Tactics Credit Card Companies Use to Get You to Pay More
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, dishonest marketing campaigns and other stupid card tricks. Many of the major issuers -- First USA (now Chase), Chase, Capital One, Providian (now owned by Washington Mutual), 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. Still, a common tactic most card issuers use is to post only those payments received by 9:00 a.m. or 3:00 p.m. on a given 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. 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. It is interesting to note that almost all of the major credit card banks used to allow customers to quickly zap a payment to them via Paypal.com free of charge. Of course, this must have put a big dent in their late fee revenue so some of them stopped allowing this (Providian and First USA to name two).
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. You know that your credit card payment is due on the 25th of the month, or do you? Your issuer might suddenly change it to the 20th of each month to try and get you to mail it in late. If it's received late, they will slap you with a $39.00 late fee. If it's late two or more times, they can legally increase your interest rate dramatically, to as much as 29%. At various times, several credit card issuers have even resorted to not mailing out statements at all to encourage customers to pay late under the theory that "it is a courtesy that we mail statements out, not a requirement." [First USA actually used that as an excuse once and lost many customers as a result.]. Best way to fight back: Always open your monthly statement immediately upon receipt and check the due date. Don't be surprised if it has suddenly moved up five days and you received your statement "late". You might have to immediately write a check and get it in the mail that day to allow at least seven days for it to get to them before the due date. You don't want it to arrive at 9:01 on the due date do you? If it does, you will be assessed a late fee.
Penalizing you for carrying a big balance -- If you carry a high balance on your credit card month-to-month, don't be surprised if you one day notice a small paragraph on your monthly statement that informs you your interest rate is going to increase from 7% to 28% next month. What the credit card company doesn't tell you when you sign up for the card with the low interest rate is that they almost always raise the interest rate dramatically on people who never pay down a high balance on the credit card or carry big balances with other credit card companies. It doesn't matter to them that you have always paid your bills on time and are never late. You can be a customer of theirs for 20 years and never be late or miss a single payment, but one day they will decide that you are no longer a good customer and raise your rate to 28%. [Citibank is notorious for doing this. Every time I see one of their ads in a magazine or TV about how much they love and respect their customers, I want to throw up.]
Credit Insurance -- This scam is used almost universally by the big credit card companies because it is such a cash cow. Every single consumer group and financial counselor has nothing good to say about this type of insurance and all recommend that you don't sign up for it. You don't need this insurance and, even if you tried to take advantage of it, you probably couldn't. This is one of the greatest scams the credit card industry ever invented. For X amount each month, they promise to pay off your balance if you become unemployed or ill. But, actually, if you read the terms very carefully, you will realize that the odds of you ever getting a dime out of them are tremendously high. Sometimes credit card companies don't even bother to get you to enroll in this program -- they just sign you up without your permission and start charging you for it -- and some of them get sued for it. Credit card companies usually are forced to pay large judgments for this type of scam. In particular, Providian was forced to pay the largest judgment ever when it enrolled customers in credit insurance programs without their knowledge. [More than 20 people sent us emails telling us that First USA contacted them in the summer of 2004 as many as ten times a day trying to sell them credit insurance and refused to stop calling. Two people claimed that they had to have their telephone numbers changed because First USA told them it would take three months to take their telephone numbers off of their telemarketing list.]
Universal default -- When you signed up for your credit card, there was a provision in the card agreement that informed you in legalese that, if you missed or were late with a single payment to any other creditor, be it another credit card company, your mortgage or auto loan lender, or any type of payment whatsoever, they reserved the right to raise your interest rate to 28%. It doesn't matter if the late payment notation is an error or evidence that the person is struggling with debt, they will raise your rate. It doesn't make any sense to do this, particularly to someone who is struggling with debt, because it often drives them into default or bankruptcy, but the credit card industry is so greedy and dishonest and amoral that they simply don't care. Best way to fight back: Don't carry a big balance on a credit card and always pay it off each month. That way, it doesn't matter if the interest rate is 3% or 300%.
