Credit card companies unfair and deceptive practices

As may have happened to you, credit card companies can advertise and agree upon a rate with you, and after you purchase something or do a cash advance, they can legally rewrite the agreement. Some of the practices that have consumers screaming is increasing the minimum monthly payments, increasing the interest rate of the credit card which affects your current balance. These are some crafty benefits for the company to jack up rates and make extra money.

Unfair and deceptive practices

In a very thorough study of the credit card industry the Pew Charitable Trusts found

By rewriting agreements, and by giving themselves broad contractual rights to impose fees and rate increases automatically—practices that the Federal Reserve and other regulators have called “unfair and deceptive”—credit card issuers have rapidly expanded their businesses and billed cardholders tens of billions of dollars more per year.

The Pew study was conducted by looking at the largest 12 credit card issuers and included 400 credit cards. These credit card companies account for more than 88 percent of the outstanding credit card debt in America, according to Pew.

Here are some consumer unfriendly findings:

• 100% of credit cards can apply payments anyway they wish - and they apply it to the lowest interest rate, thereby making a huge profit on the highest interest rate balance
• 93% of credit cards can increase the rate at anytime
• 87% of credit cards can impose penalty rates, even on unpaid balances; the median penalty rate was about 28%

Credit card reform

Some of these practices will be abolished next year as enacted by the Credit Card Act of 2009. Some of the practices that will be prohibited are:

• Interest rate on a new credit card won't change during the first year after an account is opened
• Interest rate on an existing credit card balance won't change until it is paid off
• Credit card companies cannot apply payments to maximize interest

During the process of enacting the new laws, the credit card companies asked for extra time to implement them. They were given 9 months for some provisions and 15 months for others. However, after the enactment of the new laws, the credit card companies have been busy adjusting the agreements of credit card accounts, so that they can get these changes in before the new law goes into effect. Some of these changes have been so consumer unfriendly and troubling to the sponsors of the Credit Card Act, that they want to expedite the date of the new laws from February 2010 to December 2009.

As noted by Pew credit card agreements should be simple to understand, have predictable terms that are agreed to in advance, and have terms that don't change once the money is advanced.

Pew goes on to advocate for the following safe credit card standards, among others:

• Credit card holders should have to pay only the interest rate they agreed to pay
• Credit card payments should first be applied to the highest interest rate balances
• Credit card holders should have sufficient time to review and pay the bill
• Credit card fees should be transparent