December 10, 2009
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No Letting Up by Credit Card Companies, Pt.2
Pick it and hide it.Previous...
Pick-a-rate: The Center for Responsible Lending (CRL) report reveals a hidden practice of credit card companies which they call "pick-a-rate." Pick-a-rate is related to the current practice of charging the interest rate for the entire billing cycle the prevailing prime rate on the last day of the cycle. Credit card companies participating in the pick-a-rate, picks the highest prime rate within a 90 day period. Lenders have manipulated language in the terms and conditions of the card contract that gives them the green light to choose the highest rate possible. This one practice alone costs credit card holders over $720 million a year. If lenders are allowed to continue with this practice, the CRL expects it to increase to over $2.5 billion a year.Hidden Fees: Late fees have also increased. The study indicates that the top eight credit card companies have slowly inched late fees up to abusive levels. The CRL says that the marketing strategies pertaining to late fees are deceptive. Lenders have advertised that late fees are assessed in correlation to the account balance; as the balance increases, the late fee increases. Credit card companies are earning more income by gradually lowering the scale which makes lower balances subject to higher fees. Over the past five years, lenders have managed to escalate the fee on a $1,000 of $35 to $250 today. It is estimated that 90 percent of existing cardholders will fall victim to this practice.
The Credit CARD Act of 2009 will rein in some of these deceptive practices; however, it has already become apparent that lenders have been diligent in searching for new ways to get around the law. The proposed Consumer Financial Protection Agency will be given the authority to react appropriately and quickly to further unfair and deceptive practices that lenders may exploit. Congress is currently reviewing new legislation that will hold Wall Street giants and financial institutions more accountable through the establishment of the Consumer Financial Protection Agency which will have the authority to impose stiff penalties on companies that violate the law.