'It's Always Christmas Time'
for Credit Card Companies But Consumers
Can Get Trapped by Abusive Fees and Practices
November 21, 2006
Just as the holiday season gets ready to kick into high gear,
Consumers Union, publisher of Consumer Reports, is warning shoppers
about the increasing number of credit card traps that can trip
up consumers and lead to spiraling debt. To help get out the
message and mobilize support for reform, the group is releasing
"It's Always Christmas Time (For VISA)," an animated
satire that takes aim at abusive credit card fees and practices.
"You can find yourself
buried in debt if you aren't careful to avoid the credit card
gotchas," said Michelle Jun, Staff Attorney for Consumers
Union. "Too many credit cards are designed to get you in
debt and keep you there."
"It's Always Christmas
Time (For VISA)" is a lighthearted take on the unexpected
fees, interest rate hikes, and misleading contracts that are
contributing to high credit card debt in the U.S. After viewing
the animation, viewers can send an email to Congress asking lawmakers
to support credit card reforms. To view the animation, click
Consumers enjoy few protections
when it comes to credit cards and there are an increasing number
of ways they can be penalized with fees or get stuck with higher
- Universal default: Your interest
rate can skyrocket if your credit score declines because of your
behavior with other creditors even if you always pay your credit
card on time and never miss a payment. Some card issuers will
raise your rate if you inquire about a car loan or open a new
- Change of terms: Credit card
terms keep changing. Read the fine print and chances are you'll
find this disclosure: "We reserve the right to change the
terms (including the APRs) at any time for any reason."
A fixed rate is fixed until the bank gives you at least 15 days
notice that it isn't. If you want to keep your account open,
you'll pay the higher new rate on your existing balance.
- Teaser rates: That low rate
you signed up for expires suddenly and you end up paying more.
A temptingly low introductory rate can climb to 30 percent or
- Minimim payment: If you pay
the minimum payment every month, you'll end up paying a lot more
than what you charged and you could be on the hook for a very
- On time payment: Card issuers
are systematically mailing statements closer to the due date,
giving customers less turnaround time. You can be hit with a
late fee even if the payment is mailed on time. The average fee
for a late payment has more than doubled in the past decade.
- Double cycle billing: Finance
charges are usually calculated using the average daily balance.
If you alternate between paying off and carrying a balance, you'll
end up paying more interest.
- Cash advance/convenience checks:
The interest rates on these are higher than your credit card.
- Penalty interest and fees:
Late payments can raise your interest from 7 percent to 27 percent
! Rather than rejecting charges that exceed your credit card
limit, issuers today often let them go through but then charge
a hefty fee -- as high as $39.
- Fees, fees, and more fees:
As if the penalties weren't enough, you pay more fees for paying
by phone or charging abroad. You may have to pay a fee to receive
what used to be free year- end summary statements.
- Balance transfer switcheroo:
Transferring a balance from an account with a high APR to another
one with a lower interest rate could come at a high cost. Any
payments you make are typically applied first to the lowest rate
balance. So while the credit card company uses your payment to
quickly pay off that 0 percent transfer balance, you are piling
up interest on purchases, at say, 18 percent. Multiple balance
transfers will hurt your credit score.
A recent report by the General
Accounting Office (GAO) found that there are many types of credit
card fees, and that they have risen much faster than inflation.
It also finds that current fee disclosures are difficult to understand,
bury important information, and often fail to convey to cardholders
when late fees would be charged and what actions could result
in penalty interest rates. The report found that 35 percent of
active credit cardholders of the six largest issuers were charged
at least one penalty fee in 2005, averaging $33.64.
Consumers Union, publisher
of Consumer Reports, is urging Congress to pass reforms to rein
in abusive credit card practices, including banning universal
default, stopping card issuers from applying punitive interest
rates to the entire balance, and requiring better disclosure
so consumers understand the true cost of making only the minimum
payment. For a more complete list of credit card reforms supported
by Consumers Union and other consumer groups, click
"Getting trapped in the
jaws of credit card debt has become alarmingly easy," said
Jun. "Congress should not let another year go by without
acting to prohibit abusive credit card fees and practices."
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