Tactics Credit Card Companies Use to Cheat Their Customers
NOTE: The article that appears on this and the next page was written before federal legislation affecting the credit card industry was passed in 2010 when the Democratic Party had control of both the presidency and Congress. The Card Act restricts credit card issuers from certain activities, such as arbitrarily raising credit card interest rates, charging excessive fees for late payments and over-the-limit charges and doing everything they can to keep their customers in debt and unable to pay off their credit card bills. This article will remain published at this website because (1) the Card Act will likely be repealed the next time that Republicans have control of both houses of Congress; and (2) because credit card companies are exploiting loopholes in the Card Act of which you should be aware. For example, many credit card companies are raising interest rates across the board on every one; changing credit card interest rates from fixed to variable so that the law doesn't apply; charging annual fees on more customers; and sending consumers (who don't own businesses) applications for business credit cards because the Card Act doesn't apply to business credit cards.
The article below was published before the Card Act was enacted and is the one referenced in the book, "Debt Cures" by Kevin Trudeau. The notes in red are how provisions in the Card Act stopped the credit card issuers from using specific tactics to cheat their customers.
Although the credit card industry earns more than one trillion every year, they aren't satisfied with that, and have adopted dubious tactics to further fatten their wallets. Late and over-the-limit fees now account for more than half of their revenues, so they like to "encourage" or trick customers into paying some sort of penalty fee. And, they are now only getting away with it, but they keep raising their fees up and up -- just a few years ago a penalty fee was about $10. Now the average is $29.00. Consumer groups estimate that soon these fees will average $59.00.
Late and over-the-limit fees are not the only methods companies use to rake in trillions each year. There are also the credit insurance programs, universal default policies, and dishonest marketing campaigns. Many of the major issuers -- First USA (now Chase), JP Morgan-Chase, Capital One, Providian (now owned by Washington Mutual), and Citibank -- have been sued over allegations of unfair billing practices and accused of blatantly using tactics to cheat customers out of money. Some of these tactics are outlined below.
Not posting your payment on the day it's received -- Federal law requires credit card companies to post your payment on the date it is received. If they fail to do so, they cannot assess you late charges or added finance charges, but they do it anyway. A common tactic most credit card issuers use is to post only those payments received by 9:00 a.m. or 3:00 p.m. on a given date as being received on that date. Payments received at 9:01 a.m. are posted the next day despite the fact that all the major card issuers have payment processing centers that operate 24-hours a day, seven days a week. Doing this causes millions of customers to "pay late" and be slapped with a late fee, which accounts for billions in extra profit every year for the credit card industry.
Best way to fight back: Send in your payment at least 10 days before the due date. If you can't do that for one reason or another, arrange to make your payments electronically by signing up at your credit card issuer's website so you can quickly zap a payment to them and they can't claim that they didn't receive your mailed payment until after the due date.
NOTE: The Card Act requires credit card companies to post payments on the day they are received and bans two cycle billing. With so many people having the ability to quickly make a payment from their smartphonez or over the Internet, the credit card industry's profits from late fees have decreased.
Tricking you in to paying late -- Federal law requires that credit card issuers mail you your statement at least two weeks before the due date, so companies have to resort to other tactics to get you to pay late. Their favorite way to get you to pay late is to suddenly and without warning change your due date from, say the 25th to the 20th, so that you might pay late. If you do pay after the due date, they will slap you with a $39.00 late fee and they might raise your interest rate from 13% to 23% because you paid late. At various times, several credit card issuers have even resorted to not mailing out statements at all to encourage customers to pay late. For example, First USA, a credit card company that was eventually purchased by JP Morgan-Chase, once decided not to mail their customers a monthly statement at all, with the idea that they would rake in millions in late fees when many of their customers failed to make a payment that month, having not received a statement. When asked why they did this, First USA's reply was: "It is a courtesy that we mail monthly statements out, not a requirement." So many of their customers were enraged at this tactic, that they began closing out their First USA accounts en masse and First USA came very close to going out of business as a result (which is why the other credit card companies decided not to try this with their customers).
Best way to fight back: Always open your monthly statement immediately upon receipt and check the due date. If you pay online, don't wait until the last minute to make a payment. Make a payment at least a week before the due date.
NOTE: The Card Act requires credit card companies to mail your statement three weeks (21 days) before your monthly payment is due. The credit card issuer must send you a monthly statement unless you have opted out of receiving one because you manage your account online. They cannot move your due date without giving you adequate notice. In fact, many credit card companies now allow you to pick your own due date.
Encouraging customers to carry a big balance and then penalizing them for doing so -- If you carry a high balance on your credit card month-to-month, and never pay it off, you are telling the credit card company that you don't have the money to pay off the credit card. For them, this means that you are a cash cow and they will rake in thousands from you over your lifetime in interest income. They want to do everything they possibly can to keep you a cash cow, so they employ certain tactics to hinder your ability to ever pay off the credit card. The best way they can do this is to arbitrarily raise your interest rate from an already high 10% to an outrageous 28% using the excuse that you have become a high risk customer because you never pay off your credit card, despite the fact that you have been their customer for 20 years and never paid late or missed a single monthly payment. Once they raise the interest rate to 28%, it might take you 50 years to pay off the debt if you don't have the money to pay off the credit card. That's the way the credit card industry wants it. They don't like people who pay off their credit cards every month because they don't make much money off of them. In fact, the credit card industry refers to people who pay off their credit cards every month as "deadbeats".
NOTE: The Card Act prevents credit card companies from arbitrarily raising interest rates when the consumer has paid as agreed. Credit card companies can only raise interest rates when the cardholder doesn't pay as agreed. Unfortunately, some credit card companies have interpreted this particular provision of the Card Act as applying only to credit cards that come with a FIXED interest rate. Therefore, some credit card companies have changed their credit cards from a FIXED interest rate to a VARIABLE interest rate so that the Card Act doesn't apply, and they can keep arbitrarily raising credit card interest rates on customers they have deemed "cash cows".
Credit Insurance -- This scam is used almost universally by the big credit card companies because it is such a cash cow for them. Credit insurance is supposed to pay off your credit card balance should you ever become unemployed or ill, and all you have to do is pay X amount per month based on your balance. But, actually, if you read the terms on the credit insurance contract very carefully, you will realize that the odds of you ever getting a dime out of them are tremendously low, no matter how sick or unemployed you ever become. Sometimes credit card companies don't even bother to get you to enroll in credit insurance -- they just sign you up without your permission and start charging you for it -- and some of them have been sued for doing this. For example, Providian (now defunct) was forced to pay off one of the largest judgments ever obtained against a credit card company when the California Attorney General sued them for enrolling customers in credit insurance programs without their knowledge.