Credit Card Practices Bilk Cardholders Waiting for New Rules

We've been hearing for months about credit card reform slowly making its way to us. As cardholders wait for new rules to protect them from systematically unfair and deceptive practices, card issuers scramble to jack interest rates and fees before new rules go into effect. A study by the Pew Charitable Trusts finds that as of July, 2009, 100% of credit cards from the nations 12 largest banks were using "unfair or deceptive practices" under Federal Reserve guidelines, and that none would meet the requirements which will take effect next year.

A few other highlights from the study:

• The percentage of bank card issuers raising interest rates by unilaterally changing the cardholder agreement went from 93% last December to 97.3% as of July.
• 90% of bank issued credit cards imposed penalty interest rates on outstanding balances as a result of late payments or overlimit transactions. A vast majority of these had "hair trigger" penalty interest rates (meaning a single late penalty could cause you to owe penalty interest on your entire balance).
• The median penalty interest rate was 28.99%, with 90% of the penalty rates continuing indefinitely. That's right, with most bank issued cards, one or two late payments could mean around 30% interest on your entire balance from the past and on your future balance even if you resume timely payments.
• 95% of bank issued credit cards allowed the issuer to apply payments to customer accounts in a manner harmful to cardholders. (The other 5% of bank card issuers refused to disclose their policy.)

Many might be asking: but what about all that credit card reform we heard about?

Well, the CARD Act (Credit Card Accountability, Responsibility, and Disclosure Act of 2009) was passed by Congress and signed by the president, but the majority of new rules within it won't go into effect until February of 2010 or later. Until then, it looks like credit card issuers (particularly banks) are going for the throat.

The silver lining? Cards from credit unions proved less prone to unfair or deceptive practices and did a much better job complying with the changes that are coming. They too have late fees, overlimit fees and penalty interest rates, but these costs are generally lower on the credit union cards.

What can you do besides watch your card company like a hawk? Go to Consumer Reports' website to tell your Congressperson to pass legislation pushing up the date for the new credit card rules to December 1, 2009.

• Still Waiting: "Unfair orDeceptive" Credit Card Practices Continue as Americans Wait for New Reforms to Take Effect (full Pew study)
• Are There Loopholes in the Credit Card Act? (Wall Street Journal)
• First Part of New Credit Card Laws Take Effect (FindLaw's Common Law)
• Best ways to pay down credit card debt (Consumer Reports)
• Credit Card Debt Relief (provided by Law Office of Thomas P. Hogan, Attorney At Law)
• Bankruptcy: What Debts are not Discharged? (provided by John Turner Attorney At Law)