At the end of last month, most of the new rules from the Credit CARD Act went into effect. While there are some restrictions on some credit card issuer practices, the bottom line is that these are creative business people determined to make a profit. Many credit card issuers have been sending out amendments to agreements and other notices. I hope you have been reading the fine print in communications from your credit card issuers, because here 5 ways that they can still nail you:
1. Variable rate floor
Credit card issuers are starting to institute what are called “rate floors.” This is a part of the agreement that says that your interest rate can’t go below a certain point. This protects credit card issuers from having to drop variable rates to something lower as market-based rates fall. Institute a floor, and no matter how low the market rate fall, your credit card interest rate will not follow once it hits the floor. Paying attention to this fine print is especially important if you are applying for a new card.
2. New rate setting process
In the past, credit card issues have set variable rates periodically, usually on the last day of each billing cycle, or on a certain day each quarter. Now, though, card issuers are looking into the idea of picking their own rate. Some agreements disclose that issuers can choose the highest rate offered anytime in the last 90 days. This means that your variable rate will always be as high as it can be, based on market rates.
3. Inactivity fees
Since the financial crisis and tightening in the credit markets, we’ve seen cardholders’ accounts closed due to inactivity. Now, though, some credit card issuers are realizing that they have a great opportunity here. The CARD Act does not tell issuers what fees they can and cannot charge, so some issuers are instituting inactivity fees, to be charged when you aren’t buying things with your credit card. The annual fee is making a comeback as well, and some card issuers are toying with the idea of adding statement fees.
4. Higher existing fees
To boost revenue, many credit card issuers are raising their fees for services we’re already used to. Check for notices (with your statement or separate) for higher fees on cash advances and balance transfers. There are no ceilings on these fees, and issuers can charge what they want. The same is true of over the limit fees. You have to agree to allow over the limit charges on your card, so watch the fine print for the wording of how that works. And realize that even if you don’t opt in for those charges, if you are close to your limit, a late payment fee or cash advance fee could put you over the top, triggering the higher over the limit fee.
5. International transaction fees on your credit card purchases
These are getting a boost as well. Additionally, credit card issuers are expanding the definition of “international”. It used to be that many card issuers would not charge international transaction fees if everything was done in U.S. dollars — even if the company was in another country. That practice is disappearing in some cases, though. Some issuers are now charging for any transaction that takes place across borders, even if the same currency is used by both parties. Of course, if a different currency is used, that is the cue for an addition exchange fee.
As usual, your best protection against many of the fees is to pay off your balance each month, making sure to make small purchases on each card to keep them active. That way, you will be less susceptible to fees. For other changes, make sure you read the fine print, so you know exactly which cards are going to cost you more for simple transactions that you normally make.