancorp (FITB) in Cincinnati added a $19 inactivity fee on most of its cards. "We want to encourage active use and management of the accounts," says Fifth Third spokeswoman Stephanie Honan.
With Jeff Plungis