Consumer Action Releases 2007 Credit Card Survey

Consumer Action (CA) today releases its 2007 Credit Card Survey, which reveals new details about industry practices, including:

• Universal default provisions, where interest rate hikes are based on the way customers handle other credit accounts, may now lurk in the meaningless “any time, any reason” change of terms disclosures common in cardholder agreements.
• Late payments result in higher penalty rates with 85% issuers—an increase from our 2005 finding of 79%. CA found penalty interest rates as high as 32.24%—on average they are 24.51%.
• If you take a $100 cash advance for only one month, it can cost you $12.02 in fees and interest. Annualized, that’s about 144% interest.
• Nine of the 20 banks surveyed employ a practice known as “residual” or “trailing” interest, a deceptive method of calculating credit card interest up until the day full payment is received.
• Of the 83 cards surveyed, 89% have higher APRs for cash advances—a proportion that has increased 14% since 2005.
• More than half the cards surveyed (45 out of 83) had a 0% balance transfer offer, a significant increase since 2005.
• Three-quarters of surveyed banks charge a percentage-based fee when cardholders transfer a balance. Of 58 cards with balance transfer promotions for new cardholders, less than half (25) will waive the balance transfer fee for the offer. Among banks with balance transfer fees, six have no caps on fees.
• Some issuers charge cardholders hefty fees to make on-time payments by phone. Thirteen out of 20 surveyed banks charged a fee for payments made by phone. The fees ranged from $3 at Amalgamated Bank of Chicago) to $15 (HSBC), although Citi and Washington Mutual charge only a nickel less at $14.95.
• 75% of surveyed issuers had no minimum age requirement for authorized users. Typically, authorized users are relatives or friends of the primary cardholder, who remains responsible for paying the account.

In the past year, many credit card companies have said they do not impose “universal default” rate hikes based on the way customers handle other credit accounts. Now it appears that credit card companies may be hiding universal default, one of their most insidious practices, in a different section of the credit card contract. Cardholders will find that most major issuers reserve the right to impose new terms at any time, in change-in-terms section of their cardholder agreement.

CA found that nine of the top 10 issuers could change the rules of your contract for any reason. To view the change in terms language for these issuers, see “CA News” at www.consumer-action.org. Click on “2007 Credit Card Survey.”

“Very few card companies will admit to the universally decried practice of universal default,” said Linda Sherry, director of National Priorities at Consumer Action, “But it’s compelling that nearly all of the top 10 issuers reserve the right to change the terms of your cardholder agreement at any time for any reason, including in many cases, explicit references to credit information.”

The 2007 Credit Card Survey was conducted between Oct. 9, 2006 and March 2, 2007. Consumer Action examined 83 cards from 20 banks, including the top 10 U.S. credit card issuers. Interest rates ranged from 7.9% (Bank of America, Capital One) to 25.24% (Metropolitan National Bank). The average purchase rate of 14.53% is up about 2% points since our 2005 survey, due to a rise in the prime rate from 6% to 8.25%.

This year, the 15 fixed rate cards average 11.34%—almost flat since the 2005 finding of 11.15%—and the 69 variable rate cards averaged 15.25%. In 2005 the average variable interest rate was 12.96%, which corresponds to the two-year, 2.25 point increase in the Prime Rate.

CA’s new survey, published in the Spring 2007 issue of the group’s newsletter, Consumer Action News, includes many helpful tips for consumers:

• A list of the 10 surveyed cards with the lowest interest rates.
• A chart with some of the more robust rewards cards found in this year’s survey.
• A rundown on how the top 10 credit card issuers calculate your monthly minimum payment.
• News on bills that have been introduced in Congress in order to protect cardholders from abusive industry practices.
• Balance transfer tips.
• Information on all the ways paying late can hurt you.
• Banks that employ two-cycle billing.
• Two cards that do not require binding mandatory arbitration to settle disputes with the issuer outside a court of law.
• Why some banks will reduce your credit limit.
• How to get your rate reduced after you have been hit with a higher penalty (default) rate because you missed a payment.