-- Surviving Tough Times --
Can My Credit Card Company Do That To Me?
by Bill HardekopfAnswers to some of the more popular questions that trouble today's cardholders
One of the most common complaints among credit cardholders is that changes have suddenly been made in the rates, fees or credit limits of an account. The customer usually reacts with the question "Can they do that?" Despite the difficult
personal hardships or the devastating effects these changes can cause on a ousehold, the answer is almost always "Yes, they can."
The ability for an issuer to make changes in your credit card account starts with the terms and conditions, the complicated fine print that is included in credit card offers that explains the rights of the issuer. Issuers can make changes to these terms at any time as long as they notify cardholders, usually with a mailed notice or an insert in the monthly bill. However, it is often easy for cardholders to miss important terms in the application or overlook the notifications, making it easy for customers to be caught by surprise by changes to their account.
The terms and conditions of credit cards are tedious to read but they tell you almost everything that the issuer can do to your account. At the time you apply for a card, the basic information you see makes sense and sounds exciting. However,
when you look closer at the fine print found in the terms and conditions, you can see how many changes can be made to your account and how hefty the fees may be for certain actions.
Here are some "can they do that" questions and the answers:
* Can they change my fixed rate to a variable rate?Yes. The issuer can switch the rate from a fixed rate to a variable rate even if the original offer said the rate was fixed for the life of the balance.
Some issuers recently angered their cardholders by switching cards from fixed to variable rates. Some cardholders signed up for a card based on the fixed rate for the life of the balance. They discovered that this was conditional. Issuers
probably changed this because the Credit CARD Act requires that interest rates on new accounts must remain fixed for a year unless the cardholder does not pay the bill. Issuers don't want to be locked into that fixed rate, so they switched
the cards from fixed to variable to give themselves more freedom in raising rates, even after the regulations go into effect.
* Can they change my rewards program?Yes. Some issuers are changing the rewards structure for some cards to cut costs. American Express reduced the amount of cash you can earn from 1.5% to 1.25% on most purchases. Chase created Ultimate Rewards with a less generous rewards program
to replace its popular Chase Freedom card. Capital One has notified some cardholders of a new points program that starts in November, which has slightly lower rewards on a number of tiers.
* Can they close my account?Yes. Issuers are closing accounts as a way to reduce their own lending risk. Unlike rate increases, issuers do not have to notify you before they close your account. Some issuers state in their terms and conditions that they will not be responsible for the consequences from closing your account.
Some issuers are closing accounts due to inactivity. Right now, credit lines are very important, even if you aren't using them. They can be good for your credit score. To show account activity, use your card once a month on a small purchase and
then pay off the balance completely at the end of each month.
* Can they increase my minimum payment?Yes. Chase recently increased the minimum payment from 2% to 5% for many of its cardholders. In the long run, this is good for cardholders because the more they pay toward their balance, the faster they pay off the card and the less they pay in interest. However, this is bad timing and a financial blow for many households who are struggling to pay the bills right now. If the increased minimum fee pushes you over the financial cliff, contact your issuer to work out a payment plan.
* Can they cut my credit limit?Yes. A recent FICO study says that credit card issuers cut limits for an estimated 58 million cardholders for the twelve months ended in April 2009. Issuers can also increase or cancel your credit line or the balance transfer or cash advance portion of your credit line.
* Can they increase fees any higher?Yes. Issuers will probably continue finding ways to increase rates and fees. In June, Bank of America recently increased the balance transfer fee from 3% to 4%. Chase followed in August with an increase in the balance transfer fee to 5%.
* Can they increase my rate because I defaulted on another credit card with another issuer?No. This is Universal Default and it is banned under the Credit CARD Act. Issuers must only focus on your payment record with their particular card.
* Can they force me to accept a higher interest rate?Not any more. The CARD Act now requires issuers to give a 45- day notice before a rate increase. This gives cardholders time to opt out, and close the account at the current rate. Keep in mind that this forfeits rewards and points so use those before
you close the account.
* Can I do anything about significant changes to my account, especially the interest rate increases or decreases to my credit limit?Unfortunately, unless you have a great credit score, there is not a lot you can do. Several years ago, competition for cardholders was so active that a cardholder had to simply mention a competing offer to negotiate a lower rate. Today, issuers are much more selective and focused on minimizing their own risk. Only the cardholders with excellent credit scores still have power to get a better deal by threatening to
switch to another credit card. Today, if your credit is not excellent, you may be stuck with the changes made to your account. Other issuers are no longer lining up with lower rates and generous terms for balance transfers just to get their card into your wallet or purse.
Cardholders are angry about these changes and are getting very little relief from the issuers. Right now, issuers are focused on the bottom line, cleaning up their loans and saving their business. They are less sensitive to the concerns of their
cardholders than they were a couple years ago. The only way to have control of your credit card is to pay off your balance every month. If you don't carry a balance, a change in the interest rate doesn't have much of an impact on you.
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Bill Hardekopf is the CEO of
LowCards.com. The site simplifies the confusion of shopping for credit cards. It is a free, independent website that helps consumers easily compare credit cards in a variety of categories such as lowest rates, rewards, rebates, balance transfers and lowest introductory rates. It also gives an unbiased ranking and review for each card.
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Note from Lucy: With all that is going on the the banking industry, I thought you would like this article about credit cards and what the banks are allowed to do. Enjoy your week everyone.
